Headcount: 78,000
Revenue: $45,440 (+8%)
Net Income: $8,572 (+42%)
R&D Expenses: $11,371 (+24%)

It has been a busy year for Novartis. In 2023 Novartis completed its restructuring initiative to focus on its Innovative Medicines business in the four core therapeutic areas of cardiovascular-renal-metabolic, immunology, neuroscience and oncology. Having completed the separation of the Sandoz business this past October and forging ahead with seven acquisitions announced since June of last year, Novartis is accumulating multiple significant pipeline assets in each of these focus areas.

In addition to two established technology platforms in chemistry and biotherapeutics, the company is prioritizing three emerging platforms in cell and gene therapy, radioligand therapy and xRNA, with continued investment in new R&D capabilities and manufacturing scale.

To align its production network with its strategy and new technologies, Novartis is investing in its Austria operations to expand production capacities with two new cell culture facilities. At its Tyrolean locations, €250 million will be invested in a facility in Kundl, which is scheduled to be completed by 2025 and will create 180 jobs, and another €250 million is being invested in Schaftenau, with 165 additional jobs in production, quality, and supporting functions, and will be completed this summer.

With a cell cultivation volume of 1.8 million liters/year, this new investment creates a production facility with the company’s highest output and ensures synergies with existing facilities in the areas of production, quality, infrastructure, and support services.

Acquisitions

In 2023 Novartis bolstered its innovative medicines strategy and renal and neuroscience pipeline with the acquisition of Chinook Therapeutics for $3.2 billion upfront and DTx Pharma for $500 million upfront and as much $500 million based on milestones.

Chinook adds two high-value, late-stage assets in development for IgA nephropathy (IgAN), a rare, progressive chronic kidney disease. Atrasentan is an oral endothelin A receptor antagonist in Phase 3 development for IgAN, and zigakibart is an anti-APRIL monoclonal antibody also in Phase 3 for IgAN.

With DTx Pharma, Novartis gains its Fatty Acid Ligand Conjugated OligoNucleotide (FALCON) platform that enables the delivery and activity of small interfering RNA (siRNA) therapeutics to tissues beyond the liver, enhancing biodistribution and cellular uptake. DTx Pharma’s lead program was granted FDA Orphan Drug Designation for the treatment of Charcot-Marie-Tooth Disease Type 1A (CMT1A), a progressive, neuromuscular, autosomal-dominant disease.

Since January of this year, Novartis announced five more acquisitions, including Chinese Biotech SanReno Therapeutics, Calypso Biotech, MorphoSys AG, IFM Due, and Mariana Oncology.

SanReno Therapeutics, established in late 2021 as a joint venture between the investor consortium and Chinook Therapeutics (now part of Novartis), SanReno holds exclusive rights in Greater China and Singapore for the two late-stage assets targeting IgAN: atrasentan and zigakibart.

Completed within the first two years of SanReno’s formation, the acquisition is one of the few transactions where a Chinese biotech company has been acquired by a multinational pharmaceutical company.

Also in January, Novartis entered an agreement to acquire Calypso Biotech BV, a developer of Interleukin15 (IL-15) targeted therapies, for $250 million upfront and potential development milestones of up to $175 million.

Calypso, a spin-out from Merck, is focused on monoclonal antibodies for an array of autoimmune indications, with an expertise in IL-15 biology. IL-15 is a broad, untapped immune axis that controls barrier function and downstream immune cascades in many chronic autoimmune diseases.

Calypso’s lead product candidate, CALY-002, is a potential best-in-class therapeutic antibody that binds to and neutralizes Interleukin-15. Novartis intends to further explore CALY-002 across a wide variety of autoimmune indications with high unmet medical need.

Shortly thereafter, Novartis entered an agreement to acquire MorphoSys AG for €2.7 billion. Upon completion, Novartis will own pelabresib, a treatment option with a well-tolerated safety profile provided in combination with ruxolitinib for patients with myelofibrosis. It will also include tulmimetostat, an early-stage investigational dual inhibitor of enhancer of zeste homolog 1 and 2 (EZH1 and EZH2) proteins currently being tested in solid tumors or lymphomas.

Meanwhile, in March, Novartis has exercised its option to acquire IFM Due, a developer of small molecules that inhibit the cGAS-STING pathway for $90 million upfront and as much as $745 million in milestones. The acquisition provides Novartis with full rights to IFM Due’s portfolio of STING antagonists, which have the potential to treat an array of serious inflammation-driven diseases characterized by excessive interferon and other pro-inflammatory cytokine signaling.

Finally, in May, Novartis entered an agreement to acquire Mariana Oncology, a preclinical-stage biotechnology focused on developing radioligand therapies (RLTs) to treat cancers. The transaction expands Novartis’ RLT pipeline and research infrastructure, and clinical supply capabilities.

Under the agreement, Novartis will pay $1 billion upfront and additional $750 million in pre-specified milestones. The acquisition includes a portfolio of RLT programs spanning lead optimization to early development across a range of solid tumor indications such as breast, prostate and lung cancer.

Collaborations

Several alliances aim to advance assets in cardiovascular disease, lung cancer, prostate cancer, Huntington’s disease, and spinal muscular atrophy, leveraging technology platforms spanning RNA-targeted therapy, CAR-T, and gene therapy.

A collaboration and license agreement with Ionis Pharmaceuticals aims to advance a novel medicine for patients with lipoprotein(a), or Lp(a)-driven cardiovascular disease. This builds on the companies’ existing collaboration focused on advancing pelacarsen, which Novartis is currently evaluating in a Phase 3 cardiovascular outcome study. The next generation compound will be a potential follow-on to pelacarsen.

Under an exclusive, global license agreement for certain Legend Biotech chimeric antigen receptor T-cell (CAR-T) cell therapies targeting DLL3, including its autologous CAR-T cell therapy candidate, LB2102, Novartis gains exclusive rights to develop, manufacture and commercialize these cell therapies.

LB2102 is in clinical development for the treatment of extensive stage small cell lung cancer and large cell neuroendocrine carcinoma. In 2023, the FDA granted the product candidate Orphan Drug Designation.

Next, a strategic collaboration and capsid license agreement with Voyager Therapeutics aims to advance potential gene therapies for Huntington’s disease (HD) and spinal muscular atrophy (SMA). Voyager will provide Novartis a target-exclusive license to access its TRACER capsids and other intellectual property for the respective diseases, and the companies will collaborate to advance a preclinical gene therapy candidate for HD.

Additionally, Novartis entered an exclusive strategic license agreement with Arvinas for ARV-766, Arvinas’ second generation PROTAC androgen receptor degrader for prostate cancer. The transaction also includes an asset purchase agreement for the sale of Arvinas’ preclinical AR-V7 program to Novartis.

Headcount: 101,703
Revenues: $50,545 (-2%)
Net Income: $6,955 (-71%)
R&D: $9,996 (+5%)

During 2022, Novartis unveiled its strategy focused on transforming the company into a “pure play” Innovative Medicines business with a focus on five core therapeutic areas: cardiovascular, immunology, neuroscience, solid tumors and hematology. This is marked by plans to spin off its generics unit Sandoz, along with acquisitions adding innovative assets, namely late-stage renal assets from Chinook Therapeutics and a rare disease asset from Avrobio.

Novartis has multiple significant marketed and pipeline assets that address high disease burden and have substantial growth potential. In addition to its established technology platforms in chemistry and biotherapeutics, Novartis is prioritizing three emerging platforms: cell & gene therapy, radioligand therapy, and xRNA and investing into new R&D capabilities and manufacturing scale in these areas. Meanwhile, geographically, Novartis is focused on growing in the U.S., China, Germany, and Japan.

In the meantime, earnings for the year were impacted by higher restructuring and impairments, as well as the impacts of the 2021 divestment of its 33% stake in Roche. In line with its strategy, the company’s top six multi-billion products now represent 32% of its Innovative Medicines sales. Pluvicto and Scemblix had strong launches and Novartis anticipates Pivotal Phase 3 readouts for two iptacopan studies and Pluvicto in earlier lines of therapy that could provide strong confidence for near to mid-term growth. Looking ahead, Novartis anticipates advancing its pipeline with 15 pivotal readouts in the mid-term.

Restructuring initiatives underway

In April, Novartis introduced a new organizational structure and operating model to integrate its Pharmaceuticals and Oncology business units and create two separate commercial organizations—Innovative Medicines U.S. and Innovative Medicines International. As a result of these changes, the company anticipates savings of at least $1 billion by 2024. The new model aims to help Novartis increase its focus on core therapeutic areas and involves eliminating as many as 8,000 jobs, or about 7.4% of its global workforce.

To support the changes in organizational structure and operating model, Marie-France Tschudin, currently President, Novartis Pharmaceuticals, will become President, Innovative Medicines International and Chief Commercial Officer. She will oversee global marketing, medical affairs and value and access across all therapeutic areas. Victor Bulto, currently Head of U.S. Pharmaceuticals, will become President, Innovative Medicines U.S.

Novartis will create a new Strategy & Growth function combining corporate strategy, R&D portfolio strategy and business development, and will look across internal and external opportunities to strengthen its pipeline. The company will also combine its Technical Operations and Customer & Technology Solutions units to create a new Operations unit that can accelerate multiple technology transformation initiatives more efficiently, create novel digital solutions at scale and increase productivity.

M&A

In acquisition news, Novartis recently entered an agreement to acquire Chinook Therapeutics, a Seattle, WA, based clinical stage biopharma company, for a total value of up to $3.5 billion with the transaction being in the form of a merger of Chinook and a newly formed Novartis subsidiary. Chinook will receive $3.2 billion in cash upon closing, plus up to $0.3 billion based on the achievement of certain regulatory milestones.

The acquisition adds two late-stage medicines in development for rare, severe chronic kidney diseases, significantly expanding its renal portfolio. Atrasentan, an oral endothelin A receptor antagonist currently in Phase 3 development for Immunoglobulin A Nephropathy (IgAN), has shown significant reductions in proteinuria. IgAN is a progressive, rare kidney disease that mostly affects young adults and currently lacks targeted treatment options. Atrasentan is also in early-stage development for other rare kidney diseases. The second drug, Zigakibart, is a subcutaneously administered anti-APRIL monoclonal antibody with a Phase 3 trial in IgAN expected to start 3Q23.

Adding to its pipeline of gene therapies, Novartis entered a deal to acquire Avrobio’s investigational hematopoietic stem cell (HSC) gene therapy program focusing on cystinosis, a rare genetic disease, for $87.5 million in cash. The genetic condition is caused by the toxic buildup of the amino acid cystine. Novartis will also receive an exclusive license to other assets and intellectual property related to the investigational therapy.

Sandoz spin off & sales

In August, Novartis announced plans to spin off its generics unit Sandoz as part of an effort to focus on its innovative pharmaceuticals, which remains on track for the second half of 2023.

Recently, Novartis outlined its growth strategy for Sandoz as a standalone company. Sandoz reported sales of $9.1 billion in 2022 and forecasts mid-single digit sales growth for 2023 as well as for the time frame of 2024 to 2028, with the expanding product pipeline estimated to contribute an additional $3 billion in potential sales over the next five years. Sandoz estimates the product mix to shift increasingly toward high-value biosimilars and complex generics. According to the company, the biosimilar pipeline has tripled in recent years, now with 24 products on top of a core generic pipeline of more than 400 products.

Advancing assets

Novartis gained several new approvals and product expansions. Among them, Pluvicto gained approval from the European Commission to treat patients with progressive PSMA-positive metastatic castration-resistant prostate cancer (mCRPC) who have been treated with androgen-receptor pathway inhibition and taxane-based chemotherapy. The approval was based on results from pivotal Phase III VISION trial, in which Pluvicto plus best standard of care significantly improved overall survival and radiographic progression-free survival in these patients.

Pluvicto became the first targeted radioligand therapy available for people with advanced prostate cancer. Additional Phase III trials are underway to evaluate Pluvicto for treatment in earlier stages of metastatic prostate cancer.

Also, recent pivotal Phase 3 results for iptacopan achieved the primary endpoint and demonstrated clinically meaningful benefits across secondary endpoints in adults with paroxysmal nocturnal hemoglobinuria (PNH). In the Phase III APPOINT-PNH trial of iptacopan in complement-inhibitor-naïve, an estimated 92% of patients achieved a 2 g/dL or more hemoglobin-level increase from baseline without the need for red blood cell transfusions after the 24-week core treatment period.

PNH is a rare, chronic, and serious complement-mediated blood disorder and has a significant unmet need despite treatment with anti-C5s, as a large proportion of people with PNH remain anemic, fatigued, and dependent on blood transfusions.

The APPOINT-PNH trial also showed clinically meaningful benefits for secondary endpoints with an estimated 62.8% of patients achieved hemoglobin levels of 12 g/dL or more without the need for red blood cell transfusions. Importantly, an estimated 97.6% of patients achieved red blood cell transfusion independence at 24 weeks.

Likewise, the Phase 3 APPLY-PNH study met both primary and most secondary endpoints demonstrating iptacopan’s superiority over anti-C5 treatment in adult PNH patients with residual anemia despite prior anti-C5 treatment. Global regulatory submissions for iptacopan in PNH are planned in 2023.

Headcount: 110,000
Revenue: $51,626 (+6%)
Net Income: $24,018 (+198)
R&D Expenses: $9,540 (+6%)

TOP SELLING DRUGS

Operational performance in 2021 was steady and growth drivers continue to perform well for Novartis, driven by multi-billion-dollar sales from Cosentyx, Entresto, Kesimpta, Zolgensma, Kisqali and Leqvio. Despite a few pipeline setbacks, namely CEE321 in atopic dermatitis, Novartis achieved some innovation milestones for Entresto, Pluvicto, iptacopan, Kisqali, and Leqvio. Looking ahead, the company is focused on advancing its pipeline and key technology platforms, which includes more than 20 assets with an estimated $1 billion in potential sales, that could be approved as early as 2026. Novartis’ five core therapeutic areas are cardio-renal, immunology, neuroscience, oncology and hematology, and its key technology platforms include targeted protein degradation, cell therapy, gene therapy, radioligand therapy, and xRNA.

