Case Study: Novartis Malaria Initiative
How innovative alliances produced a winning sourcing partnership
Association of Strategic Alliance Professionals
It’s a recurring nightmare amongst sourcing professionals: orders coming in faster than one can secure raw materials for production. Add to that the risks of relying on a plant that mainly grows wild in a remote part of the world for a key starter material. This was the situation in which Novartis found itself in 2004 when it was producing the only artemisinin compound therapy (ACT) that the World Health Organization (WHO) supported in the life-and-death struggle against malaria. In addition, the WHO’s forecast had demand far outstripping supply.To meet escalating demand — which exceeded the capacity of the known raw material — Novartis had to establish innovative alliances and partnerships throughout the value chain.
The Novartis Malaria Initiative began in the mid-1990s as a partnership with the Chinese Academy of Military Medical Sciences (AMMS) under Novartis predecessor Ciba-Geigy. It has saved an estimated 800,000 lives to date, created economic opportunity in Africa, and helped its Chinese partners implement internationally recognized good manufacturing practices (GMP). This complex, multi-sector alliance earned the pharmaceutical company the Association of Strategic Alliance Profes-sionals’ (ASAP) 2010 Alliance for Social Responsibility Award.
The Novartis Malaria Initiative is a network of strategic supplier partnerships that extend from China to Kenya to enable Novartis to meet skyrocketing demand, diversify supply sources and reduce the cost of manufacturing by more than 50%. It also includes an essential distribution partnership with the WHO, UNICEF and other procurement agents, among several other key relationships, that pay for and get the drug to patients. Ithas delivered 320 million life-saving Coartem treatments without profit since 2001. It is a partnership that is constantly innovating how to tackle the scourge of malaria, a preventable and treatable disease that has plagued humans for thousands of years.
Even today, malaria affects 250 million patients every year, killing a child every 45 seconds, with 90% of those deaths in Africa, largely among children younger than five or pregnant women. Of communicable diseases, only tuberculosis extracts a greater human cost.
Committing to Coartem
Novartis is one of the top five global pharmaceutical companies, with $44 billion in annual revenues and 100,000 employees working in 140 different countries.At first blush, it would seem to have little interest in pursuing a treatment for a disease born of poverty — and one that causes poverty. In countries with high transmission rates, malaria robs economies of an estimated 1.3% of annual economic growth. Children with malaria cannot go to school and adults can’t work, which may result in healthy children also being unable to attend school because their parents can’t afford school fees or uniforms, practically ensuring continued poverty. As much as 40% of African health budgets are dedicated to fighting malaria. Novartis’ chairman and former chief executive officer Dr. Daniel Vasella believed that his company had a responsibility to make Coartem available if it could save lives. The drug was manufactured by one of Novartis’ predecessor firms, Ciba-Geigy, in partnership with the Chinese Academy of Military Medical Sciences. Ciba-Geigy and Sandoz merged in 1996 to form NovartisAG.
With Dr. Vasella committed to Coartem, several large scale trials were conducted, showing an astonishing cure rate of 95% with high tolerability and no indication of developing resistance. As a result, Coartem became the first fixed-dose artemisinin-based combination therapy included in the WHO’s list of essential medicines and the only ACT which obtained U.S. FDA approval.
The WHO, meanwhile, agreed to develop annual, three-year forecasts of demand. They also agreed to place orders with Novartis at least four months in advance of delivery. This wasn’t much lead time, considering that the entire production process — from planting seeds through to finished product — took 14 months. One of the active substances in Coartem is artemether, the derivative of artemisinin which in turn is the extract product of the Artemisia annua (sweet wormwood) plant, which grows wild predominantly in remote mountainous regions of China. It is combined with lumefantrine to produce Coartem, a powerful medicine that eradicates the malarial parasites in a patient’s blood in just three days. Novartis obtained these materials through the initial sourcing partnerships it had established in the 1990s with two Chinese companies. One manufactured lumefantrine, the other grew and harvested Artemisia annua and then, through a complex process, extracted the artemether from it that was used to make Coartem.
Inclusion on the WHO list of essential medicines meant that the poorest countries could access funding for Coartem. In order to meet the expected demand, largely coming from African countries, Novartis knew it would have to expand its Chinese production substantially, and build additional capacity.Prior to 2003, when it produced 1.3 million treatments, Novartis had produced approximately 100,000 treatments per year. Since 1994, Novartis had worked closely with its Chinese partners, providing a significant technology transfer to help them upgrade their facilities to international GMP standards. They also provided quality assurance support to ensure that the expanding need could be met. In 2004 Novartis shipped four million treatments, a four-fold increase over the prior year.
In that year, demand soared. An article in the British journal Lancet called upon the WHO and the Global Fund to end AIDS, Tuberculosis and Malaria (GFATM) to put their Resources behind ACTs, of which Coartem was the only approved drug. Major donors such as UNICEF and GFATM soon publicly supported ACTs. As a result, the WHO’s 2005 forecast was for 60 million ACT treatment courses.
