Account for 47% of total pharma sales, down from 51% in 2010
PROFILE
Novartis continued its rise to the top of the pharma ranks last year, even as its top product has begun to decline. Unlike Pfizer and some of its other competitors, Novartis shows no sign of abandoning its diversification strategy. Rather, the company will rely on a slate of new drugs as well as its broad base in generics and biosimilars, eye care, vaccines and diagnostics, and consumer health.
(Novartis’ 2010 acquisition of Alcon clouds this edition’s year-to-year comparisons. Using Novartis’ breakdown of Al-con’s 2011 performance, we counted Surgical ($3.6 billion) and Vision Care ($2.4 billion) as non-pharma revenues, leaving $4.0 billion in ophthalmic pharma revenues. The company didn’t break down those figures for 2010’s partial year, in which Alcon contributed $4.4 billion overall, so we chose to keep a 40/60 split between pharma and non-pharma revenues from 2010 Alcon. Please note that it’s an inaccurate gauge of growth for Novartis in 2011, but future years will strip out Surgical and Vision Care sales from pharma revenues for accurate comparison.)
Novartis’ future is going to be an interplay between that broad base and its ongoing R&D dynamo, but it’ll take serious growth just to cope with two major pending patent expirations. Diovan’s patent protection is set to expire in September 2012 in the U.S., where it posted $2.3 billion in sales in 2011. Gleevec will lose U.S. patent protection in 2015, but only about a third of its $4.7 billion in 2011 revenues came from the U.S. Other regions will drop off in 2016.
The company predicts flat results overall in 2012. To prepare, Novartis launched two restructuring programs in the past year. Usually, that’s a sign that a firm is in fast decline, but the company is trying to make these moves from relative positions of strength. (Or it’s trying to keep from making a huge announcement of 8,000-plus layoffs.)
The first shoe dropped in October 2011, when the company announced plans to lay off 2,000 employees: 1,100 in Switzerland and 900 in the U.S. The company also planned to add 700 jobs in “low cost and other regions,” according to a Novartis statement. Swiss trade unions were up in arms about the moves, and managed to convince Novartis not to close a facility in Vaud, Switzerland, saving 320 jobs. The company also elected to lay off fewer than the 760 employees who were slated to be axed from a site in Basel. Reportedly, Switzerland will provide some tax incentive for Novartis to retain those jobs.
Still, the jobs have to go from somewhere. In January 2012, Novartis announced that it will lay off 1,960 employees in the U.S. In this case, the company cited the pending expiration of Diovan’s patent as well as the problems Tekturna ran into after a failed study, noting that the next two years will be “challenging.” Novartis took a charge of $160 million for the layoffs in 1Q12 and expects annual savings of $450 million to result, while the company reorganizes its sales force to focus further on the specialty market. The company also took a $900 million charge in 4Q11 as a reassessment of Tekturna’s sales prospects.
Novartis has faced some embarrassing quality problems in the past year. In July 2011, Novartis Consumer Health received a warning letter for its Lincoln, NE facility, citing numerous quality flaws and a lack of investigation into consumer complaints of foreign products found in drugs from that plant. In November, Novartis received a warning letter for violations at several of its Sandoz manufacturing sites. Then in January 2012, Novartis issued recalls for a number of products from Lincoln, taking a $120 million 4Q11 charge, shuttering the plant for several months and declaring that it would overhaul quality procedures. (For more, see Outsourcing News.) In February, one of the cited Sandoz facilities in Quebec was partially shut down for remediation, leading to shortages of generic injectables In June 2012 Novartis’ Sandoz unit issued a recall of birth-control pills because a packaging error misplaced the placebo pills in the three-month schedule.
In 1Q12, Consumer Health revenues dropped $267 million (-20%) mainly due to the Lincoln shutdown. The company has made a number of personnel changes on the executive tier to fix these problems, including naming a new division head for OTC only one year after the previous head was named. Novartis’ quality issues haven’t extended to its branded drugs yet, but these things don’t go away quickly, and can indicate system-wide issues.
Meanwhile, Novartis is planning to build a $550 million sterols and solid dosage facility in Switzerland, to go online in 2016. A $150 million branded and generic manufacturing facility in St. Petersburg, Russia is slated to go online in 2014. In December 2011, the company inaugurated a site in Holly Springs, NC that was the first cell-culture vaccine facility authorized by the FDA. In theory, it should be able to provide 150 million adjuvanted doses of pandemic flu vaccine within six months, covering 25% of the doses the U.S. would need. That site cost $1 billion, but was partially subsidized by the U.S. Dept. of Health and Human Services.
Back to R&D: Novartis’ Tekturna result was disastrous. When it was launched in 2007, the company had high hopes that Tekturna would become a blockbuster and help Novartis ease into the post-Diovan era. The drug’s failure in a trial of high risk patients — “failure,” as in, “increased incidence after 18-24 months of non-fatal stroke, renal complications, hyperkalemia and hypotension” — was a veritable death-knell. Novartis has instituted a much stricter label for use in the U.S. and will remove a Tekturna combo drug from the U.S. market in July 2012. The combo will stay on the market in the EU, presumably because they’re heartier than Americans.