In addition to financial highlights profiled above, growth drivers and launches contributed 51% of sales, up from 45% in the prior year. Oncology business unit revenues were up 5% for the year driven by Promacta, Kisqali, Jakavi and Tafinlar + Mekinist, partly offset by generic competition, mainly for Afinitor, Gleevec and Exjade. Sandoz sales were flat at $9.6 billion as volume growth was more than offset by a negative price impact of 9 percentage points and sales in Europe and the U.S. declined 2% and 15% respectively. Global Biopharmaceuticals sales were up 10% to $2.1 billion, driven by continued growth outside the U.S. and Ziextenzo in the U.S. Importantly, earnings for the year benefited from the $14.6 billion gain on the Roche share divestment.

Business highlights

In late December, Novartis announced the initiation of a share buyback of up to $15 billion to be completed by the end of 2023, funded with proceeds from the sale of its approximately 33% stake in Roche for $20.7 billion. Novartis was a shareholder of Roche since May 2001 and acquired the stake between 2001 and 2003 for a total consideration of approximately $5 billion as a long-term financial investment, which delivered significant, recurring earnings contribution and cumulative dividends in excess of $6 billion. However, Novartis does not consider the financial investment in Roche as part of its core business and therefore not a strategic asset.

A few months later Novartis restructured, introducing a new organizational structure and operating model to integrate its Pharmaceuticals and Oncology business units, and create two separate commercial organizations—Innovative Medicines U.S. and Innovative Medicines International. According to the company, savings of at least $1 billion by 2024 will result from these changes.

Establishing an independent U.S. commercial organization is part of an effort to become a top-five company in the U.S. in terms of sales while maintaining and growing its position internationally. The new model aims to help Novartis increase its focus and commitment to its core therapeutic areas outlined above. Novartis will also combine its Technical Operations and Customer & Technology Solutions units to create a new operations unit that can accelerate multiple technology transformation initiatives more efficiently, create new digital solutions at scale and increase productivity.

Novartis’ biosimilar and generics unit Sandoz recently announced the “Act4Biosimilars”, an initiative that aims to boost use of biosimilars by 30% worldwide by the end of the decade by making them more approvable, accessible, acceptable and affordable—the 4 A’s of biosimilars.

While Sandoz future is uncertain as Novartis mulls over spinning it out, selling it or keeping the business as is, the company decided to sell its Ringaskiddy campus near Cork, Ireland to Sterling Pharma Solutions. The 111-acre site includes three active pharmaceutical ingredient (API) manufacturing buildings, as well as facilities to support development and scale up. The site currently manufactures a number of APIs across a range of therapeutic areas, and the deal includes an ongoing supply agreement between Sterling and Novartis from the facility.

Novartis also sold its 622,000 sq.-ft. state-of-the-art Cell and Gene Therapy commercial manufacturing facility in Longmont, CO to AGC Biologics after overestimating demand and the capacity needed to produce Zolgensma and other gene therapies. According to a Novartis statement, at the time the Longmont facility was acquired, it anticipated requiring all three sites (Libertyville, IL, Durham, NC, Longmont, CO) to meet business needs. However, with evolving dynamics of the gene therapy landscape and progress with process improvements, the company anticipates fulfilling long-term demand, including its next wave of gene therapies, with two commercial sites coupled with the technical development capabilities at its San Diego site and network of external partners.

Acquisitions and alliances

In December, Novartis entered an agreement to acquire the UK-based ocular gene therapy company Gyroscope Therapeutics for $800 million upfront and milestone payments of as much as $700 million. The acquisition will add GT005 to its portfolio, an investigational, one-time gene therapy currently in Phase 2 for the treatment of Geographic atrophy (GA), an advanced form of dry age-related macular degeneration (AMD) that leads to progressive and irreversible vision loss. With no approved treatments for GA, it has the potential to be the first therapy with sustained efficacy for a broad GA patient population. The acquisition builds on its ophthalmology gene therapy and optogenetics following acquisitions of Vedere Bio and Arctos Medical.

In the way of alliances, this past March, Novartis signed an initial agreement with Carisma Therapeutics, a pioneer in engineered macrophage-based therapeutics, to manufacture the HER 2 targeted CAR-M cell therapy, which is tested in initial trials for the treatment of solid tumors. The Carisma Therapeutics manufacturing process will be transferred to the Novartis Cell Therapy Site in Morris Plains, NJ, with clinical manufacturing planned to begin in 2023.

This new agreement follows contract manufacturing agreements signed last year with BioNTech, for the filling of the Covid vaccine at the Novartis Technical Operations’ sites in Stein, Switzerland, and in Ljubljana, Slovenia.

Additionally, Oxford Biomedica plc, a gene and cell therapy group, extended and updated its commercial supply agreement with Novartis to the end of 2028 for the manufacture of lentiviral vectors for several Novartis CAR-T products. Oxford Biomedica initially licensed its LentiVector platform to Novartis in the field of CAR-T in October 2014, followed by a 5-year commercial supply agreement the companies signed in December 2019.

Under the new terms, Novartis has been granted additional flexibility in ordering of GMP batches across Oxford Biomedica’s multiple GMP facilities.

R&D progress

While Novartis hoped to tap into the large mild-to-moderate eczema market, the company discontinued its CEE321 program in atopic dermatitis due to an unfavorable benefit/risk profile. However, several approvals and innovation milestones were achieved elsewhere. Most recently, Kymriah was granted accelerated approval for the treatment of adults with relapsed or refractory follicular lymphoma after two or more lines of systemic therapy, with 68% of patients in the ELARA trial experiencing complete response and an 86% overall response rate, along with a remarkable safety profile. Kymriah is now FDA approved in three indications and remains the only CAR-T cell therapy approved in both adult and pediatric settings.

In another big win, Pluvicto is now the first FDA-approved targeted radioligand therapy for eligible patients with Metastatic Castration-Resistant Prostate Cancer (mCRPC) that combines a targeting compound with a therapeutic radioisotope. The approval was based on a pivotal Phase III VISION trial, where patients with pre-treated PSMA-positive mCRPC who received Pluvicto plus standard of care had a statistically significant reduction in risk of death. Both primary endpoints were met, significantly improving overall survival and radiographic progression-free survival in patients with PSMA-positive mCRPC. Radioligand therapy enables targeted delivery of radiation to the tumor, while limiting damage to the surrounding normal tissue.

Leqvio (inclisiran) also gained approval in the U.S. to lower low-density lipoprotein cholesterol (also known as bad cholesterol or LDL-C), making it the first and only small interfering RNA (siRNA) therapy with two doses a year, after an initial dose and one at three months.

In addition, the FDA approved an expanded indication for Entresto in chronic heart failure to reduce the risk of cardiovascular death and hospitalization. Entresto sustained strong growth with increased patient share across markets, driven by demand as the essential first choice therapy for rEF heart failure, boasting sales of $3.5 billion, up 42%.

Headcount: 110,000
Revenue: $48,659 (+3%)
Net Income: $8,071 (+13)
R&D Expenses: $8,980 (-4%)

TOP SELLING DRUGS

Maintaining its innovation momentum in 2020, Novartis received 26 approvals for new treatments as well as new indications for existing treatments in the U.S., EU, Japan and China. Additionally, the company continued the expansion of its manufacturing network for CAR-T therapies and business services and is progressing its next wave of medicines with key new approvals for Kesimpta and Tabrecta in the U.S., and Leqvio for hyperlipidemia and Zolgensma in the EU, and Cosentyx in non-radiographic axial spondyloarthritis, and Adakveo and Piqray in the EU. Novartis also added assets via acquisitions in neuroscience, gene therapy and oncology.

Pharmaceutical sales growth for the year was mainly driven by Entresto, Zolgensma and Cosentyx, partly offset by price erosion and the negative impact from generic competition, while COVID-19 negatively impacted demand, particularly in ophthalmology, dermatology and Sandoz retail. Innovative Medicines sales were up 3% to $39 billion in 2020 with Entresto sales up 45%, Zolgensma sales reached $0.9 billion, Cosentyx sales were up 13% and Ilaris sales were up 31%. Growth was partly offset by declines in Gilenya, and lower demand for Lucentis due to COVID-19. In August, the US District Court for the District of Delaware upheld validity of Gilenya (fingolimod) dosage regimen patent. In oncology, sales growth was driven by Promacta/Revolade, up 23%, Jakavi up 20%, Kisqali up 45%, Tafinlar + Mekinist up 16%, and Piqray reached $0.3 billion, partly offset by generic competition mainly for Afinitor and Exjade.

Moving up the top seller list, Tafinlar (dabrafenib) + Mekinist (trametinib) was confirmed as standard-of-care, targeted therapy for advanced BRAF-mutated melanoma, based on unprecedented progression-free survival results. Data show positive durable responses and progression-free survival benefit for patients treated with the combo therapy.

Corporate news
Novartis expanded its Kymriah manufacturing footprint this past October, with the Foundation for Biomedical Research and Innovation (FBRI) in Kobe, Japan becoming the first CAR-T cell therapy commercial manufacturing site in Asia. The company’s global CAR-T manufacturing footprint now spans four continents and the recent FDA approval for further capacity expansion in the U.S. enables increased production of Kymriah.

Additionally, Novartis recently received approval from the Therapeutic Goods Administration (TGA) for Cell Therapies to manufacture and supply its CAR-T therapies commercially for eligible patients in Australia. The Cell Therapies manufacturing facility in the Peter MacCallum Cancer Center in Melbourne is the first and only approved commercial manufacturing site for CAR-T cell therapies in the country.

Novartis’ CAR-T manufacturing network comprises seven facilities and includes commercial and clinical trial manufacturing at facilities in Stein, Switzerland, Les Ulis, France and Morris Plains, NJ, as well as at contract manufacturing sites at Fraunhofer-Institut for Cell Therapy and Immunology facility in Leipzig, Germany, FBRI in Kobe, Japan, and now Cell Therapies in Australia.

Furthering its advanced therapy efforts, the company renamed the previously acquired AveXis to Novartis Gene Therapies. Building on the success of Zolgensma (onasemnogene abeparvovec), a therapy for children with spinal muscular atrophy, the division will be responsible for the research, development, manufacturing and commercialization of the next wave of AAV-based gene therapies, and will also provide manufacturing support for gene therapy work conducted by other Novartis units.

Bolstering its generis biz, this past February, Sandoz, a Novartis division, signed an agreement to acquire GSK’s cephalosporin antibiotics business for $350 million, plus potential milestones of up to $150 million. The acquisition includes three established brands sold in more than 100 markets, including leading global brand Zinnat, which aligns with Sandoz antibiotics strategy following plans to expand its manufacturing site in Kundl, Austria, where Novartis invested €150 million to help ensure long-term antibiotic manufacturing and supply resilience. The transaction bolsters Sandoz leadership in generic penicillins with cephalosporins, the largest antibiotic segment by global sales.

COVID efforts
Novartis joined the pharma-wide effort to meet global demand for COVID-19 vaccines to help alleviate manufacturing bottlenecks. Even though Novartis no longer has a vaccine business, it does have extensive and diverse manufacturing operations. The company is collaborating to help manufacture two different mRNA-based COVID-19 vaccines, Pfizer-BioNTech’s vaccine and CureVac’s vaccine, leverage its manufacturing capacity and capabilities at its aseptic facilities in Stein, Switzerland.

Additional COVID endeavors include an ongoing partnership with Molecular Partners to develop, manufacture and commercialize Molecular Partners’ anti-COVID-19 DARPin program for potential medicines for the prevention and treatment of COVID-19. DARPin therapeutics are a new class of custom-built protein drugs and recent results suggest COVID-19 antiviral candidate, Ensovibep, maintains potent neutralization against emerging viral variants in vitro. An ongoing Phase II Study in ambulatory patients is now expanding into a second cohort.

Acquisitions
Novartis agreed to acquire Cambridge, MA-based neuroscience company, Cadent Therapeutics, adding two new clinical stage programs, one for schizophrenia and the other for movement disorders, and MIJ821, a clinical stage molecule previously licensed by Novartis for treatment-resistant depression.

Also, in October, Novartis acquired Vedere Bio, adding novel optogenetic gene therapy technology for treating blindness, expanding it footprint in ophthalmology with two pre-clinical optogenetic programs, and enhancing its position in the AAV-based gene therapy arena with novel delivery technology for treating inherited retinal dystrophies and atrophy.

Lastly, Novartis expanded its oncology pipeline in-licensing tislelizumab from BeiGene, and a library of Fibroblast Activation Protein (FAP) assets, including FAPI-46 and FAPI-74, from iTheranostics. Tislelizumab is an anti-PD-1 monoclonal antibody for monotherapy and in combination with cancer therapies in Novartis’ portfolio. It’s anticipated Tislelizumab will be key asset in Novartis’ immuno-oncology combination strategy. Tislelizumab is approved for Hodgkin’s lymphoma and metastatic urothelial carcinoma in China, and 15 trials are under way in non-small cell lung cancer (NSCLC) and other solid tumors.

Novartis gained exclusive worldwide rights to develop and commercialize FAP assets FAPI-46 and FAPI-74 in tumors or in tumor stroma. These targeted radioligand therapies are a type of precision medicine with high-affinity for specific tumor cells, while surrounding healthy tissue is less affected.

Pipeline progress 
Of the more than 40 assets in development, several significant pipeline advances include Beovu, Jakavi, asciminib and iptacopan, including FDA Breakthrough Therapy Designations (BTD) for asciminib, iptacopan, and ligelizumab.

A Phase III study in diabetic macular edema (DME) met its primary endpoint, with Beovu demonstrating non-inferiority to aflibercept in change in best-corrected visual acuity at year one. Following positive results from another phase III study in DME, a submission is planned for 1H21.

Asciminib, an investigational treatment specifically targeting the ABL myristoyl pocket (STAMP), was granted BTD for the treatment of Philadelphia chromosome-positive chronic myeloid leukemia (Ph+ CML) in chronic phase, and for the treatment of Ph+ CML harboring the T315I mutation.

Additionally, results from a Phase III study demonstrate Jakavi significantly improved outcomes across a range of efficacy measures in patients with steroid-refractory/dependent chronic graft-versus-host disease (GvHD) compared to best available therapy. Results also demonstrate significant improvements in failure-free survival and patient-reported symptoms.

