Each year, the world’s population grows. Not only are there more people than ever, but average life expectancy has also improved. This will continue to drive demand for healthcare related services and products. One of the most critical pieces is the pharmaceutical industry.
Novartis is one company that is leading the way. In addition to being one of the largest pharmaceutical companies in the world, they are taking a non-traditional approach. The pharmaceutical industry is heavily scrutinized by the public and government agencies, rightfully so. Novartis has chosen to focus on building trust with the public through industry-leading ethical standards and working toward making the world a better place.
Important stats to know about Novartis:
- Controls 5.4% of the global pharmaceutical market share
- Generates $48.7 billion in revenue (2020)
- Headquartered in Basel, Switzerland
- Employs over 109,000 employees around the world
- Products sold in 155 countries reaching 769 million patients
- Ranked #167 in the Global 500
- The company is publicly traded (NVS or NOVN.VX) and has a market value of $227 billion
The History of Novartis
Novartis was officially founded in March of 1996 with the merger of two established firms in the pharmaceutical and chemical industries. While the company itself is relatively young, its history can be traced back over 250 years. Novartis owes its success to three separate entities that formed the foundation for the company —Geigy, Ciba, and Kern & Sandoz.
Early History
Giegy was founded in Basel, Switzerland in 1758 by Johann Rudolf Geigy, a chemist and druggist. His son and grandson eventually took over the business and expanded into dyes for the textile industry. The company went public in 1901 and changed its name to J.R. Geigy SA in 1914. By the 1940s, the company had expanded beyond textile dyes and into agricultural chemicals and pharmaceuticals.
Alexander Clavel started Ciba in 1859 with the production of synthetic dyes. By 1873, Clavel sold the company and it began expanding rapidly under the new ownership. In the early 1900s, the company began producing pharmaceuticals. Its first two products were Vioform (an antiseptic) and Salen (an antirheumatic agent). Around the same time, Ciba became the largest chemical company in Switzerland.
Kern & Sandoz (later known as Sandoz AG), formed by Alfred Kern and Edouardo Sandoz in 1886, also began as a synthetic dye manufacturer. In 1917, the company decided to open its own pharmaceutical department and began research on various medications. By the 1930s, the company had included more chemical compounds to be used as cleaning agents, agricultural chemicals, and other household products.
Controlling the Market Through Partnership
While these three companies operated as independent entities for decades, they chose to combine their power to compete with foreign firms. Geigy, Ciba, and Sandoz collectively controlled the entire chemical industry in Switzerland, and in 1918, the companies decided to create an agreement to form a cartel. The cartel was named the “Basel Syndicate” or Basel IG. Its largest competitor was a similar German cartel, IG Farben.
Over the years, Basel IG worked to strategically secure manufacturing facilities across Europe and the United States. It eventually joined together with IG Farben and chemical companies from France and the United Kingdom to form the Quadrapartite Cartel. The companies dominated the European market and benefited from joint manufacturing. When World War II erupted, the cartel fell apart. The Basel IG continued operations and survived the war but eventually dissolved in 1951 to avoid violation of US antitrust laws.
Accelerating Growth Through Mergers
In 1970, Geigy and Ciba merged to form a new company called Ciba-Geigy. By the middle of the 1990s, mergers and acquisitions were running rampant through the pharmaceutical industry. New pharmaceutical giants were emerging each year. To remain competitive against other growing firms, Ciba-Geigy chose to separate their pharmaceutical and agrochemical business and merge with Sandoz AG to form Novartis. With the merger, Sandoz AG closed its doors completely while the remaining product lines of Ciba-Geigy continued operation under the name Ciba Specialty Chemicals.
Today, Novartis is a multinational company serving hundreds of millions of people across 155 different countries. The company is traded on both the SIX Swiss Exchange and the New York Stock Exchange (NYSE) under the ticker symbols NOVN.VX and NVS, respectively. The majority of shareholders live in Switzerland, the United States, and the United Kingdom.
Key Takeaways
- Unlike many other large corporations, Novartis was created by strategically merging divisions from two well established companies in the pharmaceutical space — Ciba-Geigy and Sandoz.
- The companies that would eventually go on to create Novartis formed a special cartel to help compete against foreign firms. This reduced competition within Switzerland and allowed the companies to expand together with little to no domestic competition.