Novartis also ran into some problems with its new multiple sclerosis treatment, Gilenya. The EMA and FDA began reviewing the pill’s status late in 2011 after reports of 11 deaths among MS patients. Gilenya reached nearly $500 million in sales in its first full year, worrying competitors at Teva and Biogen Idec. In April and May 2012 respectively, both agencies confirmed the risk-benefit profile for Gilenya, but advised that the drug carry stronger warnings and that some patients should be monitored more strictly for cardiovascular problems. The FDA also advised doctors not to prescribe Gilenya to at-risk patients. The drug posted $247 million in 1Q12 sales, but we’ll see if the safety warnings dampen that growth going forward. To its credit, Gilenya also got good results in a head-to-head study against BI’s Avonex in June 2012; the drug will need to gain more traction before BI’s oral MS treatment, BG-12, gets on the market.
Even without Tekturna’s contributions, Novartis has a slew of new products to lead growth in the next few years. Lucentis is already the company’s #3 drug, passing Zometa on the branded/generic escalators. Tasigna for chronic myeloid leukemia is making strides toward blockbuster status, while diabetes treatment Galvus should reach that height by next year.
Novartis is also seeing good results from cancer treatment Afinitor, and hopes to expand its label into breast cancer indications, where it could become a huge product for Novartis.
In all the years we’ve been writing these reports, Novartis hasn’t engaged in a major acquisition — Alcon doesn’t count, since that was an external, device-driven buy — instead making strategic pickups in its various segments. Also, its R&D productivity has run laps around some of its peers. We doubt that’s coincidental.
Its R&D success has left Novartis is in better shape to withstand its double dip over the patent cliff, but this is still a “what have you done for me lately?” industry.
Another year of no drama from Novartis. No mergers, no huge buyouts, no convulsive rearrangements and reshufflings. That’s weird enough where you have to wonder if we should be considering them as part of the pharma industry at all — don’t we have some sort of minimum requirements on this sort of thing? It’s all very Swiss for a company that does so much of its research in the U.S.
But looking closer, Novartis is not the magical Land of No Layoffs. It’s just the land of small, quiet job cuts that you don’t hear so much about. And some patent expiration trouble is creeping up, so things might get a little more exciting there over the next couple of years, although one hopes not.
They’re still expanding their footprint at their R&D headquarters in Cambridge, MA, though, with new facilities going in right across the street from the existing complex. From the position of the two construction pits, I think that they’ll be able to look right into a new Pfizer building, which is going up at the same time. Let’s hope that they don’t pick up any grand strategies from those whiteboards.
Target: Fougera Pharmaceuticals
Price: $1.5 billion
Announced: May 2012
What they said: “The addition of Fougera’s leading portfolio further strengthens Sandoz’s differentiated products strategy and improves our ability to help patients and customers around the world by providing easier access to high quality, affordable dermatological medicines.
Fougera brings us valuable technical capabilities in the area of topical dermatological products, particularly in the development and manufacturing of semi-solid forms such as creams and ointments.”
—Jeff George, Global Head of Sandoz
As part of the shutdown of Novartis’ plant in Lincoln, NE, the company will use unspecified CMOs to pick up some slack. As it turns out, the closure revealed that Novartis has been doing contract work for other drug companies at that facility (and presumably at others).
When the news of the closure first broke, Endo Pharmaceuticals reported a supply disruption of the extended release formula of Opana, a heavy-duty opiate. Novartis was the sole supplier of Opana ER; however, due to its quality problems, it may have been supplying some of that extended release opiate in bottles of Gas-X, a treatment for bloating and gas relief. Endo said it would start production of two other Novartis-made drugs at its Huntsville, AL site and would moderate Opana ER distribution until supply could be restored. In late March, reports surfaced that Novartis recommenced supplying Endo from Lincoln.
In February 2012, GlaxoSmithKline said that it was recalling nearly 400,000 bottles of its DynaCirc CR hypertension drug as a precaution because they were manufactured at the Novartis site.
Novartis excels in a number of segments. We keep them all together for the sake of our rankings, but if we broke out the company’s 2011 revenues by their reporting structure, here’s how they’d match up:
Pharma: $32.5 billion (between AZ and J&J)
Alcon: $10.0 billion (we would put $4.0 billion of that for pharma, which would push pharma-only Novartis past GSK)
Vaccines/Diagnostics: $2.0 billion (good enough for #8 in our Top 10 Biopharma ranks)
Sandoz (generics): $9.5 billion (#18 in our Top 20 Pharma list, between Otsuka and Gilead)
Consumer: $4.6 billion (we don’t keep a list for that; sorry)