Headcount: 109,000
Pharma Revenues: $47,445 (+6%)
Net Income: $11,737 (-7%)
R&D: $8,386 (-8%)

Novartis delivered strong sales growth of 6% in 2019 to $47.4 billion. Innovative Medicines sales grew 11% to $37.7 billion during the year. The pharmaceuticals business unit was up 12% driven by Cosentyx reaching $3.6 billion, Entresto $1.7 billion and Zolgensma $361 million. The oncology business grew 10% driven by Promacta/Revolade reaching $1.4 billion, Kisqali $500 million and Lutathera $400 million.

Sandoz revenue climbed a bit, just 2%, to 9.7 billion despite continued pricing pressure in the U.S. Outside the U.S. sales were stronger on 7% growth. Global sales of biopharmaceuticals grew 16% to $1.6 billion driven by continued strong double-digit growth in Europe from Hyrimoz (adalimumab), Rixathon (rituximab) and Erelzi (etanercept).

Key business highlights from the year included the successful spin-off of Alcon as a separate public company and the acquisition of Xiidra, expanding the ophthalmic pharmaceuticals franchise. The Medicines Company was also acquired during the year, adding inclisiran, a potentially transformational cholesterol lowering therapy to address cardiovascular disease.

Innovation milestones reported in 2019 included five NME approvals of potential blockbusters including the first drug treatment for breast cancer with a PIKC3A mutation, the first oral drug to treat aSPMS, the first gene therapy to treat SMA and next generation treatments for sickle cell disease and wet AMD. In addition, regulatory filings were submitted for several major drugs, including ofatumumab, inclisiran, capmatinib and Cosentyx in nr-axSPA.

BolsterED eye and cardiovascular drug portfolio
The major deal for Novartis in 2019 was its purchase of The Medicines Company for $9.7 billion. The deal significantly bolsters its cardiovascular portfolio by adding inclisiran, a potentially transformational investigational cholesterol-lowering therapy to address the leading global cause of death.

When the deal was announced in November 2019, The Medicines Company recently unveiled data from its clinical program consisting of three Phase III trials (ORION-9, 10 and 11) for inclisiran involving over 3,600 high-risk patients with ASCVD and FH. In all trials, inclisiran demonstrated potent and durable LDL-C reduction with an excellent safety and tolerability profile. Furthermore, inclisiran’s potentially first-in-class, twice-yearly dosing schedule allows administration during patients’ routine visits to their healthcare professionals and will likely contribute to improved patient adherence and sustained, lower LDL-C levels.

The deal to acquire Takeda’s dry eye drug Xiidra (lifitegrast ophthalmic solution) was worth $5.3 billion. Also, as part of the agreement, Novartis will be taking on approximately 400 employees associated with the product. Xiidra is the first and only prescription treatment approved to treat both signs and symptoms of dry eye by inhibiting inflammation caused by the disease. The transaction bolsters Novartis’ front-of-the-eye portfolio and ophthalmic leadership.

Towards the end of the year, Sandoz strengthened its position in Japan when it acquired the Japanese business of Aspen Global Incorporated (AGI), a wholly owned subsidiary of Aspen Pharmacare Holdings Limited, for approximately $450 million.

The acquisition enables Sandoz to expand its presence in the third largest worldwide generics marketplace and complements its broad portfolio and pipeline of hospital generic and biosimilar products. Aspen’s portfolio in Japan consists of off-patent medicines with a focus on anesthetics and specialty brands. Additionally, AGI has entered into a five-year manufacturing and supply agreement with Sandoz, which will take effect from completion of the transaction, for the supply of active pharmaceutical ingredients (APIs), semi-finished and finished goods related to the portfolio of divested brands. Full-year sales for AGI in 2019 were €130 million.

The launch of Anthos Therapeutics
At the beginning of the year, Novartis, with the backing of Blackstone Life Sciences, launched Anthos Therapeutics, a new biopharmaceutical company focused on advancing next-generation targeted therapies for high-risk cardiovascular patients. The new company is based in Cambridge, MA.

As part of this launch, Novartis has licensed to Anthos MAA868, an antibody directed at Factor XI and XIa, key components of the intrinsic coagulation pathway. A large unmet medical need exists for next-generation anti-thrombotic therapies in patients currently underserved by conventional anti-coagulant therapies. As a promising anti-thrombotic modulating genetically and pharmacologically validated components of the intrinsic pathway, MAA868 has the potential to prevent a variety of cardiovascular disorders with minimal or no bleeding risk within a new long-acting treatment paradigm, which would provide major advantages over the conventional standard of care.

Funds managed by Blackstone Life Sciences, a private investment platform with capabilities to invest across the lifecycle of companies and products within the key life sciences sectors, provided $250 million for Anthos and will control the development of the products. Novartis will retain a minority equity interest in Anthos.

John Glasspool, a former leader of Novartis’ cardiovascular franchise with 30 years of experience in the biopharmaceutical industry, was appointed chief executive of Anthos.

Headcount: 125,161
Revenues: $51,900 (+6%)
Pharma Revenues: $44,751 (+6%)
Net Income: $12,614 (+64%)
R&D: $9,074 (+1%)

TOP SELLING DRUGS

With pharmaceutical sales of nearly $45 billion, Novartis slid into second just ahead of Roche in this year’s report—up four spots from last year’s sixth place ranking. Under the leadership of new chief executive, Vasant Narshimhan, 2018 saw Novartis involved in several deals that has the Swiss pharma giant focused more on medicines.

First it inked an $8.7 billion deal to acquire gene therapy company AveXis as part of its neuroscience strategy. AveXis is conducting several clinical studies for the treatment of spinal muscular atrophy, or SMA, an inherited neurodegenerative disease caused by a defect in a single gene. Their gene therapy candidate AVXS-101 has the potential to be the first one-time gene replacement therapy for SMA according to Novartis, and it currently has orphan drug designation from the U.S. Food and Drug Administration for the treatment of SMA.

The deal followed shortly after Novartis sold its stake in its consumer health-care joint venture to GlaxoSmithKline for $13 billion. The company also decided to spin off its Alcon eye-care unit and sold parts of its Sandoz generic-drugs unit, specifically the Sandoz U.S. dermatology business and generic U.S. oral solids portfolio, to Aurobindo Pharma USA for $800 million.

The Sandoz U.S. portfolios to be sold to Aurobindo include approximately 300 products as well as additional development projects. The sale includes the Sandoz U.S. generic and branded dermatology businesses as well as its dermatology development center. As part of the transaction, Aurobindo will acquire the manufacturing facilities in Wilson, NC, and in Hicksville and Melville, NY.

In another acquisition, Novartis bought cancer-drug maker Endocyte for $2.1 billion. Endocyte is a U.S. company developing a new treatment for prostate cancer. It specializes in radiopharmaceuticals, a new class of drug that carries radioactive substances directly to cancer cells so they can kill tumor cells at close range. It uses drug conjugation technology to develop targeted therapies with companion imaging agents, including 177Lu-PSMA-617, a potential first-in-class investigational radioligand therapy for the treatment of metastatic castration-resistant prostate cancer (mCRPC).

The prostate cancer drug bolsters its capability in the field, which it expects to be a key growth driver moving forward, and joins another late-stage radiopharmaceutical directed at a rare form of gut cancer, acquired when it bought Advanced Accelerator Applications S.A. for $3.9 billion at the end of 2017.

Expanding manufacturing capacity
At the end of 2018, Novartis announced it had made an offer for the French contract development and manufacturing organization (CDMO), CellforCure, from its parent, LFB. CellforCure is one of the first and largest CDMOs producing cell and gene therapies in Europe.

The deal has subsequently closed for an undisclosed amount and includes the cell and gene manufacturing facility located in Les Ulis, France. CellforCure is now a wholly owned Novartis manufacturing site, joining the network of cell and gene therapy sites including Morris Plains, NJ in the U.S. and Stein, Switzerland, where construction continues to progress on the €79 million facility.
The deal builds on a previously signed agreement in July 2018. Novartis signed a deal with CellforCure to produce CAR-T cell therapies including Kymriah (tisagenlecleucel), the first CAR-T cell therapy approved by the U.S. Food and Drug Administration (FDA) and indicated for two distinct, difficult-to-treat cancers in the U.S., EU, Switzerland, Canada and Australia. Novartis and CellforCure have successfully completed technology transfer and Kymriah clinical supply production is expected to begin by mid-2019.

In addition to the CellforCure deal, Novartis has made several steps to strengthen and expand its cell and gene manufacturing, including signing a strategic licensing, collaboration and share purchase agreement with Cellular Biomedicine Group (CBMG) to manufacture and supply Kymriah in China; expanding an alliance with the Fraunhofer Institute in Germany to support manufacturing for clinical trials and post approval manufacturing; and a contract manufacturing collaboration in Japan.

Partnership for virtual trials
Novartis formed an alliance with Science 37 to initiate up to 10 new clinical trials over the next three years. The studies will blend virtual and traditional models, with increasing degrees of decentralization towards a mostly “site-less” model. Novartis was an early investor in Science 37 and together have already initiated virtual trials for cluster headache, acne and nonalcoholic steatohepatitis (NASH).

The new decentralized trials in the U.S. will focus on dermatology, neuroscience and oncology, leveraging Science 37’s proprietary Network Oriented Research Assistant (NORA) technology, which enables patients to participate in studies using mobile devices and telemedicine services. Through this alliance, the companies plan to apply Science 37’s customized enterprise software to some of the leading clinical development programs of Novartis.

According to the Center for Information & Study on Clinical Research Participation (CISCRP), only 2% of the eligible population in the U.S. participate in clinical trials. Those who do participate attend an average of 11 trial site visits in six months, representing a significant burden for both patients and trial centers. By bringing the trial to the patient, Novartis aims to decrease the burden of clinical trial participation on patients and trial centers.

Headcount: 124,000
Revenues: $49,109 (+1%)
Pharma Revenues: $33,025 (-1%)
Net Income: $7,703 (+15%)
R&D: $8,972 (-1%)

TOP SELLING DRUGS

In 2017 Novartis’ Innovative Medicines division, which includes Novartis Pharmaceuticals and Novartis Oncology, reported sales of $33 billion, down 1% from the year before.

Novartis’ performance in 2017 was driven by the strong growth of psoriasis drug Cosentyx, which grew 84% to $2.1 billion. Novartis also reported positive results for Entresto, Promacta/Revolade, and Tafinlar + Mekinist. These strong performers continued to offset the impact of generic competition for the cancer drug Gleevec/Glivec, which saw sales drop 42% during the year.

The company made strong progress on the R&D front in 2017, receiving 16 major approvals, while also making 16 major submissions. It also received six breakthrough therapy designations from the U.S. FDA.

The highlight of the year occurred when the drug Kymriah  was approved to treat children and young adults with a deadly cancer called acute lymphoblastic leukemia. Novartis was the first company to receive approval for this type of novel immunocellular therapy, which reprograms a patient’s own T-cells to fight cancer. Novartis also filed for FDA approval for Kymriah to treat adults with the most common form of non-Hodgkin’s lymphoma.

Several other targeted cancer therapies were also approved. They include Kisqali to treat advanced or metastatic breast cancer, and Rydapt was approved for acute myeloid leukemia and advanced systemic mastocytosis. Novartis also strengthened its cancer product portfolio during the year when it paid nearly $4 billion for Advanced Accelerator Applications (AAA), a nuclear medicine theragnostics company. At the time of the deal, in October 2017, AAA had recently received European approval for marketing authorization for cancer drug Lutathera.

Pumped up pipeline

Novartis bolstered its pipeline during the year through several R&D collaborations. In January 2017 it invested in next generation therapies to reduce cardiovascular risk in patients with underlying lipid disorders, inking a deal worth potentially $1 billion with Ionis Pharmaceuticals and its affiliate Akcea Therapeutics. Novartis will develop and commercialize AKCEA-APO(a)-LRx and AKCEA-APOCIII-LRx.

Additionally, Allergan entered into a clinical trial agreement with Novartis to conduct a Phase IIb study using Allergan’s cenicriviroc (CVC) and Novartis’ lead FXR agonist for the treatment of non-alcoholic steatohepatitis (NASH). The Phase IIb study will assess the safety, efficacy and tolerability of this multi-therapy treatment approach for NASH.

Novartis and Bristol-Myers Squibb (BMS) entered into a clinical research collaboration to investigate the safety, tolerability, and efficacy of Mekinist in combination with Opdivo and Opdivo + Yervoy regimen as a potential treatment option for metastatic colorectal cancer. BMS will conduct the study, which is expected to establish recommended dose regimens and the preliminary anti-tumor activity of the combination therapies.

Novartis and Amgen expanded their collaboration with Banner Alzheimer’s Institute (BAI) to initiate a new trial—the Alzheimer’s Prevention Initiative (API) Generation Study 2. This trial will determine whether the BACE1 inhibitor CNP520 can prevent or delay the onset of Alzheimer’s disease symptoms in a high-risk population. BACE1 is an enzyme that plays an important role in the production of Amyloid beta, a protein which accumulates in the brains of individuals with Alzheimer’s disease years before clinical symptoms begin.

Strengthening the core

In a move designed to focus on core capabilities, Novartis sold off its stake in its consumer healthcare joint venture with Glaxo-SmithKline (GSK) for $13 billion in March 2018. The joint venture sells products such as Nicotinell nicotine patches and Panadol headache tablets.

At the same time, Novartis entered an agreement to buy AveXis Inc., a gene therapy company, for $8.7 billion as part of its neuroscience strategy. AveXis is conducting several clinical studies for the treatment of spinal muscular atrophy, or SMA, an inherited neurodegenerative disease caused by a defect in a single gene. Their gene therapy candidate AVXS-101 has the potential to be the first one-time gene replacement therapy for SMA according to Novartis, and it currently has orphan drug designation from the U.S. FDA for the treatment of SMA.

In other restructuring news, Novartis unveiled plans in October 2017 to close a Sandoz generics manufacturing facility in Broomfield, CO that will result in the loss of approximately 450 jobs over the next couple of years. The company plans to discontinue and/or divest several products with limited growth potential, specifically those facing pricing pressures in the U.S. The products include oral generic treatments in cardiology, central nervous system, endocrinology, respiratory and pain. The phased closure and transfer of some operations to a Sandoz facility in North Carolina is scheduled to be completed in late 2019.

