Let's Dance But Be Practical: Novartis at Euro-Biotech

Novartis is structuring more of its product and company acquisitions so that its risks are shared with the seller, Novartis Pharma’s CFO Jonathan Peacock told a crowd at Elsevier Business Intelligence’s 17th annual Euro-Biotech Forum meeting in Paris, France, this week.

An example of this is its acquisition of privately-held Corthera earlier this year, where Novartis paid $120 million as an upfront payment, with an additional $500 million linked to key milestones.

The company is also keen to acquire products that complement its current portfolio, like the recent acquisition of a broad-spectrum antibiotic from Paratek, Peacock said. The compound is active against methicillin-resistant Staphylococcus aureus (MRSA), and complements Cubicin, another antibiotic in Novartis’s portfolio.

But whenever Novartis does a external licensing deal or acquisition, its strict resource allocation rules means that something has to go from the internal R&D portfolio, Peacock noted. Resource allocation decisions are tough, but Novartis is getting better at making them, he contended. Licensed products are nevertheless important to the company – around 30% of its in-market sales come from licensed products.

As Novartis faces one of the biggest patent cliffs beginning in 2012, when its bestselling Diovan is certain to face generic competition, it expects to make up for a proportion of the lost revenues through a rejuventated line of new products and growth in emerging markets. The company is waiting for regulatory approval of Gilenia, the first oral drug for multiple sclerosis.

Peacock pointed out the bulk of Novartis' new products will be targeted therapies, which start out with narrow indications that can be broadened over time. Asked whether he thought Novartis was truly interested in licensing products with smaller sales potential, the company exec said that there was always a degree of uncertainty over sales potential, pointing to the company’s own experience with Glivec, which became a multi-billion dollar product having originally been forecast to be a much smaller selling medicine.

Another key change in Novartis’s business practice –aimed at changing market access dynamics--is that it is becoming more a “key account” management business than a sales-force driven business, according to Peacock.

The company is developing a “more granular” understanding of what is happening in each region, and is allocating resources to more profitable sales territories, away from nonprofitable territories. Its U.K. sales force is probably a third the size it was a few years ago for example, he said, adding that commercial restructuring can improve sales and profitability, if it is done correctly. Given the nuances and variations in territories, it has experimented with a variety of pilot programs to achieve the right balance. --John Davis