By Noemie Bisserbe
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (February 21, 2018).
Novartis AG has spent the past five years getting smaller. Its
new chief executive has to decide soon how much more it will
shrink.
Vasant Narasimhan, a 41-year-old Harvard-trained doctor, took
the helm earlier this month at Novartis, the world's No. 2
prescription-drug firm by sales after Pfizer Inc. Dr. Narasimhan
has promised a technological revolution at Novartis to boost its
drug-development pipeline. He inherits an empire that his
predecessor spent most of his tenure pruning to focus more on its
bread and butter -- finding and developing new prescription
drugs.
"We need to become a focused medicines company that's powered by
data science and digital technologies," Dr. Narasimhan said in a
recent interview.
Amid his larger ambitions for using new technology to boost a
drugs push, Dr. Narasimhan faces looming decisions on whether to
sell two big units: Novartis has said it would decide within 18
months whether to spin off its Alcon eyecare business, and it is
reviewing the U.S. arm of its Sandoz generics business.
"Timing Alcon's spinoff right and dealing with Sandoz could
become a big headache for the new CEO and distract some of his
attention from R&D," UBS analyst Michael Leuchten said.
Dr. Narasimhan, a U.S. citizen of Indian descent, joined
Novartis in 2005 from consultancy McKinsey & Co., and rose
quickly through the Swiss drugmaker's ranks to become chief medical
officer and global head of drug development.
Now, as CEO, he is pushing a series of tech-based initiatives he
says could jump-start the company's drug pipeline. He wants to
introduce artificial-intelligence to find new biomarkers, molecules
that can help identify patients most likely to respond to a
specific treatment and speed up clinical trials. Novartis also is
working on devices including wearable sensors to capture real-time
data during drug trials: New sensor technology it developed with
Microsoft Corp., for example, would help it monitor
multiple-sclerosis symptoms in trials.
But before devoting his full attention to those initiatives, Dr.
Narasimhan has to decide what to do about Alcon and Sandoz.
Novartis bought Alcon in two transactions starting 10 years ago
for a total of more than $50 billion, and it has been a big
disappointment -- until recently. Sales growth has picked up,
making any decision to shed the unit a much tougher call.
Dr. Narasimhan also is struggling with the Sandoz generics unit
in the U.S. It has been a reliable money-spinner, but
fourth-quarter revenue tumbled 17% in the U.S. last year,
reflecting pricing weakness in generic drugs and raising questions
about whether Novartis will part ways with the unit.
While Novartis has said it would continue to invest in Sandoz's
unit for biosimilar drugs -- near-replicas of biologic drugs, which
are made using living cells -- it will need to take hard look at
the rest of its portfolio in the U.S.
"We have to ask ourselves how we want to shape our U.S. presence
in the future," Dr. Narasimhan said. "It's going to take some time
for us to assess and come up with the right answer."
Over the past decade, drug makers like Novartis, U.S. rival
Pfizer and Britain's GlaxoSmithKline PLC have invested billions of
dollars diversifying into businesses like consumer health care --
think toothpaste, pain killers -- and vaccines, to help mitigate
the loss of patent protection on some of their biggest-selling
medicines.
Now, as some of these giants work their way through the bulk of
those expirations, they are reversing course and refocusing again
on high-risk, but high-margin, prescription drugs: Pfizer is
selling its giant consumer health care business, and Glaxo, under
its own new, young CEO, has promised to double down on the R&D
pipeline.
Novartis says 2017 was a "landmark year for innovation." It
received 16 approvals for new drugs or for new indications for
existing products -- and it will be able to maintain that pace in
2018, a company spokesman said.
It falls to Dr. Narasimhan to keep the momentum going. He
succeeds Joseph Jimenez, who as CEO dismantled the sprawling drug
and health-care giant his predecessor had built. In 2014, he sold
Novartis's animal health unit. He spun off its consumer health-care
business into an independent joint-venture and sold the company's
vaccine unit in 2015.
The down-sizing affected sales, shrinking them almost by a fifth
over the past five years. Novartis stock has underperformed that
peers, rising 41% over Mr. Jimenez's eight-year tenure, compared
with a rise of 130% over the same period for the S&P Global
1200 Health Care Index.
Last month, Novartis reported annual sales rose 1% for 2017 --
its first revenue increase in three years.
Corrections & Amplifications Vasant Narasimhan, the chief
executive of Novartis AG, is a U.S. citizen of Indian descent. A
previous version of this story incorrectly said he was born in
India. Dr. Narasimhan was Novartis' chief medical officer and
global head of drug development. The earlier version of the story
incorrectly said he was head of the company's research and
development.
Write to Noemie Bisserbe at noemie.bisserbe@wsj.com
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February 21, 2018 02:47 ET (07:47 GMT)
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