Novartis also signed an agreement contracting Cryoport for an initial three-year term for cryogenic logistics support of CTL019/CD19 CAR-T cell therapy. In March 2017, Novartis’ BLA for CTL019 was accepted by the FDA and was also granted priority review.

Headcount: 118,000
Revenues: $48,518 (-2%)
Pharma Revenues: $32,562 (-2%)
Net Income: $11,314 (-6%)
R&D: $9,039 (+1%)

TOP SELLING DRUGS

Novartis slipped to number two with flat revenues in 2016 compared to 2015. However, at $48.5 billion the Basel, Switzerland-based drug maker is still a Big Pharma giant.

The major drivers behind the company’s falling revenues have included adjustments for changes to its businesses, including its acquisition of GlaxoSmithKline’s (GSK) Oncology business and its divestiture of its Vaccines and Consumer Healthcare divisions to GSK in March 2015.

Novartis started divesting its business segments in 2014. Its Animal Health business was divested to Eli Lilly, while it divested parts of its Vaccines business and its Consumer Healthcare business to GSK. It also divested its Influenza Vaccines business to CSL Group. It acquired GSK’s oncology business in March 2015.

To reflect these changes and the importance of oncology to the company following the integration of the oncology assets acquired from GSK, during the year Novartis restructured its Pharmaceuticals Division by creating two business units—Novartis Pharmaceuticals and Novartis Oncology. Both units form the Innovative Medicines Division and consists of products for therapeutic areas including oncology, cardio-metabolic, immunology and dermatology, retinal, respiratory, neuroscience, and established medicines. The Innovative Medicines segment reported a fall of 2% to $32.6 billion in 2016, representing 67% of total company revenue.

Sandoz is Novartis’ generics and biosimilars division, which includes the retail generics, anti-infectives and biopharmaceuticals franchises. It is the number two generic medicines provider worldwide, and it’s number one in differentiated generics, including products that are difficult to develop and manufacture. In 2016, Sandoz contributed nearly 30% of total revenue at $10.14 billion, marking a 2% increase over the previous year. Alcon, the company’s eye care unit, makes up the remaining $5.76 billion of 2016 revenue.

Upping biosimilar stakes

Sandoz’s revenue drivers are biopharmaceuticals, including biosimilars and Glatopa. The segment’s growth was reported across all regions worldwide. In U.S. markets, its reported revenue for 2016 was $3.7 billion, a 1% rise. European markets reported a 7% rise in revenue to $4.4 billion, driven by strong sales in the region. Canadian and Latin American markets reported a rise of 9% during the year.

The global sales of biopharmaceuticals rose 31% to $1 billion in 2016. These sales included revenue from biosimilars, biopharmaceutical contract manufacturing, and Glatopa. The growth came mainly from the three in-market biosimilars—Omnitrope (somatropin), Binocrit (epoetin alfa), and Zarzio/Zarxio (filgrastim)—along with the strong performance of Glatopa in U.S. markets.

Glatopa (glatiramer acetate) injection is the first generic version of Teva Pharmaceutical’s Copaxone 20mg used for the treatment of relapsing forms of multiple sclerosis. The segment’s anti-infective franchise reported a fall of 2% in revenue at a constant exchange rate at $1.4 billion in 2016.

Also on the biosimilar front, Sandoz during the year acquired from Pfizer the rights for the development and commercialization of PF-06438179 (biosimilar infliximab) in the 28 countries that form the European Economic Area (EEA). Infliximab is a tumor necrosis factor alpha (TNF-alpha) inhibitor used to treat a range of autoimmune diseases including rheumatoid arthritis (RA) and psoriasis.

Sandoz also advanced its biosimilars program with EMA acceptance of regulatory submission for its biosimilar to Amgen’s EU-licensed Neulasta (pegfilgrastim)—a long-acting recombinant human granulocyte colony-stimulating factor (G-CSF). Sandoz is seeking approval for the same indication as the reference product.

Clinical collaborations

Novartis and Bristol-Myers Squibb (BMS) entered into a clinical research collaboration to investigate the safety, tolerability, and efficacy of Mekinist (trametinib) in combination with Opdivo (nivolumab) and Opdivo + Yervoy (ipilimumab) regimen as a potential treatment option for metastatic colorectal cancer. BMS will conduct the study, which is expected to establish recommended dose regimens and the preliminary anti-tumor activity of the combination therapies. Both companies will evaluate the results to determine optimal approaches and potential clinical development of these combinations.

Allergan entered into a clinical trial agreement with Novartis to conduct a Phase IIb study, using Allergan’s cenicriviroc (CVC) and Novartis’ lead FXR agonist for the treatment of non-alcoholic steatohepatitis (NASH). The study will assess the safety, efficacy and tolerability of this multi-therapy treatment approach for NASH. CVC is a once-daily, oral, Phase III ready potent immunomodulator that blocks two chemokine receptors, CCR2 and CCR5, which are involved in inflammatory and fibrogenic pathways.

Novartis is developing Farnesoid X receptor (FXR) agonists for the treatment of chronic liver diseases, including NASH. The most advanced investigational compound is a potent, non-bile acid FXR agonist, which recently received Fast Track designation from the FDA and is in a Phase II clinical trial. As part of this agreement, Novartis and Allergan will conduct a Phase IIb clinical trial to assess the safety, efficacy and tolerability of a multi-therapy treatment for NASH.

Novartis also entered a $225 million cardiovascular deal with Ionis Pharmaceuticals to develop and commercialize AKCEA-APO(a)-L Rx and AKCEA-APOCIII-L Rx, novel potential therapies to treat cardiovascular disease. The partnership allows the companies to move more rapidly to Phase III cardiovascular outcomes studies. Ionis and its subsidiary Akcea plan to conduct a Phase II dose-ranging study for each drug, to choose the optimal dose and evaluate alternative dose schedules, such as monthly dosing, for the Phase III study. Following the successful completion of each Phase II dose-ranging study, and prior to initiation of the Phase III study, Novartis will be able to exercise its option to license and commercialize each drug.

Bolstering the immuno-oncology pipeline

At the start of 2015 Novartis launched a new immuno-oncology research team led by cancer vaccine pioneer Glenn Dranoff. In a short period of time, the team built a broad portfolio of clinical and pre-clinical programs focused on stimulating the body’s immune system to combat cancers through targeting critical regulatory steps in the anti-tumor immune response.

Today the company’s immuno-oncology portfolio includes novel checkpoint inhibitors, chimeric antigen receptor T-cell (CART) technology, myeloid cell targeting agents, the T-cell stimulating factor IL-15, STING agonists that enhance immune recognition of cancers, and adenosine receptor antagonists and TGF-beta blocking antibodies that overcome immunosuppression in the tumor microenvironment.

During the year, Novartis made a series of acquisitions and strategic collaborations between itself and biotech companies that have helped bolster its immuno-oncology pipeline. It continued to grow the pipeline through a collaboration and licensing agreement with Surface Oncology that gave Novartis access to four preclinical programs that target regulatory T cell populations, inhibitory cytokines, and immunosuppressive metabolites in the tumor microenvironment.

Novartis also added bispecific antibodies to its immuno-oncology portfolio through a collaboration and licensing agreement with Xencor. Traditional monoclonal antibodies target and bind to a single antigen. Bispecific antibodies are engineered to recognize and target two different antigens, which makes them potentially more effective in targeting complex diseases. A T-cell engaging bispecific antibody is able to bind an antigen on a tumor cell with one arm and engage T-cells capable of their destruction with the other.

Novartis has the right to develop four additional bispecific antibodies and to use other Xencor proprietary antibody engineering technology for up to ten additional biotherapeutic programs across the Novartis R&D portfolio. In addition, the companies will collaborate to co-develop Xencor’s two bispecific T-cell engaging antibodies targeting CD3xCD123 and CD3xCD20 for the treatment of acute myeloid leukemia and B-cell malignancies.

Novartis also signed an exclusive option, collaboration and license agreement with Conatus Pharmaceuticals, a biotech focused on the development of novel medicines to treat liver disease. This agreement enables Novartis and Conatus to jointly develop emricasan, an investigational, first-in-class, oral, pan-caspase inhibitor for the treatment of NASH with advanced fibrosis (scarring) and cirrhosis. This collaboration has the potential to expand treatment options for people in various stages of fatty liver disease, where no approved medicines currently exist.

Regulatory approvals

In terms of new drug approvals, two of Novartis’ drugs for which regulatory decisions are expected soon include LEE011, an investigational drug in combination with letrozole for the treatment of HR+/HER2- advanced breast cancer, and PKC412, an investigational drug for the treatment of acute myeloid leukemia. Both drugs have been granted priority review designations by the FDA. Other regulatory decisions are expected for biosimilars.

Novartis is also going to submit new drug applications for CTL019, an investigational drug for the treatment of acute lymphoblastic leukemia in children, and AMG334, an investigational drug for the treatment of migraines, developed in partnership with Amgen.

During the year Novartis’ Cosentyx (secukinumab) was approved by the FDA for two new indications, active ankylosing spondylitis (AS) and active psoriatic arthritis (PsA). Both are life-long, painful and debilitating inflammatory diseases that affect the joints and/or spine. Cosentyx is now the first and only interleukin-17A (IL-17A) antagonist approved for AS, as well as moderate to severe plaque psoriasis and PsA, which impacts as many as 30% of patients with psoriasis.

Headcount: 119,000
Revenues: $49,414 (-5%)
Pharma Revenues: $30,445 (-4%)
Net Income: $17,794 (+73%)
R&D: $8,935 (-2%)

TOP SELLING DRUGS

Novartis moved into 2015 having acquired GlaxoSmithKline’s (GSK) oncology products, solidifying its position as a global leader in cancer treatments. The two companies also merged their over-the-counter (OTC) businesses into a joint venture that is one of the world’s largest consumer healthcare companies, 36.5% owned by Novartis. At the same time, Novartis sold its vaccines business, excluding the influenza business, to GSK. The influenza vaccines business was sold to CSL Limited while the animal health business was sold to Eli Lilly.

Altogether Novartis reported sales of $49.4 billion in 2015. The pharmaceuticals division was responsible for $30.4 billion of total revenue followed by the eye care business with $9.8 billion. The generics business brought up the rear with $9.2 billion of revenue.

As this issue went to press, Novartis unveiled plans to restructure its pharmaceuticals division by creating two business units—Novartis Pharmaceuticals and Novartis Oncology. From July 1, 2016 Novartis will continue to have three focused, customer-facing divisions: Innovative Medicines (formerly the Novartis Pharmaceuticals division), which will include the new Novartis Pharmaceuticals and Novartis Oncology business units; Sandoz, the generics and biosimilar division, which includes the retail generics, anti-infectives and biopharmaceuticals franchises; and Alcon, the eye care devices division, which includes the surgical and vision care franchises.

Paul Hudson has been appointed chief executive officer, Novartis Pharmaceuticals, and Bruno Strigini will become chief executive officer, Novartis Oncology. Both will report directly to Joseph Jimenez, chief executive officer, Novartis. With these changes, David Epstein, division head and chief executive officer, Novartis Pharmaceuticals, has decided to leave the company. The new structure reflects the importance of oncology to the company following the integration of the oncology assets acquired from GSK mentioned above.

Growth products lead the charge

In today’s pharmaceutical environment, growth products are a vital component to renew product portfolios, while at the same time helping to offset the impact of patent expirations. Across Novartis’ divisions, its portfolio of growth products continued to support performance in 2015. Sales of growth products increased 17% to $16.6 billion, or 34% of net sales. In the pharma division, sales of growth products increased 33% and accounted for 44% of net sales, up from 36% in 2014.

Pharmaceutical growth products in 2015 included Gilenya ($2.8 billion, +21%), an oral therapy for multiple sclerosis; Tasigna ($1.6 billion, +16%), a treatment for chronic myeloid leukemia; and Afinitor ($1.6 billion, +10%), a treatment for several types of cancer.

In the generics division, sales of biopharmaceuticals, including biosimilar follow-on versions of complex biologic drugs, surged 39% to $772 million globally.

Geographically, efforts to expand in emerging growth markets such as those in Asia, Africa and Latin America continued to deliver results for Novartis, although growth moderated as overall economic activity slowed in China, Brazil, India and elsewhere. Net sales in emerging markets rose 7% to $12.4 billion, led by Turkey, up 14%, and Brazil, up 12%.

To increase efficiency, an ongoing effort begun in 2010 to optimize its global manufacturing network continued to take shape. In 2015, Novartis announced plans to exit Sandoz manufacturing sites in Frankfurt and Gerlingen, Germany, as well as in Turbhe, India. It also closed a pharmaceuticals division facility in Resende, Brazil, divested an Alcon site in Kaysersberg, France, as well as a pharmaceutical site in Taboão da Serra, Brazil, and announced the downsizing of a pharmaceuticals division site in Ringaskiddy, Ireland. To date, 25 sites in Novartis’ continuing operations have been, or are being restructured or divested.

Innovation across the board

Novartis made significant progress in research and development in 2015, with 20 major approvals in key markets and 14 major submissions.

On the cardiovascular front, Novartis had notable success during the year with the approval in the U.S. and EU of Entresto (formerly LCZ696) to treat chronic heart failure with reduced ejection fraction, a condition where the heart muscle does not contract effectively and less oxygen-rich blood is pumped around the body. Entresto is the first new drug in decades to treat this form of heart failure. It is also the only heart failure drug to show a significant mortality benefit in a head-to-head trial against the existing best treatment, enalapril.

In oncology, new cancer drugs gained regulatory approval in 2015. Zykadia, for patients with non-small cell lung cancer, was approved in the EU, a year after its U.S approval. The treatment is from a new class of medicines known as anaplastic lymphoma kinase (ALK) inhibitors.

In September, Novartis received EU approval for Tafinlar + Mekinist, the first combination therapy approved for patients with unresectable or metastatic melanoma with a BRAF V600 mutation—the most aggressive form of skin cancer and one associated with low survival rates. This approval followed two Phase III trials in which the Tafinlar + Mekinist combination showed significant overall survival benefit. The FDA approved the Tafinlar + Mekinist combination in late 2015.