- Novartis was created to focus on the pharmaceutical and agrochemical industries. This focus on a smaller range of products helped the company grow its market share rapidly to become one of the top pharmaceutical companies in the world.
Key Mergers, Acquisitions, and Partnerships
Over the years, Novartis has changed its organizational structure through various mergers, acquisitions, and special partnerships with other companies. Some of these changes were designed to give Novartis access to new technology. Others were to strengthen the company's position in the industry by removing unfavorable business lines or creating new relationships that could be leveraged for growth. Over its existence, Novartis has acquired about 30 companies, half of which have been acquired in the last five years.
Generic Prescription Drugs
When Novartis was created in 1996, the company Sandoz was shut down entirely. A few years later, the Sandoz name was revived to serve as the brand under which Novartis would sell their generic drug products. Currently, the Sandoz division of Novartis is the global leader in biosimilars, generic antibiotics, and generic oncology medications. By 2019, Sandoz’s products reached over 500 million patients worldwide. The company acknowledges that there are approximately two billion people on Earth who still can’t afford the medication they need. The company is committed to and is actively working to solve these challenges.
Divestment of the Agrochemical Business
In 2000, Novartis worked with AstraZeneca to merge their agrochemical businesses to form a new entity called Syngenta AG. This would allow Novartis to increase its focus and double down on the pharmaceutical industry. The company was purchased in 2015 by the China National Chemical Corporation (ChemChina) and continues to be one of the largest agricultural science companies in the world.
Partnership with Roche
Starting in 2001, Novartis began purchasing shares in Roche, another Swiss pharmaceutical giant. What originally started as a 20% stake has grown to 33.3%. While Novartis does not have control of the company, they have leveraged the relationship through special deals. In 2005, Novartis created a licensing agreement with Genentech, a subsidiary of Roche, for Lucentis and Xolair.
In April of 2021, Novartis signed an agreement with Roche to transfer manufacturing information necessary to produce Actemra/RoActemra, a treatment for rheumatoid arthritis. The drug also shows promise to treat some symptoms of the COVID-19 virus.
Alcon Eye Care
In 2011, Novartis expanded into the eye care industry when they purchased a controlling stake in Alcon from the food and beverage conglomerate, Nestle. In 2019, the company moved to allow Alcon to spin off from Novartis so they could function as a standalone company. This decision reinforced the strategic vision for Novartis to focus primarily on pharmaceutical products and treatment for diseases.
Expansion into Gene Therapies
Gene therapy is a relatively new area of study in medical science and is used to modify genetic code in order to treat neurological genetic diseases and disorders. In 1990, the first gene therapy clinical research was approved by the National Institute of Health (NIH). Novartis quickly realized the potential of this growing field. This led to the acquisition of its gene therapy business when it purchased the biotech company AveXis in 2020 for $8.7 billion. Shortly after, the company changed the division's name to Novartis Gene Therapies.
Antibiotic Drugs
In February of 2021, the Sandoz division of Novartis signed an agreement with GlaxoSmithKline’s line of antibiotics. Sandoz was already leading the antibiotic space, but this acquisition further solidified that position as the global leader.
Key Takeaways
- In 2000, the company decided to exit from the agrochemical business by forming a new company, Syngenta AG, in partnership with AstraZeneca. This would allow Novartis to work entirely in pharmaceuticals and disease treatment.
- Novartis attempted to expand its medical care offerings into eye care with the acquisition of Alcon. Within less than a decade, Novartis allowed Alcon to form a spin-off company to shift focus back to pharmaceuticals.
- Novartis recently began working with alternative forms of treating disease such as gene therapy with the acquisition of an established gene therapy firm.
Innovative Pharmaceutical Products and Popular Brands
Novartis owes much of its success to the innovative drugs and pharmaceutical products that it has developed or acquired over its history. Many of these products have generated life-changing results for millions of people across the globe. Novartis distributes hundreds of medications around the globe each year. However, there are several key drugs that drive a significant portion of the company's revenue. The top 10 highest-revenue products accounted for nearly half of the revenue of Novartis’ Innovative Medicine division.
Top Drugs by Revenue in 2020
- Cosentyx — Approved by the FDA in 2015, Cosentyx generates the highest revenue of any individual drug (nearly $4 billion). This prescription is used to treat moderate to severe plaque psoriasis, psoriatic arthritis, and ankylosing spondylitis.