This number of treatments was far more than the existing supply of artemisinin could produce. Almost immediately, the forecast created an artemisinin shortage and caused the price of this starting material to triple in short order. New sources of the material were needed and even more manufacturing capacity required. Novartis and its partners had done a remarkable job of getting to four million treatment courses supplied in 2004, but they were far short of what was needed to meet the 15-fold increase of the 2005 forecast.
Sourcing the Supply
To lead the effort to meet this demand, Novartis brought in Silvio Gabriel, who had been serving as Head Novartis Pharma Region Europe. In his new role as executive vice president and general manager of Malaria Initiatives at Novartis, his job — and that of his team — was first to figure out how to get all the artemisinin required, process it and get it to customers who couldn’t pay for it. Despite the odds, Mr. Gabriel and his team set about the task with vigor.
They continued to focus on China, adding more strategic suppliers and concluding new supply agreements with existing partners. However, it was increasingly apparent that they needed to switch fromthe “wild-growing” system that had supported them up until this point, to one where Artemisia annua was farmed.Dealing with a natural product, the team also concluded it was important to address climate-related risks. In addition, it made sense to locate some of the production in Africa, because most malaria patients live on the African continent.
Not surprisingly, the team turned to partnership to ease the supply demands. In June 2005, it established a strategic relationship with Kenya’s East African Botanicals (EAB) to cultivate more than 1,000 hectares of Artemisia annua and extract artemisinin. This harvest, combined with what was already under production in China, would allow Novartis to significantly increase production to more than 66 million treatments in 2007 — a 16-fold increase in three years. As stated at the time by Patrick Henfrey, chief executive officer of Advanced Bio Extracts, parent company of EAB, “By placing firm orders for extracted artemisinin, providing financial support for infrastructure improvements and delivering technical support and know-how, Novartis has made a major contribution to creating a sustainable market for this key natural ingredient.”
As in any good partnership, the central purchase of the material was not the only key benefit. The Novartis financing made it possible for EAB to offer its own firm purchasing agreements to numerous farmers, including many on small lots. Novartis provided these small farmers with tools, training and financial incentives.They helped with the construction of an extraction and purification facility in Kenya and an extraction factory in Uganda, purchasing building materials from local sources and hiring workers. This activity all helps to support the local economy. Novartis also established a sourcing center in China to provide support to monitor the agricultural fields.
In addition to needing new sources of supply, the forecasted demand required that manufacturing capacity also grow. Through the 10 years of technology transfer to China, state-of-the-art production facilities existed in Beijing, but they simply would not be enough. The team enrolled Novartis’ manufacturing plant in Suffern, NY to also produce Coartem, making for a very complex supply chain. The Artemisia annua would be grown in China as well as East Africa and the artemisinin extracted. It would then be shipped to one of the Chinese partners to be converted into artemether, combined with the lumefantrine another Chinese partner produced. From there it would be shipped to New York for pharmaceutical manufacturing and packaging before heading to Basel for distribution through the various distribution partners.
Due to continuous economies of scale in sourcing and manufacturing, achieved through multiple alliances, the Coartem cost structure was reduced by 50%. These savings were passed on to buyers, thereby increasing access for the most vulnerable patients: babies, children and pregnant women. Coartem reaches more patients per year than any other medicine within Novartis' commercial portfolio, which includes a number of blockbusters in the therapeutic areas of cardiovascular medicine and oncology.
Lessons for Sourcing Personnel
The impact Coartem has had would not be possible were it not for the ability of the Novartis sourcing and alliance professionals to think about their relationship to the suppliers and producers as partners. For its partners to perform at the level Novartis needed, significant technology transfer, creative financing and expert support were required. When confronted with the nightmare scenario of more orders than available supply, Novartis and its partners worked together to create more supply and drive the cost down when the more likely outcome would have been constraints on the availability of Coartem and rising production costs.
Collaborative Innovation Continues
The story of the Novartis Malaria Initiative highlights how the innovative use of alliances can address complex problems and overcome limitations in supply. Novartis continues to use alliances to drive innovation. At the very end of the supply chain, Novartis established an innovative partnership with IBM and Vodafone, called “SMS For Life,” with the objective to improve access to life-saving antimalarial medicines under the aegis of the Roll Back Malaria Partnership. A pilot project is currently underway in Tanzania, in partnership with the Ministry of Health. It uses a combination of mobile phones, SMS messages and electronic mapping technology to generate information on stock availability of ACTs and quinine injectables and deliver it on a weekly basis to all health facilities. This visibility helps eliminate stock-outs, ultimately resulting in reducing the number of deaths from malaria.
The give and get of alliances helps companies drive costs down, develop new capabilities and access new markets. The Association of Strategic Alliance Professionals is honored to bestow an Alliance Excellence Award on the Novartis Malaria Initiative.
Art Canter is the President and executive director of the Association of Strategic Alliance Professionals. Jan Twombly, Certified Strategic Alliance Professional (CSAP), is president of The Rhythm of Business, Inc. and a member of the Executive Committee of the Association of Strategic Alliance Professionals.