The FDA and the European Commission also approved Novartis’ first-in-class multiple myeloma drug Farydak (panobinostat), shown in trials to boost progression-free survival by about 7.8 months.

The company also reached major development milestones during the year with promising pipeline products, including CTL019 in non-Hodgkin’s lymphoma, a difficult-to-treat disease. CTL019, a personalized cell therapy for cancer, is being developed with the University of Pennsylvania.

In immunology and dermatology, in early 2015, Novartis received approval in the U.S. and EU for Cosentyx to treat moderate to severe plaque psoriasis. Cosentyx is the first approved human monoclonal antibody that selectively binds to circulating interleukin-17A, which plays an important role in driving the body’s immune response in several disorders. In total, 50 countries have approved Cosentyx for the treatment of moderate-to-severe plaque psoriasis. In November, Cosentyx was approved in Europe for the treatment of psoriatic arthritis and ankylosing spondylitis. Novaartis received FDA approval in January 2016.

For biosimilars, Sandoz received FDA approval in March for Zarxio (filgrastim), the first biosimilar approved in the U.S. under the new biosimilar pathway created in the Biologics Price Competition and Innovation Act of 2009. The drug, which stimulates white blood cell production in some cancer patients undergoing chemotherapy, is called Zarzio in Europe and is a biosimilar to Neupogen from Amgen. The FDA and the European Medicines Agency accepted an application for etanercept, a biosimilar to Amgen’s Enbrel for several autoimmune diseases, including rheumatoid arthritis and psoriatic arthritis. The FDA also accepted an application for pegfilgrastim, a biosimilar to Amgen’s Neulasta, used against infections in patients receiving chemotherapy.

Expanding the pipeline

In June 2015 Novartis expanded its neuroscience portfolio with novel angiotensin II type 2 receptor antagonist for the treatment of chronic pain when it acquired Spinifex Pharmaceuticals, a U.S. and Australian privately held development stage company, focused on developing a peripheral approach to treat neuropathic pain.

Novartis bought Melbourne-based Spinifex for $312 million. The acquisition is centered on Spinifex’s lead candidate EMA401, a novel angiotensin II type 2 (AT2) receptor antagonist, being developed as a potential first-in-class oral treatment for chronic pain, particularly neuropathic pain, without central nervous system (CNS) side effects.

Positive results from Spinifex’s Phase II clinical trial of EMA401 in PHN, a painful condition that develops in some people following herpes zoster (shingles), have been published. Novartis will continue the development of EMA401 and is planning to initiate Phase IIb clinical trials in patients with PHN or PDN. Novartis also intends to build on these two key indications and pursue a broad peripheral neuropathic pain (PNP) label for EMA401.

In October 2015 Novartis broadened its immuno-oncology pipeline with the acquisition of Admune Therapeutics and licensing agreements with XOMA and Palobiofarma.

With four candidates currently in clinical trials and five more agents expected to enter the clinic by the end of 2016, Novartis has rapidly built a robust portfolio of programs focused on stimulating the body’s immune system to combat cancers that includes novel checkpoint inhibitors, chimeric antigen receptor T-cell (CART) technology, myeloid cell targeting agents, and STING agonists. Currently Novartis’ myeloid cell targeting program (MCS-110) and checkpoint inhibitors targeting PD-1 (PDR001), LAG-3 (LAG525), are in Phase I clinical trials. The CART program (CTL019) is in Phase II clinical trials. The anti-TIM-3 program (MGB453) is expected to enter the clinic by the end of 2015 and a STING agonist (MIW815), through collaboration with Aduro Biotech, and GITR agonist are progressing toward first-in-human clinical trials in 2016.

The acquisition of Admune adds an IL-15 agonist program currently in Phase I clinical trials for metastatic cancer. The licensing agreement with Palobiofarma gives Novartis development and commercialization rights to PBF-509, an adenosine receptor antagonist currently in Phase I clinical trials for non-small cell lung cancer. The agreement with XOMA gives Novartis development and commercialization rights to XOMA’s TGF-beta antibody programs. All three programs will be explored as monotherapies and in combination with therapies in Novartis’ immuno-oncology and targeted therapy portfolios.

In preclinical studies, IL-15 therapies have been shown to activate CD8+, CD4+ memory T cells and Natural Killer (NK) cells that play a critical role in stimulating the immune system. Adenosine and TGFß both drive immune suppression in the tumor microenvironment, which allows cancer cells to escape immune surveillance, making inhibition of these two pathways an attractive next-generation immuno-oncology approach.

Headcount: 133,413
Revenues: $57,996 (flat)
Pharma Revenues:$31,791 (-1%)
Net Income: $10,280 (+11%)
R&D: $9,943 (+3%)

TOP SELLING DRUGS

Back in 2013 Novartis needed to shake things up. Feeling the pressure of the increasingly demanding environment in the healthcare industry, Big Pharma’s king of the hill decided that only operations with innovation power and global scale stand a chance of surviving over the next decade and beyond.

2014 brought to fruition the results of this review process. During the year, Novartis announced several transactions that, once completed, will shrink its business focus from six areas to three.

Novartis decided it would back its Pharmaceuticals, Alcon (eye care) and Sandoz (generics) divisions, while the Vaccines, Animal Health and Over-the-Counter (OTC) divisions ultimately lacked the commercial scale to compete effectively as independent businesses.

As part of this transformation process Novartis announced plans during the year to acquire GlaxoSmithKline’s (GSK) oncology products to strengthen its position as the world’s number two company in cancer treatments. It is also selling the Vaccines division, excluding the influenza business, to GSK—creating the world’s largest vaccines business. The flu vaccines business will go to CSL Ltd. in a separate transaction.

Novartis and GSK plan to merge their OTC businesses into a joint venture that would be one of the world’s largest consumer healthcare companies. Novartis will own 36.5% of this JV. In January 2015, Novartis sold off the Animal Health business to Eli Lilly, creating the world’s second-largest company in that sector.

Once these transactions are completed, Novartis will become a company focused on the three aforementioned businesses. Pharmaceuticals will be one of the world’s largest providers of innovative medicines and currently has a strong pipeline, with 135 projects in development. Alcon, the number one eye care company worldwide, has a strong presence in ophthalmic pharmaceuticals, surgical equipment and vision care products, such as contact lenses. Lastly, Sandoz, the number two generic medicines provider globally and number one in differentiated generics, including medicines that are difficult to develop and manufacture, maintains a leading biosimilars business, with three products on the market and a strong pipeline in clinical development.

Growth Products Fuel Performance

In terms of financial performance, in 2014 net sales increased 3% to $58 billion, which is admirable in light of increased pressure from generic competition in the market. Operating income rose 8% to $14.6 billion while margin improved 1.2 percentage points to 25.2%.

Across divisions, Novartis’ portfolio of growth products and presence in emerging growth markets continued to fuel performance in 2014. Sales of growth products increased 18% to $18.6 billion, or 32% of net sales. In the Pharmaceuticals division, growth products accounted for 43% of net sales, up from 37% in 2013—demonstrating how Novartis is rejuvenating its portfolio and mitigating the impact of patent expirations on key products.

Pharmaceuticals, which includes oncology, primary care and specialty care products, delivered net sales of $31.8 billion (–1%, +1% in constant currencies) as strong sales of growth products countered the impact of greater generic competition for Diovan and other products, particularly in the U.S. and Japan. Generic competition reduced sales by seven percentage points. Growth products generated $13.7 billion of division net sales, growing 17% compared to last year. Sales in emerging growth markets increased 11% to $8.1 billion.

Top-performing Pharmaceutical products in 2014 included Gilenya ($2.5 billion, +30%), an oral therapy for multiple sclerosis; Afinitor ($1.6 billion, +22%), a treatment for several types of cancer including breast and kidney; and Tasigna ($1.5 billion, +24%), a treatment for chronic myeloid leukemia.

The planned acquisition of GSK’s oncology products is expected to reinforce Novartis’ already strong position in cancer treatments. In addition, in February, Novartis acquired CoStim Pharmaceuticals, a Cambridge, MA-based, privately held biotechnology company focused on harnessing the immune system to eliminate immune-blocking signals from cancer. The move is intended to broaden Novartis’ cancer immunotherapy research program. Novartis will add late discovery stage immunotherapy programs directed to several targets, including PD-1.

In May Novartis acquired non-U.S. rights from Ophthotech for OAP030 (Fovista) for wet AMD. Also of note, in July personalized cell therapy CTL019 for leukemia received FDA breakthrough therapy designation.

Other highlights in 2014 included the submission of regulatory applications in the EU and U.S. for LCZ696 in chronic heart failure, an area of high unmet medical need. Novartis also submitted for approval NVA237 and QVA149 in the U.S. for chronic obstructive pulmonary disease (COPD). Cosentyx, formerly AIN457, received regulatory approval in Japan for psoriasis and psoriatic arthritis, as well as positive recommendations in the EU and U.S. for psoriasis. Other products that received regulatory approval in 2014 included Xolair for chronic spontaneous urticarial, also known as chronic idiopathic urticarial, in the EU and U.S., and Zykadia for ALK+ non-small cell lung cancer in the U.S.

In the Sandoz division, products are focused on retail generics, biopharmaceuitcals and oncology injectables, and anti-infectives. Biosimilars, which are follow-on versions of complex biologic drugs, made a strong contribution to growth, with sales rising 23% to $514 million globally.

In May, Sandoz was the first to apply for approval of a biosimilar in the U.S. under the new biosimilar pathway created in the Biologics Price Competition and Innovation Act of 2009, with filgrastim, which is used to decrease the incidence of infection among cancer patients receiving chemotherapy. In July, Sandoz announced FDA acceptance of a biosimilar application for filgrastim, a version of Amgen’s Neupogen.

Sandoz leads the industry with six biosimilars in Phase III trials or registration. Three Sandoz biosimilar products occupy the number one position in market share in their respective categories—Omnitrope, a human growth hormone; Binocrit for anemia; and filgrastim under the brand name Zarzio.

Sandoz had net sales of $9.6 billion in 2014, up 4% from the prior year, driven by a 15 percentage points increase in volume, more than offsetting 8 percentage points of price erosion.

Performance was driven by strong retail generics and biosimilars sales growth in Asia, excluding Japan, (+15%), the U.S. (+14%), and Latin America (+10%). Sales growth in Western Europe, excluding Germany, was solid at 4%.

In addition, Novartis’ efforts to expand its presence in emerging growth markets such as Asia, Africa and Latin America continued to show good results. Net sales in those markets rose 11% to $15.3 billion, led by China, up 15%, and by Brazil, up 18%.Innovation yields approvals.

In 2014, Novartis’ R&D efforts yielded 13 approvals in key markets, as well as 15 regulatory filings. For example, in March, Xolair was approved in the EU for chronic spontaneous urticaria and in the U.S. for chronic idiopathic urticaria, a severe skin condition characterized by hives. In April, Zykadia was approved in the U.S. for the treatment of ALK+ non-small cell lung cancer. In December, the company received approval in Japan for Cosentyx (formerly AIN457) for the treatment of psoriasis and psoriatic arthritis. Cosentyx also received positive recommendations from advisory bodies in the EU and U.S. for psoriasis.

Novartis also reached major milestones with promising pipeline products, including LCZ696 in chronic heart failure and CTL019 in certain forms of leukemia. CTL019, a personalized cell therapy for cancer being developed with the University of Pennsylvania in the U.S., received breakthrough therapy designation from the FDA, marking the fifth such designation for therapies under development by Novartis, including Bexsero, Zykadia, RLX030 and BYM338.

Oncology. A number of cancer drugs moved forward in late-stage development in 2014. For instance, LEE011, a CDK 4/6 inhibitor, showed promising results in breast cancer patients and is entering full development across multiple indications. And BKM120, a pan-PI3K inhibitor being developed in multiple tumor types, began Phase III trials for breast cancer, with results expected in 2015. Preliminary results from two pilot clinical trials of CTL019 showed that 27 of 30 patients with acute lymphoblastic leukemia experienced complete remission, suggesting it could become a potentially transformative treatment.

Cardiovascular. Novartis had success during the year with trials of LCZ696, an investigational treatment for chronic heart failure. Data from a study of 8400 cardiovascular patients showed that LCZ696 lowered the chances of death or hospitalization by 20% compared to the standard treatment for heart failure. Researchers stopped the study six months early due to compelling efficacy. LCZ696 works by relaxing the blood vessels and stimulating the kidneys to excrete sodium and water, relieving strain on the heart.

Immunology and Dermatology. Novartis achieved positive results of Phase III studies of Cosentyx for two additional indications: psoriatic arthritis and ankylosing spondylitis, a chronic inflammation of the joints in the spine. Cosentyx inhibits interleukin-17A, a protein involved in the inflammatory process. Global regulatory filings are planned in 2015 for Cosentyx for psoriatic arthritis and ankylosing spondylitis.

Eye care. Novartis licensed Google “smart lens” technology in July. Alcon is working with Google to develop products such as contact lenses to monitor glucose levels in patients’ tear fluid, as well as lenses that use tiny sensors to help wearers focus at any range.

Biosimilars. Sandoz filed a marketing application in the US for a proposed biosimilar, one of six in Phase III clinical trials or undergoing registration. The drug, which stimulates white blood cell production in some cancer patients undergoing chemotherapy, is called Zarzio (filgrastim) in Europe and is a proposed biosimilar to Neupogen from Amgen.

Having taken the spot of Top Dog in 2014 Novartis has remained in pole position this year. While it has staved off expiries for some of its blockbuster drugs, the company still has looming expiries in 2016 and has invested heavily in R&D with the highest spend across the market sector.

While trying to reshape the culture of the company, it has also tried to transform its drug portfolio, investing more time and effort in niche sectors of the market for diseases within the developing world. The announcement in August of an exclusive alliance with the Global Alliance for TB Drug Development and its continued work in drug development for parasitic diseases such as malaria, dengue fever and human African trypaosamiasis (HAT or sleeping sickness) may be where its future lies. The other new feather in its cap was the announcement that Alcon will market the new Google ‘smart lens’ technology, signaling a move into new pastures in the medical device field. Encompassing the diabetes sector, where Novartis has extensive experience, could be a clever move.