- Gilenya — Gilenya is a medication used to treat multiple sclerosis (MS). While it isn’t a cure, it can be used to prevent immune system cells from attacking the nerves in your brain and spinal cord preventing or delaying permanent disability from the disease. Gilenya alone generates over $3 billion for Novartis and produces the most revenue after Cosentyx.
- Entresto — Entresto is a drug that is used to help prevent certain types of heart failure. Initially approved in 2015 for adults, the drug received approval by the FDA in 2019 to be used on children who have pediatric heart failure. Entresto generated just under $2.5 billion in revenue for Novartis in 2020.
- Tasigna — This drug is used to treat certain types of blood cancers by helping to slow the rate of cancer cell growth. While effective against cancer, this medication is not considered a traditional form of chemotherapy. Tasigna is a targeted drug therapy designed to find and attack specific cancer cells whereas chemotherapy can attack both normal and cancer cells.
- Lucentis — Lucentis is a medication that is injected into the eye to treat serious eye conditions such as macular degeneration, macular edema, and diabetic retinopathy. These conditions if left untreated can reduce vision and lead to blindness.
- Promacta — Promacta (which is marketed as Revolade in many countries outside of the United States) is used to treat patients with an abnormally low platelet count.
- Tafinlar + Mekinist — Tafinlar and Mekinist are two separate chemotherapy drugs that are often administered together to treat a wide range of cancers.
- Sandostatin — Sandostatin is prescribed to tumor patients who experience symptoms such as diarrhea and flushing. It can also be used to treat acromegaly, a condition where the body produces excessive amounts of growth hormone causing the hands, feet, face, or head to grow abnormally large.
- Jakavi — This medication is given to patients who have a condition known as myelofibrosis, a rare type of blood disorder. The drug works by helping to control the production of blood cells.
- Xolair — Xolair is an injectable medication used to treat moderate to severe asthma. This treatment is often used on patients that are ages 6 and older who don’t respond well to traditional asthma inhalers.
Other Notable Medications and Discoveries
In addition to the company’s flagship products, Novartis (and its predecessor companies) have created many notable products. Their research has also produced groundbreaking discoveries in the field of medical science.
Paul Hermann Müller, a Swiss chemist who was also a researcher at Geigy, discovered that DDT (dichlorodiphenyltrichloroethane) had insecticidal properties in 1939. This was found to be effective against many types of insects including flea, lice, and mosquitoes. These insects are known to carry dangerous diseases such as typhus, plague, malaria, and yellow fever. A report by the National Academy of Sciences estimated that DDT had saved the lives of more than 500 million people. Müller won the Nobel Prize in Physiology or Medicine in 1948 for his discovery.
Researchers at Sandoz discovered LSD (lysergic acid diethylamide) in its laboratories in 1943. The company marketed the substance between the late 1940s through the 1960s under the name Delysid which was sold as a psychiatric drug. The company even encouraged psychiatrists to take LSD themselves to get a better understanding of what schizophrenic patients experience. The drug was so popular that it was featured in Time Magazine in 1954. Following the adoption by large numbers of recreational users, LSD was officially made an illegal substance in the United States in October of 1968.
Over the Counter Medications (OTC)
While Novartis specializes in prescription medication and is not a leader in the over-the-counter (OTC) space, they do produce several popular brands that can be found in pharmacies across the globe including Excedrin and Theraflu. Excedrin is a popular pain reliever especially effective for migraine sufferers. Theraflu is an antihistamine used to relieve the symptoms of allergy and the common cold.
Key Takeaways
- Novartis (including its predecessor companies) has a long history of creating innovative drugs and medications. Some have even earned prestigious awards and global recognition.
- The company puts a strong focus on the growth and sale of its top revenue producing products which generate nearly half of the company’s revenue.
Leading the Industry Through Corporate Responsibility
The leadership of Novartis holds the company to a very high standard when it comes to the environment and impacts on the global community. Their goal is to operate in a way that increases access to affordable medicine, meeting sustainability objectives, and positively impacting the communities in which they operate. The company has a detailed set of standards known as environmental, social, and corporate governance (ESG) which provides direction to the board of directors.
Four Pillars of ESG
Novartis has established four pillars of its environmental, social, and corporate governance strategy — Ethical Standards, Pricing & Access, Global Health Challenges, and Corporate Citizenship. During the Q4 2020 financial results meeting with shareholders, CEO Vas Narasimhan shared some of the accomplishments toward these goals from the prior year.