Novartis hasn’t forgotten its mainstay in cancer therapies though, announcing a collaboration with BMS in NSCLC and more recently in March of this year creating a partnership with Aduro Biotech in order to accelerate its immunotherapy efforts. As things stand, its multi-faceted development pathway looks good for the year ahead.

—Adele Graham-King

Novartis has entered into a clinical collaboration with Bristol-Myers Squibb (BMS) to evaluate the safety, tolerability and preliminary efficacy of three molecularly targeted compounds in combination with BMS’s investigational PD-1 immune checkpoint inhibitor, Opdivo (nivolumab), in Phase I/II trials of patients with non-small cell lung cancer (NSCLC). Both studies will be conducted by Novartis. One trial will evaluate the combination of Opdivo with Zykadia (ceritinib), an FDA-approved treatment for patients with anaplastic lymphoma kinase-positive (ALK+) metastatic NSCLC who have progressed on or are intolerant to crizotinib. A second study will investigate Opdivo with INC280, a potent and highly selective inhibitor of c-MET receptor tyrosine kinase, and separately with EGF816, a potent, third-generation EGFR tyrosine kinase inhibitor that is active against T790 mutations. INC280 and EGF816 are currently being investigated in various Phase I/II NSCLC trials. This collaboration with BMS further advances Novartis’ development efforts in the field of immunotherapy. Earlier this year, Novartis acquired CoStim Pharmaceuticals Inc., adding late discovery stage immunotherapy programs focused on key oncogenic targets, including PD-1. Novartis is also actively investigating the potential of chimeric antigen receptor (CAR) T cell technologies in the treatment of various liquid and solid tumors through its alliance with the University of Pennsylvania.

Headcount: 135,696
Pharma Revenues:$32,214 (flat)
Total Revenues:$57,920 (+2%)
Net Income:$9,292 (-3%)
R&D Budget: $9,642 (+6%)

TOP SELLING DRUGS

In 2012, Novartis’ senior managemers told the press that the company could have as many as 14 blockbuster drugs on the market through 2017. Novartis had over 200 products in clinical development last year, 144 of them developed by its pharmaceuticals division.

Sandoz, the company’s generic drugs division, has launched new biosimilar development programs, and is now in Phase III clinical trials for etanerecept (Enbrel) and adalimumab (Humira).

Last year, three of Novartis’ pharmaceutical division’s drug candidates received Breakthrough Therapy designations from the FDA, warranting expedited review: LDK378, for lung cancer, BYM338 for myositis, and RLX030 (serelaxin) for acute heart failure. Heart failure, Novartis noted, is an area where few successful drugs have been introduced, and this was to be “the first acute heart failure treatment breakthrough in more than 20 years.”

However, just as the FDA giveth, it can also take away.  This Spring, FDA reviewers rejected serelaxin, saying more evidence of efficacy was required for approval.

Novartis has coped with market challenges by minimizing costs and increasing its focus on its three key business areas: pharmaceuticals, eye care (Alcon), and generics (Sandoz).  The company sold its blood transfusion diagnostics unit to Grifols earlier this year, and its animal health division to Eli Lilly this Spring, a deal worth over $5 billion.

However, advancing this goal most dramatically was Novartis’ April deal with GSK, which established a new model for pharma financial ventures. Instead of an outright buy, Novartis swapped its non-flu vaccines for GSK’s oncology business, and created a new joint consumer healthcare company 63.5% owned by GSK.  Novartis also acquired GSK’s AKT inhibitor cell-signalling technology, which could help it develop new therapies of its own.

Last year, the company’s operating income margin stood at nearly 25%, based on a media report. CEO Joe Jimenez says the GSK deal will position the company  “incredibly well for the next 10 years.”

The company has been cutting costs for several years, and has reduced capacity by 20% over the past four years. Last year, such efforts reportedly saved Novartis nearly $3 billion.

Novartis plans to reduce headcount in its pharmaceuticals division by laying off or transferring 6% of its pharma division’s employees. Plans call for establishing a new back office services center based in India that would serve all three divisions and reduce operating costs. The company will shut down its plant in Suffern, NY, a model for lean manufacturing, after patents for its blockbuster hypertension treatment, Diovan, expired, and is also closing an Alcon facility in Ontario.

For now, Novartis is holding on to its $16-billion stake in Roche. However, Italian authorities recently launched a probe into both companies alleging that they used illegal means to give Lucentis, the ophthalmic drug that the two companies developed, and that Novartis sells outside of the U.S., an unfair market advantage.

Novartis has also been hit with allegations of fraud in the U.S., and a government lawsuit states that, from 2005 to 2013, Novartis persuaded 20 pharmacies to switch thousands of kidney transplant patients to its immunosuppressant drug Myfortic by providing kickbacks in the form of discounts and rebates.

Perhaps the most serious allegations of fraud have occurred in Japan, where the company has been accused of exaggerating the benefits of Diovan in past academic journal articles, and falsifying clinical data. A former director of the unit’s scientific affairs department was recently arrested and accused of manipulating clinical study data. Novartis is said to be actively investigating these claims.

After criticism of its plans to give its former CEO a $78-million noncompete package, news of which helped lead to stringent regulations in Switzerland, the company has increased transparency on issues of executive pay and overall governance, which are spelled out at length in its annual report.

The company continues to invest in emerging markets, and to participate in efforts to improve access to its medicines around the world. Last year, it launched $2.1 billion in programs to improve access to healthcare. Novartis is also actively investing in biologics, which account for one quarter of its current pipeline. Last year, the company broke ground on a $500-million biologics facility in Singapore, colocated with Novartis’ pharmaceutical production site in Tuas.

Novartis is also partnering and investing in new approaches to drug development. An example is its alliance with Cellectis, a French company that has developed a way to engineer cells using the CAR-T approach. In CAR-T, T cells are taken from the blood and engineered to identify cancer cell proteins, then put back in the body to seek and destroy tumors. Pfizer has just entered into a similar agreement, fueling speculation of increased competition between the two companies in R&D.

The FDA recently approved Novartis’ flu vaccine plant in Holly Springs, NC, which uses cell-culture to make the vaccines. The company can now begin commercial production for Flucelvax, its seasonal flu vaccine, to be made in the U.S. for the first time. The vaccine, approved in November 2012, was the first cell-based flu vaccine approved by FDA.

Headcount: 120,000
Pharma Revenues*: $46,732 (-3%)
Total Revenues: $56,673 (-3%)
Net Income: $9,618 (4%)
R&D Budget: $9,116 (-1%)

Top Selling Drugs

Account for 55% of total pharma sales, up from 53% in 2011

Novartis’ integrated healthcare model has kept it near the top of our charts, with contributions coming from a wide range of areas. That setup hasn’t totally protected it from the patent cliff, as pharma revenues fell by $1.2 billion in 2012, which is almost exactly how much Diovan sales dropped as it began to face generic competition.

Diovan’s erosion has actually been slower than anticipated in the U.S. While the combination Diovan HCT product has competition from Mylan’s generic, the monotherapy, which generated more than 60% of Diovan revenues, has yet to see a generic entrant. This is because the rights to its 180-day generic exclusivity period are held by Ranbaxy, an Indian company that has gotten into a lot of trouble with the FDA in the past decade. In May 2013, Ranbaxy made a major settlement with the agency, and expects to get its generic Diovan monotherapy approved any time now. Since that approval will start the six-month exclusivity window, it looks like Novartis may not take too bad a revenue hit in 2013.

By the following year, of course, much of the bottom will fall out. Zometa and Gleevec patents will drop this year and 2015, respectively, leaving Novartis with more holes to fill. By then, revenue growth from its newer products may save the company from an extreme sales drop. Novartis certainly isn’t at risk of losing its spot as the #2 pharma in the world, but the Diovan uncertainty won’t help it pass Pfizer for #1.

In its November 2012 R&D update, the company noted that it had seven blockbusters by the end of 2011, and hopes to have 14 (or more!) by 2017. Gilenya crossed that barrier in 2012, and will likely be followed next year by Tasigna, Galvus and Afinitor. We’re not quite sure where another six (or more!) are going to come from, since they’ll (likely) need to replace Diovan, Gleevec and Zometa/Reclast. In addition, some fast-growing products may level out or fall quickly as competition mounts. (We’re looking at you, Gilenya. Sure, you may have blasted through the blockbuster ranks in no time flat as a first-in-class oral treatment for multiple sclerosis, but the arrival of Sanofi’s Aubagio and Biogen Idec’s Tecfidera may take the wind out of your sails.)

Novartis does have a raft of products that it plans to file for registration in the next year-plus, along with label expansions for critical products. Late-stage prospects cover oncology, heart failure, COPD, and an anti-inflammatory biologic that may have some benefits against MS.

In oncology, the company projects that physicians will shift from Gleevec to Tasigna as more data comes in; Novartians contend that Tasigna has a lower risk of progression for chronic myeloid leukemia than Gleevec does, with the implication that it can lead to treatment-free remission in patients. That would be an utter game-changer and would redound to Novartis’ credit.

The company also hopes to see good results from Jakavi, its JAK1/JAK2 inhibitor to treat the blood cancer myelofibrosis. Novartis got Jakavi approved in the EU, Canada and other markets, but licensing partner Incyte has the U.S. rights locked up. Incyte managed $136 million in Jakafi sales in 2012, and $48 million in 1Q13. Novartis saw $35 million in 1Q13 revenues from non-U.S. markets.

Novartis received Breakthrough Therapy designation for a treatment for patients with anaplastic lymphoma kinase positive (ALK+) metastatic non-small cell lung cancer (NSCLC), based on strong Phase I results. Two Phase II trials are ongoing and the company plans to go into Phase III later this year, with a filing as early as 2014, if all goes well.

There are also very high expectations for the company’s daily COPD combo-treatment QVA149. Peak sales estimates run as high as $5.0 billion, if Novartis can get its highest dose approved. One of the two ingredients in QVA149, glycopyrronium bromide, was approved in the EU in October 2012 as the Seebri Breezhaler, a once-daily maintenance dose of COPD.

Novartis made history in November 2012 when it received FDA approval for Flucelvax, the first flu vaccine made by cell culture rather than egg-based manufacturing. The new vaccine, to be made at a facility in NC paid for in part by the U.S. Department of Health and Human Services, should be able to accommodate both seasonal influenza and a pandemic disaster. The company is trying to build up its vaccine portfolio into a profit-making unit.

Novartis suffered a regulatory setback in April 2013 when India’s Supreme Court ruled that Gleevec (imatinib) is not eligible for patent protection in that country. Novartis had received a patent for imatinib in 1993, but the version in Gleevec is a compound that allows for bioavailability. The company argued that the molecule that was patented in 1993 “could not safely be administered to patients and represented only the first step in the process to develop Glivec as a viable treatment for cancer.” It’s a complex case, and not simply a compulsory licensing incident, although the Indian government has complained that the price of a round of treatment of Gleevec is too high.

In June 2013, Novartis began investigating a report that sales reps in India have been artificially inflating sales for Galvus diabetes medication, lying on invoices and using bonus money to buying Galvus from wholesalers, which would registered it as sales.

In other regulatory-legal news, Novartis was charged with colluding with competitors in two European markets — J&J in the Netherlands over generic fantanyl, and Roche in Italy over blocking Avastin in favor of Lucentis — and also got sued twice in four days in April 2013 by the U.S. government over kickbacks — to doctors to prescribe hypertension and diabetes drugs, and to pharmacies to move kidney transplant patients over to its immunosuppressant drug. The physician-related suit includes the charge of a $10,000 dinner for three at famed sushi restaurant Nobu. They should’ve held out for Masa. In November 2012, Novartis paid $20 million to the U.S. and Texas over Medicare fraud charges.

Each of those events (plus the ongoing quality troubles as a number of Novartis and Sandoz sites) sounds bad, but the worst press Novartis got in the past year came when chairman Dan Vasella retired, and Novartis revealed that it would pay him as much as $78 million over six years as part of a non-compete clause.

The press, the Swiss public, and many shareholders went ballistic. Coming in the same year that Novartis posted a sales shortfall and (more importantly) 2,500 layoffs, the package came off as obscene. Within weeks, both parties canceled the clause, even though Dr. Vasella pledged “to make the net amount available for philanthropic activities.”

Novartis has challenges ahead with multiple expirations, but its pipeline is delivering at the right time to see it through.

Lowe Down
As mentioned in my Pfizer writeup, Novartis is confidently spending a bundle on an expanded facility in Cambridge. As the first movers in the “Let’s take Big Pharma to Massachusetts” trend, they can feel proud for having been trendsetters. (Meanwhile, the degree to which New Jersey is emptying out is startling.)

The confidence is apparently justified. Novartis has one of the more wide-ranging drug pipelines in the industry, which is a good thing, since it’s looking at some patent-expiration worries. Nothing at AstraZeneca or Eli Lilly level, you understand (that is, more worrisome than terrifying), but inevitable just the same. The company doesn’t spend much time talking about its strategy to anyone else, so it’s hard to piece together Novartis’ plan to deal with all this. That wide range of drugs includes some prospects in extremely competitive fields, so the company might be looking for areas where there aren’t so many elbows being thrown (the company has mentioned Alzheimer’s as an interest, which is nothing if not wide open). But the wide-open fields got that way for good reasons. There will be some balancing to do . . .

—Derek Lowe

Segments
Novartis makes no noises about splitting up its consolidated structure, although there’s occasional chirping from financial firms that would stand to gain by brokering that sort of split. With the departure of chairman, former chief executive officer, and Alcon-deal architect Dan Vasella, the reasoning goes, it might be time to devolve. But that deal hasn’t been a flop like Merck’s purchase of Schering-Plough, and it doesn’t seem to be a drag on the rest of the company’s performance. (The April 2013 resignation of the chief fiancial officer, Jon Symonds, also added a little fuel to that breakup fire.)

Still, as we do each year, we provide a breakdown of Novartis’ various revenue streams, and where they would each fall within our Top Companies listings.

Pharma: $32.2 billion (would fall to #5, between GSK and AZ)
Alcon: $10.2 billion ($4.0 billion in opthalmic pharmaceuticals would be added to Pharma, pushing Novartis past GSK)
Vaccines/Diagnostics: $1.9 billion (that would be good enough for #8 in our Top Biopharma ranks)
Sandoz (generics): $8.7 billion (good enough to squeeze between Gilead and Mylan for #19 on our list)
Consumer: $3.7 billion (down $900 million from last year, mainly because of those production problems at its Lincoln, NE site)

Qaulity is Jbo #1
Novartis’s total revenues and diversified structure have enabled it to challenge J&J as one of the biggest companies in the industry. The Swiss titan is also challenging J&J for the biggest meltdown of a consumer health manufacturing facility. Novartis’ site in Lincoln, NE went into Operation: Shutdown in December 2011 after a scathing FDA warning letter. Consumer Health sales dropped $900 million in 2012, which the company attributes “mainly” due to the problems at Lincoln.

In April 2013, the company announced plans to lay off 300 workers from the site, and to refocus the facility to process only oral and powdered drugs. The FDA inspected the site in February 2013, and Novartis began shipping an animal health product from the site in April. Novartis has also used some CMOs to produce several of its OTC products until Lincoln gets cleared by the agency. Those products include Excedrin, Lamisil and Triaminic, which resumed shipping in 4Q12.

In January 2013, Novartis recalled 200 lots of Triaminic and Theraflu because their CR caps didn’t work correctly. FDA received a dozen reports of children unscrewing bottle caps. The lots were manufactured before the warning letter in 2011.

Novartis has also been working its way out from warning letters issued in late 2011 to Sandoz sites in Colorado, North Carolina and Canada. The Colorado site was cleared in 4Q12, but another Sandoz facility was cited by FDA in May 2013. That one, in Unterach, Austria, handles parenterals and came over with the $1.2 billion EBEWE purchase in 2009.

Headcount: 124,000
Pharma Revenues: $47,935 (10%)
Total Revenues: $58,566 (16%)
Net Income: $9,245 (-7%)
R&D Budget: $9,239 (14%)

Top-Selling Drugs

Headcount: 119,418

Pharma Revenues: $44,420 (16%)

Total Revenues: $50,324 (14%)

Net Income: $9,969 (18%)

R&D Budget: $8,080 (11%)

Top-Selling Drug in 2010

Account for 48% of total pharma sales, down from 52% in 2009.

PROFILE

Novartis climbed to #2 in this year’s ranks, aided by acquisitions, product growth and a favorable exchange rate bump. With its top seller teetering on the edge of the patent cliff, how long can the Swiss dynamo keep its place?

Employing a strategy it calls ‘focused diversification,’ Novartis has been building up its non-branded-pharma businesses in recent years even as it continues to advance its drug pipeline. Its Sandoz generics business would stand alone as the #18 company in our ranks, while the Vaccines/Diagnostics business would rank at #9 in our Top Biopharma list. It may seem arbitrary for us to incorporate all those units as pharma revenues, but I think it gives a more transparent picture of Novartis and the company’s place in the pharma industry.

Even without including Alcon’s $2.4 billion contribution, Novartis would have rung in with $42.0 billion in drug (well, non-consumer health) revenues, enough to keep it comfortably ahead of Merck at $39.9 billion. Next year, the company plans to change its reporting structure to accommodate Alcon, and that should make the numbers a little more transparent for our purposes.

(Novartis’ branded pharma business had $30.6 billion in 2010 sales, up 6% and leaving it in the #6 slot behind AstraZeneca. Happy?)

Novartis, as mentioned, is gazing into the patent abyss. Top seller Diovan is seeing generic competition in Europe this year and will get hit in the U.S. by September 2012. In the U.S., the company may also lose protection for Exforge, its combo-drug that posted $935 million in sales on 35% growth in 2010 (and 28% in 1Q11 to $261 million). Diovan revenues dropped 5% in 1Q11 to $1.4 billion.

Luckily for Novartis, when it gazes into the patent abyss, that abyss gazes back! Profitably! The company’s Sandoz generics unit posted 14% growth in 2010 to $8.5 billion in sales, pumped up by growth in U.S. and emerging markets, as well as its position in biosimilars. The big boost came from Sandoz’ successful U.S. launch of generic Lovenox in late July 2010, which brought in $462 million over the remainder of the year. In 2009, Sanofi’s branded Lovenox had U.S. sales of $2.7 billion. U.S. sales of branded Lovenox fell 51% in 1Q11.

The unit also launched generics of Prograf ($184 million), Cozaar ($145 million), Prevacid ($123 million) and Gemzar ($58 million) during 2010. Sandoz recently began a Phase II study of a biosimilar version of Rituxan/Mabthera. The unit already markets biosimilars of HGH, Neupogen, and Epogen/Procrit. In 1Q11, Sandoz sales rose 15% to $2.3 billion.

That said, while generics giveth, they seriously taketh away. Diovan isn’t the only Novartis blockbuster ready to get cut down in the next few years. The roster is almost identical with the company’s Top-Selling Drugs list on the previous page: Femara, Zometa, Reclast/Aclasta, Sandostatin LAR and Gleevec (in 2015, but that’s on the horizon) are all threatened to some extent.

Focused diversification helps reduce the parent company’s dependence on branded pharma, but those drugs still account for 60% of total revenues. Novartis has had some good drug approvals in the past year, as well as some disappointments.

In September 2010, the FDA approved Gilenya, a novel oral treatment for multiple sclerosis. Analysts predict serious blockbuster status for the drug, with some estimates as high as $3.6 billion before the end of the decade. It posted sales of $59 million in 1Q11, its first full quarter on the market, so that’s a good start. Tasigna, Novartis’ followup to Gleevec in treating chronic myeloid leukemia, doubled its 1Q11 revenues, posting $153 million in sales. The company has been touting data about Tasigna’s superiority to Gleevec, its own $4.2 billion-seller, so either it’s really All That or Gleevec has shakier patent protection than anyone thinks. (I kid!) Also, Galvus, Novartis’ entry in the DPP-4 diabetes treatment derby, posted 1Q11 revenues of $132 million, in concert with its metformin combo version, Eucreas. Afinitor, an oncology treatment repurposed from a transplantation treatment, more than doubled its revenues, hitting $90 million in 1Q11.

So it’s not like Novartis doesn’t have an arsenal of up-and-coming products to help manage the loss of Diovan et al. But the company has also had its share of pipeline failures. In October and November 2010, Novartis cancelled a trio of late-stage drugs, taking more than $700 million in R&D charges. These were offset — at least in terms of dollars — by Novartis’ sale of the rights to Enablex (overactive bladder) to Warner Chilcott for $400 million and Elidel (atopic dermatitis) to Meda for $420 million. The company also took a $422.5 million penalty for improper marketing of six drugs in September 2010.

This is one complicated and multifarious company. While its pipeline looks strong, its patent risk is too huge to reconcile. Its vaccine business is a steady producer, but has to accommodate surges like last year’s H1N1 stockpiling. The generics wing is going gangbusters, but it’s a lower margin operation fraught with legal risks and price-devouring competition (hence the interest in biosimilars, which may hold higher prices for a longer time than the 180-day exclusivity period for small molecule generics). Novartis has done a good job of balancing all these factors, growing these various segments to become the second biggest drug company in the world.

The new reporting structure may make Novartis’ results in 2011 a bit different than this year’s, but the company should retain its hold on our #2 spot for a little while more.  —GYR

THE LOWE DOWN

Novartis made it through another year without a massive layoff, so by the standards of their peers, they’re doing great. And their pipeline isn’t too bad, either. It’s hard not to wonder if it just looks good on the absolute scale, or mainly by comparison to their peers, but even a contrast effect is worth noticing.

They’re not immune, though, these stable Swiss. Diovan is coming off patent, which isn’t good news, but compared to what some of the other companies are facing (see Eli Lilly, see Pfizer, see AZ, see a whole bunch of others), their ‘patent cliff’ worries aren’t quite as dramatic.

The unanswerable question, though, is how much of this good fortune is due to research culture and managerial style, all those things that people can take credit for, and how much is due to just, well, good fortune? Given the number of drug companies out there, shouldn’t some of them be in good shape just by chance? I don’t think that’s what’s operating here, actually, but I’m not sure that I can completely rule out the null hypothesis, either. —Derek Lowe

ACQUISITION NEWS

Target: Genoptix

Price: $470 million

Announced: January 2011

What they said: ‘The acquisition of the Genoptix medical laboratory will serve as a strong foundation for our individualized treatment programs . . . By integrating Genoptix within Novartis, we can greatly enhance the value we add to patients, clinicians, payors and society.’

—Joe Jimenez, chief executive officer, Novartis

After making a flurry of deals in recent years, Novartis throttled back over the past 12 months. The company completed its drawn-out Alcon acquisition, first buying another 52% of Nestle’s shares, bringing its ownership stake to 77% (August 2010), and then absorbing the rest of the company into Novartis proper (completed April 2011).

In March 2011, Novartis completed its purchase of 85% of Zhejiang Tianjuan Bio-Pharmaceutical, a Chinese vaccine company. That $125 million purchase was first announced in November 2009. Apparently, ‘subject to certain closing conditions’ means ‘long wait’ in Chinese.

Even though Novartis is still integrating Alcon, the company is keeping an eye out for smaller deals. In a Bloomberg interview in June 2011, Novartis chief executive officer Joe Jiminez declared that the company was interested in bolt-on acquisitions in the $1 to $3 billion range, within consumer health, diagnostics, generics or biologics.

FABLES OF THE RESTRUCTURING

Novartis is restructuring. The company doesn’t come out and say it, but that’s what it’s doing. In November 2010, Novartis ‘unveiled its long-term strategy to grow in a dynamically changing healthcare environment,’ in its own words. A presentation stressed the company’s willingness to spend big on R&D and invest in emerging markets, and mentioned that it will do so by ‘freeing up working capital.’

A company statement noted that Novartis will ‘optimize’ its marketing and sales spending and planned to ‘support further improvement of gross margins, [by] initiating a group wide program to review its manufacturing footprint.’ Manufacturing, too, will be optimized by the creation of ‘Manufacturing Centers of Excellence’. Oh, and key sites will get up to 80% capacity utilization.

How many layoffs would these optimizations incur? How much savings? Novartis has yet to say.

But it did let 1,400 U.S. salespeople go right after Thanksgiving. And in March 2011, the company revealed plans to reduce operations in manufacturing operations in Horsham, West Sussex, UK, dropping 500 employees, as well as a 100-employee manufacturing operation in Tlalpan, Mexico. It never put out a press release about this, however; it was confirmed by Novartis after being reported by news outlets.

More bewilderingly, in its 1Q11 earnings statement, Novartis mentioned Tlalpan and Horsham, ‘in addition to the four sites we announced in the fourth quarter of 2010.’ However, there was no published announcement in 4Q10 about facility closures. The company took 4Q10 restructuring charges of $85 million (pharma, which accounts for the 1,400 salespeople laid off), $52 million (vaccines and diagnostics), and $24 million (corporate charges), with no mention of what was being divested or shut down.

I contacted the company and was told that the four sites were:

• Liverpool, England – adjusted operations, site is still in operation (Vaccines)
• Marburg, Germany – adjusted operations, site is still in operation (Vaccines)
• Huningue, France – divestment (Pharmaceuticals)
• Morocco – divestment (Pharmaceuticals)

When I asked why there had been no announcement or press release about these closings and adjustments, the reply was, ‘They were all announced locally.’ So it seems that Focused Diversification can be accompanied by Stealthy Restructuring.

Previous Profile: Pfizer // Next Profile: Merck

Headcount: 99,834
Pharma Revenues: $38,455 (+8%)
Total Revenues: $44,267 (+7%)
Net Income: $8,454 (+4%)
R&D Budget: $7,469 (+3%)

Account for 53% of total pharma sales, up from 52% in 2008.

PROFILE

Novartis managed to reach #3 in this year’s ranks partly because of organic revenue growth, partly because of H1N1 vaccine sales, and partly because the depreciating value of the GBP walloped Glaxo’s results. Unlike Roche, its neighbor in Basel, Novartis reports its financials in dollars rather than Swiss francs, so I have to trust that they’re weighing exchange rates accurately. When it comes to money, of course, you can trust the Swiss.

Regardless, Novartis managed significant growth in a year in which its competitors were flat or in decline; its 8% uptick in 2009 revenues outstripped every other company in the top 12. Diovan, with its patent protection running out in the U.S. in 2012, topped the $6 billion mark in 2009 revenues. With Merck’s Cozaar going generic this year, there’s little chance Diovan will reach that number again.

In addition to Diovan, Novartis will soon face generic pressure on Femara and the LAR version of Sandostatin. In addition, Amgen’s Prolia may take a chunk out of sales of Zometa.

How is the Swiss behemoth responding to these challenges? By combining heavy-duty R&D with bold M&A! As with all the other companies on this list, Novartis is preparing for a different pharma reality. There are still swing-for-the-fences blockbusters in its pipeline, but the company continues to diversify radically in an attempt at weathering the patent cliff with a varied base of related units.

In January 2010, Novartis took the plunge and decide to acquire control of Alcon, the eye care company, that it began buying from Nestle in April 2008. At that time, Novartis bought 25% of Alcon for $10.4 billion, and exercised its option to buy another 52% for $28.1 billion in January. With 77% of the company under its control, it can conduct an all-share direct merger for the remainder, bringing the total cost to around $50 billion. Alcon will help Novartis continue its diversification drive, adding more than $6 billion in annual sales in non-overlapping areas while also expanding the company’s reach in emerging regions. The deal’s expected to close by the end of 2010.

Novartis also engaged in a reorganization of its global and U.S. structures during 2010. In January, the company laid out its succession plan, in which Dan Vasella will hold onto his chairmanship but step down as chief executive officer, to be replaced by Joe Jimenez, who served as CEO of Novartis Pharma AG. Mr. Jimenez’ role was assumed by David Epstein, who was previously head of Novartis Oncology, the group that launched Gleevec. The company also eliminated the roles of heads of corporate affairs, group quality and technical operations.

That executive reorg preceded a U.S. restructuring in April 2010, in which the company’s U.S. pharma chief executive stepped aside and the company established several new units. Novartis created three U.S. specialty businesses: Multiple Sclerosis, Respiratory/ Transplant/Infectious Diseases and Psychiatry/Neuroscience. The company also devolved its primary care unit into four regional units. In all, Novartis shed 383 full-time positions with the moves, mainly HQ-based jobs. I hope they’re divided evenly by gender; Novartis lost a sex-bias case in May brought by former female employees in the U.S., and got hit with $250 million in punitive damages in the case, which involved 12 plaintiffs, and may face as much as $1 billion in compensatory charges in the 5,600-woman class part of the case.