- Ethical Standards — This pillar guides the company to work in a transparent and ethical way. The company has set a very high standard for its employees, leadership, vendors, and partners. The company reinforced this goal by working to resolve some legacy compliance issues and launched a new Code of Ethics in 2020.
- Pricing & Access — Novartis has one of the best reputations in the industry for giving impoverished and developing nations access to affordable medication. In 2020, the company introduced over 100 new brands to emerging markets. The company also issued a sustainability-linked bond, the first of its kind in the industry. This bond, valued at EUR 1.85 billion (approximately $2.2 billion), requires the company to pay a higher interest rate to bondholders if Novartis doesn’t meet its obligations to increase access to innovative medicines and address key global health challenges. The company also has a goal to increase SIT (strategic innovative therapies) patient access by 200% by the year 2025.
- Global Health Challenges — The company puts a lot of time and effort into researching and helping to tackle major global health challenges. In 2020, Novartis expanded their Africa sickle cell disease program. They also improved their pipeline delivering life-saving malaria treatments. The company plans to increase its Flagship Program by 50% by the year 2025.
- Corporate Citizenship — During the Q4 2020 shareholder update, Vas Narashimhan noted that the company had a strong response to the COVID-19 pandemic and worked to protect its employees from the pandemic. The company also advanced its agenda of integrating D&I (Diversity and Inclusion) into its operations across the globe. By the year 2030, Novartis would also like to achieve full carbon, plastic, and water neutrality.
ESG Ratings Performance
Novartis measures its ESG performance against a series of benchmarks from third-party organizations. These rankings are published on an annual basis and include scores that measure factors such as access to medicine, water protection, and ethical governance. In 2020, the company improved or maintained all of its scores from the prior year.
Access to Medicine Index
The Access to Medicine Index is a non-profit organization that ranks the world’s top pharmaceutical companies on their ability to make their products easily and affordably available to 106 countries that are considered low-to-middle income countries. This non-profit which operates out of the Netherlands is partially funded by the Bill & Melinda Gates Foundation, the UK Department of International Development (DFID), and the Dutch Ministry of Foreign Affairs.
Novartis has a history of leading most of its competitors in the rankings. In 2021, Novartis achieved the number two spot on the Access to Medicine Index. The only company that scored higher was GlaxoSmithKline by an extremely slim margin.
Key Takeaways
- Novartis has earned a strong reputation for corporate responsibility through a series of environmental, social, and corporate governance (ESG) targets. This strategy is helping to set Novartis apart from other pharmaceutical companies.
- The company has introduced several ESG initiatives that are a first for the industry including a sustainability-linked bond and third-party risk management (TPRM) program.
- Novartis continues to rank high on the Access to Medicine Index leading many of its competitors by a large margin.
Novartis’ Strategic Plan for Growth
In 2018, under the leadership of CEO Vas Narasimhan, the company established five key areas to drive strategic growth. These growth targets and a renewed focus on the pharmaceutical business have helped strengthen the company’s position in the global marketplace.
People
Novartis is committed to not only securing some of the best talent in the industry but also, creating an environment where their people can work effectively to support the company’s mission to provide world-class pharmaceutical products and medical treatments.
Innovation
Pharmaceutical companies rely on research, new technology, and medical discovery to drive innovation and new drugs. As a part of its growth strategy, Novartis aims to work toward investing in the development of new, innovative treatments and medications to help prevent and cure a wide range of diseases, intervene sooner in chronic illnesses, and improve the quality of life for all people.
In 2002, Novartis created a global research and development organization called Novartis Institutes for BioMedical Research (NIBR), headquartered in Cambridge, Massachusetts. The NIBR currently employs over 5,600 people across six different research campuses. The NIBR is broken into separate research institutes that focus on different aspects of pharmaceutical and biological research.
- Novartis Institute for Tropical Diseases (NITD) — This institute focuses on creating new treatments for deadly, infectious diseases in the developing world which are responsible for over 8 million deaths each year.
- Friedrich Miescher Institute for Biomedical Research (FMI) — The FMI works in the fields of Epigenetics, Quantitative Biology, and Neurobiology with the goal of better understanding the underlying mechanisms of health and disease.