Faced with the prospect of losing its CV cornerstone, Novartis is looking to build new franchises, not just add cash-generating businesses. In August 2009, the company gained FDA approval of Extavia, the first treatment in its new MS portfolio. Extavia is similar to Bayer’s Betaseron, but Novartis is also close to getting approval for Gilenia, a game-changer in the MS field. Gilenia, which was recommended for approval in June 2010, would be the first oral MS treatment on the market, passing Merck’s cladribine. Analyst expectations for Gilenia range from $1 billion to $3.5 billion, especially since the drug was recommended for first-line treatment.

In addition to that potential blockbuster, Novartis got expanded U.S. approval for Tasigna in June 2010. A head-to-head Phase III trial showed the drug’s superiority over Gleevec, Novartis’ #2 seller, in chronic myeloid leukemia. The company plans to make as many as five regulatory submissions for oncology compounds in 2010, including expanded indications for Afinitor, which was approved for renal cell cancer in March 2009.

In the meantime, Novartis’ Sandoz unit is poised to build a biosimilars franchise, having received EU approval for its third biosimilar, Zarzio, a version of Amgen’s Neupogen. In 2009, Omnitrope recombinant human growth hormone became the first biosimilar approved in Canada and Japan. Overall, the generics unit was flat in 2009, but jumped 16% in 1Q10 as the company integrated sales from its acquisition of EBEWE’s specialty generics business.

Moreover, the company’s experience and scale in the generics marketplace gives it a significant advantage over competitors who are just now trying to jump into generics. I have a feeling some of those newcomers will discover it’s not as easy as they thought.

The first quarter also brought in another $1.1 billion in H1N1 vaccine sales. More importantly, the vaccine unit got a significant approval during 1Q10, as both the U.S. and EU approved Menveo meningitis vaccine for ages 11+. In May 2010, the company submitted an sBLA to the FDA to get the age range expanded to two years and up. Analysts project annual sales from $650 million to more than $1 billion, depending on how many indications it can gain. It’s closest competitor, Sanofi-Aventis’ Menactra, posted $621 million in 2009 revenues.

Maybe I’m being optimistic, but Novartis looks like it’s positioned itself to ride the next three years of rough seas in relative security. Sure, it’s not going to replace $6 billion in Diovan sales right away, but the company has managed to de-emphasize prescription pharma without devaluing its R&D.

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Headcount: 96,717
Pharma Revenues: $35,647 (+9%)
Total Revenues: $41,459 (+4%)
Net Income: $8,233 (-31%)
R&D Budget: $7,217 (+12%)

Account for 65% of total pharma sales, up from 61% in 2007.

PROFILE

In a recent BusinessWeek profile, Novartis chairman and chief executive officer Dan Vasella explained that the company was trying to upend its R&D model, pursuing drugs that are “backed by proven science.” The key example was Gleevec, which was initially approved for a rare blood cancer, and subsequently proved effective against other types. Gleevec has gone on to become Novartis’ #2 seller.

One of the drugs cited in the BW article, Ilaris, received approved in June 2009 for treatment of Cryopyrin-Associated Periodic Syndromes (CAPS), which includes the very rare (as in, a few thousand people worldwide) Muckle-Wells Syn-drome. Ilaris is also in trials for systemic juvenile idiopathic arthritis, gout, chronic obstructive pulmonary disorder and type 2 diabetes.

Now, contra that article, I don’t think it’s exactly revolutionary to get drugs approved for niche indications, then expand them into more lucrative ones as more trial data becomes available. I mean, I know ankylosing spondylitis can be a serious condition, but it seemed a little odd to me that TNF-alpha inhibitor after TNF-alpha inhibitor targeted that indication as their entrée to the U.S. market. It made more sense once they got sBLAs approved for tougher indications (with bigger patient bases) like RA, psoriatic arthritis, etc. The one company that comes to mind for championing treatments that target very rare diseases and likely can’t be expanded into larger markets is Genzyme, which has done a great job with that narrow focus.

As I’ve pointed out ad infinitum: the bigger the company, the more it needs blockbusters.

(The only guy I can think of who ever said the opposite was NBC TV’s co-chairman of programming, Ben Silverman, who told reporters in July 2008 that his network was now “managing for margins, not ratings.” It was refreshing to hear an executive be that blunt, but he didn’t exactly inspire confidence in NBC’s fall lineup. He went on to greenlight the remake of Knight Rider.)

That’s not to say I’m down on Novartis’ pipeline. Top-seller Diovan will lose patent protection in 2012 (and face generic erosion when Merck’s Cozaar goes off patent in 2010), so the company has to be happy that it has a slew of new drugs, combo-products and vaccines reaching the U.S. market: Ilaris, Reclast, Afinitor, Ixiaro, Exforge HCT, and Coartem.

Further, while 1Q09 was nothing to write home about, Novartis did see a 94% increase (in local currencies) from several of its recently launched drugs in that span, with Lucentis, Exelon patch, Exforge and others contributing $872 million in revenues. The Pharma division posted sales gains of 3% in the quarter, which sounds good when compared to Vaccines & Diagnostics (-12%), Sandoz (-9%) and Consumer Health (-11%).

Despite those ugly short-term results, I don’t disagree with Novartis’ strategy of diversification. Every pharma company on this list is trying to branch out in ways the will enable it to weather the challenges to its main business. And everyone (especially the foreign-based companies) had a rough 1Q09.

That said, I mentioned last year that Novartis’ multi-stage acquisition of Alcon Inc. worried me a bit. It wasn’t just that Novartis spent $11 billion for a 25% stake in the eye care company in April 2008. It was that the agreement gave Alcon’s parent, Nestle, the option to compel Novartis to buy another 52% of the company for approximately $25 billion between January 2010 and July 2011.

At the time of the agreement, perhaps the price was warranted, but as Alcon’s share price has plummeted (along with the market overall), it’s now an albatross for Novartis, which must keep cash on hand in case Nestle decides to exercise the option (Novartis has its own option to buy the shares, but the share price is much higher than on the open market). So, while its peers are completing mega-acquisitions, Novartis may have to wait on the sidelines, unless it can renegotiate the deal with Nestle.

That hasn’t stopped Novartis from making some strategic pickups in the past year. The largest one was the May 2009 $1.2 billion purchase of the specialty generic injectables business EBEWE Pharma. The unit markets a number of generic oncology treatments, and will slot right into Sandoz. Announcing the deal, Novartis pointed out that the global generic injectables was between $10 and $12 billion in 2008, and that oncology accounted for 30% of that. Further, $9 billion in injectable oncology drugs will fall off-patent by 2015.

Generics, as I pointed out in this month’s From the Editor column, are helping reshape the historic model of what a pharma company is. Novartis has given itself a head start in this process with its Sandoz unit, which brought in $7.5 billion in 2008. Sandoz has also managed to get its third follow-on biologic approved in the EU with filgrastim, a Neupogen biosimilar, cleared for takeoff in February 2009. When the U.S. Congress reaches a compromise on a pathway for FOBs, Novartis/Sandoz will have a head start on the competition.

Of course, just because a facility is manufacturing generics and not innovative products, that doesn’t mean it can slack on quality. In August 2008, Novartis received a warning letter from the FDA in relation to quality at a Sandoz manufacturing site in Wilson, NC. The letter followed up a 483 letter that the site received in April 2008, after the agency found problems with the site’s Toprol XL generics. Novartis mentioned the investigation as part of the reason for Sandoz’ sales shortfall in 1Q09, and pointed out that “[m]ajor initiatives are also underway to return Sandoz . . . to higher growth rates and profitability.”

Novartis has some issues to settle, while it tries to negotiate a somewhat different path than its peers through the patent minefield. Most importantly it’ll need to work around its oversized commitment to Alcon, and get some of its new releases producing enough cash that it can survive the pending Diovan Drop-off.

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Headcount: 98,200 (59,423 in Pharma, Vaccines & Diagnostics)
Pharma Revenues*: $25,477 (+8%)
Total Revenues: $39,800 (+8%)
Net Income: $11,968 (+66%)
R&D Budget: $6,340 (+18%)

* Includes Pharmaceutical and Vaccines and Diagnostics business, but not Sandoz generic unit

Account for 64% of total pharma sales, down from 66% in 2006.

PROFILE

Last year, Novartis made a big jump on our charts, thanks to its acquisition of Chiron. This time, its growth was more modest, causing it to slide back one spot to #6. Of course, I’m still slicing off the sales numbers for Novartis’ Sandoz division, since I remain unprepared to incorporate generics into my precious Top 20 report. (For the record, Sandoz posted revenue growth of 20%, to $7.2 billion, primarily due to growth in the U.S. and eastern Europe.)

In fact, Novartis’ Vaccines and Diagnostics division, carved out of the Chiron buy, makes a bit of hash of my report. I’d prefer not to count diagnostic devices as pharma revenues, but Novartis doesn’t itemize its V&D sales, so these are the results you’re getting, extra revenues and all.

And boy, does Novartis need them. Generics and a product withdrawal took a bite out of Novartis’ hide in 2007, shaving $1.4 billion from 2006 sales. U.S. sales dropped 8%, thanks to the Zelnorm suspension and generic competition for Lotrel, Lamisil, Trileptal and Famvir. In 1Q08, pharma sales were up 6%, but only because of exchange rates. In local currencies, sales at the pharma unit were down 3%, as those generics continued to bottom out in the U.S.

That gave Novartis a taste of what’s coming in September 2012, when current top seller Diovan, a $5.0 billion hypertension treatment, loses patent protection in the U.S.

Novartis’ preparations for D-Day have been extensive these past few years, including $13 billion in acquisitions to build up its Sandoz division and $5.7 billion to add vaccines and diagnostics expertise through Chiron. The company also shed its Medical Nutrition and Gerber units in 2007 for $12 billion (after-tax gain of $5.2 billion).

This year, the company took its diversification strategy to a new level in April 2008 with a potential $39 billion, multi-year acquisition of Alcon, a maker of a range of eye care products. Novartis’ initial purchase covered 25% of the company at $11 billion, with an option to buy another 52% at $28 billion between January 2010 and July 2011. Nestle, Alcon’s owner, can compel Novartis to exercise the option, which makes it sound less “option”-like than I’m comfortable with.

Alcon had sales of $5.6 billion in 2007, with income of $1.6 billion. The company has three business units — surgical care ($2.5 billion in 2007 sales), prescription ($2.3 billion) and consumer ($800 million) — and 14,500 employees. In interviews after the acquisition announcement, chief executive officer Dr. Daniel Vasella contended that the areas it opens up for Novartis — surgical care, personal products — are less price-sensitive than pharmaceuticals. (Like cancer treatment Gleevec, which can cost around $8,500/month? But I digress. . .)

Eye care isn’t new to Novartis. The company began co-marketing Visudyne, a treatment for age-related macular degeneration (wet AMD), in 2001 with QLT. In 2007, it gained EU approval for Lucentis, another wet AMD treatment, and managed to post $393 million in non-U.S. sales. Genentech has U.S. rights, and sold $815 million worth of the drug in 2007.

Since Alcon’s portfolio doesn’t encroach on the wet AMD business, Novartis is poised to build a powerhouse in eye care, especially since Alcon’s main competitor, Bausch & Lomb, stumbled badly in recent years with quality issues.

Eyes are the Prize

Novartis isn’t just trying to buy its way past that 2012 Diovan date. Like any good pharma company, it’s also working feverishly at getting new products approved and marketed. So it’s gotta be driving Novartis crazy that it can’t get diabetes drug Galvus on the U.S. market.

One of the company’s biggest disappointments of late has to be Galvus’ “approvable” status with the FDA. The agency asked for new safety studies that would likely lead to a 2010 resubmission. This leaves Novartis stalled in the DPP-4 market. As the previous profile shows, Merck’s DPP-4 inhibitor Januvia hit $668 million in 2007 sales, virtually from a standing position. Missing out on this market is a huge setback for Novartis.

Galvus has been approved in Europe, but Dr. Vasella remarked in January 2008 that Novartis may have to pass on the U.S. market entirely, if the FDA’s trial requirements are too great. To capitalize on the drug’s approval, Novartis also began marketing Galvus in the EU as a combo with metformin, under the brand name of Eucreas. No sales figures are available for Galvus yet.

Forward March!

Novartis’ weak results led the company into a restructuring program that began in fall 2007. It began with disappointing 3Q07 numbers, which led to 1,260 layoffs in U.S. sales and marketing, but was followed by announcement of a comprehensive plan known as “Forward.” The restructuring will “simplify organizational structures, accelerate and decentralize decision-making processes, redesign the way Novartis operates and provide productivity gains,” according to the company’s statement.

The plan is intended to shave $1.6 billion from operating costs by 2010, at a cost of $450 million and 2,500 firings. According to a Wall Street Journal report on Forward, the company also plans to review its use of CROs for clinical trials, “a huge expense for Novartis.”

In comparison with its peers, this doesn’t seem too extravagant a restructuring. The company contends that the second half of 2008 will signal a new growth cycle, as recent approvals gain acceptance in key markets and the losses to generics in the U.S. bottom out. Novartis appears to be framing the current slowdown as an opportunity to fine-tune, rather than an apocalyptic crisis. The WSJ piece also mentions that one of Dr. Vasella’s key concepts is that there should be no more than six layers of employees in any division, after learning how bureaucracy-heavy his company has become.

While thinning the ranks and reorganizing management, the company also announced the establishment of Novartis Biologics, a unit intended to “accelerate and optimize the potential of R&D of innovative biologic medicines.” Biologics make up 25% of the company’s preclinical pipeline and “are increasingly a priority in R&D activities.” We’ll see if this ends up being complicating the management structure, since it’d be easy to see these biologics crossing from the Pharmaceutical Division to the Vaccines & Diagnostics one.

Novartis has managed to get several new products off the ground, in hopes of ameliorating the loss of Diovan. The company also has a number of Phase III products that look promising, but this diversified company isn’t taking anything for granted.

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