- Genomics Institute of the Novartis Research Foundation (GNF) — The GNF specializes in researching biotherapeutics, biotechnology, cancer therapies, and generating ideas for new therapeutic drugs.
The company will continue to leverage these institutes to develop new treatments and pharmaceuticals. The company has many new products in the R&D pipeline or pending government approval that they plan to make available to the public in coming years.
Operational Excellence
Novartis will focus on how they use and allocate both employee and company resources to help the company free up resources to invest in innovation and boost shareholder returns. One way that they are doing this is by streamlining their business to focus solely on pharmaceuticals and medical treatments.
Novartis began working toward this in 2016 when the company reorganized its pharmaceutical business into two main divisions — Innovative Medicines and Sandoz. The Innovative Medicines Division includes Novartis Pharmaceuticals, Novartis Gene Therapies, and Novartis Oncology.
Novartis Pharmaceuticals is responsible for the development and distribution of Novartis’ flagship pharmaceutical products. In addition to its line of medicines, this division includes Novartis Gene Therapies. Novartis Oncology is dedicated to cancer research and creating cutting-edge treatments for cancer patients around the world.
Sandoz leads the efforts to bring lines of generic medications to the market, specifically to provide high-quality medicines to the developing world.
Data and Technology
Novartis understands the power and impact of technology and data on the research and development of new cutting-edge medical treatments. The company plans to transform its use of data, analytics, and artificial intelligence to drive innovation. Novartis has ramped up its recruitment and hiring of talented data scientists and technologists.
The company also acknowledges that AI (artificial intelligence) will hold a significant role in the future of the pharmaceutical industry. For example, in April of 2020, Novartis launched its AI Nurse program in China to help support medical professionals that care for heart failure patients. While the company plans to expand and scale its current AI operations, they recognize that AI should be ethically and transparently utilized.
Building Trust with Society
The company will continue to build trust with society through integrity and positive actions including maintaining strict ethical standards, providing affordable medication to those in need, and minimizing environmental impacts.
In 2014, Novartis created a new position, Chief Ethics, and Compliance Officer, to sit on the board of directors. The intention of this role is to provide an elevated focus on compliance. With this came additional changes. One area that was considered high risk for the company was the use of third parties within the industry.
In 2019, the company became the first in the industry to use Third-Party Risk Management (TPRM). The group that oversees the TPRM program works closely with the Ethics, Risk, and Compliance group to ensure that third-party partners are meeting all regulatory, ethical, and human rights best practices.
Key Takeaways
- The leadership of Novartis has established a set of strategic principles to guide their business and drive growth.
- The company is working toward developing technology and data-based systems that will allow Novartis to provide better care and access to life-saving medications and therapies.
- One of the most important strategies is Building Trust with Society. Through this, Novartis is working to set themselves apart from their competitors by leading the industry through ethical work practices and making a positive impact on the environment and people in developing nations.
Recap
Since its inception, Novartis has been a leader in the pharmaceutical and biotechnology industries. Their cutting-edge products have supported the health and well-being of hundreds of millions of people across the globe. One thing that sets the company apart is that Novartis has focused intensely on being one of the most ethical companies in the pharmaceutical industry through delivering medicine at affordable prices to developing countries.
Under the leadership of Vas Narasimhan as CEO, the company looks to maintain its strong footing and expand by working on a set of strategic goals that promote the success of its people, drive innovation, operate efficiently, embrace technology, and build trust with society.
Key Takeaways
- Novartis was born out of a merger of established players in the pharmaceutical and agrochemical business – Ciba-Geigy & Sandoz.
- The founding companies have a long history of working in strategic partnerships to control the Swiss chemical industry and expand globally.
- Novartis engaged in its own mergers, acquisitions, and partnerships which have helped propel its growth and align the business toward its strategic goals.
- The company has hundreds of pharmaceutical products and medical treatments on the market but gets most of its revenue from a handful of flagship drugs.
- The company (and its predecessors) have produced many products that have saved millions of lives including the discovery of DDT to reduce the spread of insect-borne illnesses.
- A key part of Novartis’ strategy is its emphasis on corporate responsibility through ethical business practices and providing affordable access to impoverished people around the globe. The company holds itself to a high standard to help differentiate itself from its competitors.
- The company has developed a set of strategic goals under the leadership of Vas Narasimhan to drive continued growth for the company including people, innovation, operational excellence, data and technology, and building trust with society.