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<http://www.businessweek.com/magazine/content/09_25/b4136030131343.htm>

Novartis: Radically Remaking Its Drug Business

CEO Dan Vasella's growth mantra for Novartis is follow the science, not the

financials

Five neuroscientists file nervously into Novartis' (NVS

<http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?sym

bol=NVS> ) vast boardroom in Basel. CEO L. Vasella is seated at the

table, along with nine senior executives that make up the company's

innovation board. The scientists hope to persuade Vasella to move forward on

an experimental vaccine for Alzheimer's disease, an illness that afflicts 25

million people worldwide. Even a moderately effective treatment would be a

blockbuster, but testing the vaccine would take years and several hundred

million dollars.

When one of the scientists points out that other drugmakers are targeting

the illness, Vasella just shakes his head. " We still don't know whether

Alzheimer's is one disease or several, or if the current approaches even

address the right disease mechanisms, " he says, frustration edging into his

voice. He sends the proposal back for a rethink.

Vasella's ability to quickly set aside one of the world's most troubling

diseases reflects a radical shift for Novartis-and one that may offer the

drug industry its best chance to come up with the kinds of innovations that

have eluded it for so long. Most big drugmakers shower their research and

development funds on diseases such as cancer or depression, where huge

potential markets beckon despite a deficit of scientific understanding. In

recent years this approach has led to high rates of failure when drugs are

tested in clinical trials. Seven years ago, Vasella, 55, took a calculated

risk and turned Novartis' R & D model upside down. He resolved to push drugs

through the long testing process only if they are backed by proven science.

It doesn't matter whether the diseases the drugs treat are rare and the

initial markets minuscule. Once a drug proves its worth against one disease,

Vasella reasons, it can be tested against others. " If you are guided purely

by financial estimates and not the science, you end up wasting time and

money, " he says.

Vasella's goal is to institutionalize the lessons from one of the company's

most successful creations, the cancer drug Gleevec. Initially approved for a

rare blood cancer that strikes just a few thousand people each year, it has

proven effective against six other life-threatening diseases. The drug

pulled in $3.7 billion in revenues last year for Novartis, which posted a

total of $9 billion in operating income on sales of $41.5 billion. Vasella

admits Gleevec was something of a fluke: The drug has a complicated history

that mostly predates Novartis' shift in strategy. Yet Gleevec's triumph

helped crystallize Vasella's thinking. Today Novartis has 93 drug candidates

in the pipeline, 40% more than three years ago, and 80% of Novartis' drugs

last year made it from early testing to late-stage development. That's a 60%

improvement over 2005.

LOSING PATENTS

If Novartis can quickly build on this track record, it could mark a turning

point for both the company and the industry. While plenty of biotech

companies place a premium on science, for the past two decades most

pharmaceutical companies have been more interested in developing and

marketing blockbusters aimed at major diseases. In years past, this approach

produced giant wins, including a host of famous cholesterol drugs as well as

other moderately effective, mass-market medicines. But experts say drug

companies have exhausted the easy targets. With patents on many older

blockbusters starting to expire, the industry is poised to lose an estimated

$140 billion in sales to generic competition over the next five years. Those

revenue sources must be replaced.

Despite multibillion-dollar research budgets, none of the top companies has

a wealth of promising compounds in its development pipeline. The industry

also faces regulators more vigilant than ever about safety, and health

insurers starting to balk at covering costly drugs that bring only modest

benefits.

All these travails help explain the recent frenzy of drug-industry mergers

and acquisitions, including the $68 billion union of Pfizer (PFE

<http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?sym

bol=PFE> ) and Wyeth (WYE

<http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?sym

bol=WYE> ) and the $41 billion marriage of Merck (MRK

<http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?sym

bol=MRK> ) and Schering-Plough. Yet the bigger these companies become, the

fewer new drugs they seem to produce. U.S. pharmaceutical makers spent $65.2

billion on R & D in 2008, nearly double the tally in 2002, but only eight

completely new or first-in-class drugs reached the market last year, half as

many as in 2001.

A former physician, Vasella reckons drug executives have strayed too far

from their scientific roots and forgotten that their core customers are

patients, not shareholders. " It's the tyranny of quarterly earnings, " he

says, a trace of an accent revealing his Swiss German upbringing. Vasella

believes that focusing Novartis' research on smaller, narrowly defined

groups of patients will lead to more targeted and effective therapies with

fewer side effects. Regulators will therefore be inclined to approve them,

and reimbursement will be less troublesome. " With so much waste in the

health-care system, insurers cannot afford to bankroll me-too drugs, " Dr.

Lee N. Newcomer, senior vice-president for oncology at United Healthcare

(UNH

<http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?sym

bol=UNH> ). " But if new approaches such as Novartis' mean the right patients

will get the right drugs, insurers will likely pay for them. "

Vasella's vow to break with the status quo has won plaudits from management

gurus who marvel at the inefficiencies in the drug sector. " He is not a

prisoner of the existing paradigm. Instead, he is trying to change it, " says

Ram Charan, a leading consultant and author. " Vasella is able to anticipate

and visualize radical change much the same way Steve Jobs did at Apple (AAPL

<http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?sym

bol=AAPL> ), Andy Grove did at Intel (INTC

<http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?sym

bol=INTC> ), and Sam Walton did at Wal-Mart (WMT

<http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?sym

bol=WMT> ). " W. , professor of management practice at Harvard

Business School and the former chairman and CEO of medical device maker

Medtronic (MDT

<http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?sym

bol=MDT> ), says Vasella " has the mind of a long-term strategist. "

Some on Novartis' board were skeptical at first. " They kept asking: 'How

will we know this huge investment will work?' " recalls , who resigned

from the board this past February when his son Jeff became head of Novartis'

generics business, Sandoz. " Dan said: 'You won't know for at least a

decade.' "

The remark was vintage Vasella: confident, direct, and searingly honest.

When I first met him nearly a decade ago, Novartis had stakes in both

agribusiness and pharmaceuticals. Vasella believed gene-based sciences would

soon prove the value of this union, but the synergies never materialized.

Where hubris might have driven a less self-aware CEO to throw good money

after bad, Vasella quickly ditched the seeds and chemicals business and

focused on drugs.

It was a natural decision, given Vasella's unusual status as a physician-CEO

in a profession where nearly all top executives have backgrounds in law,

accounting, or marketing. " The industry really needs more leaders who are as

passionate as [he] is about the business. He is a CEO who thinks like a

doctor, " says .

Vasella's ability to keep patients in mind may come from his experiences not

only as a physician but also as a patient. He described these to me in 2003

when we met to talk about Novartis' hopes for Gleevec. As a five-year-old

growing up in the Swiss town of Fribourg, Vasella developed asthma and spent

two summers on a farm in the mountains, separated from his family. At eight

he contracted tuberculosis, followed by meningitis, and spent a year in a

hospital and a sanatorium. But his greatest sorrows came later, starting

when he was 10. " My older sister had Hodgkin's lymphoma, " he told me. " I

watched her over three years as she slowly got weaker. She died at 19. "

Three years later, his father died in surgery. A second sister, also a

doctor, was killed in a car crash. Perhaps because of these tragedies,

Vasella is devoted to his family. At the recent innovation board meeting, I

was impressed when he unapologetically took a call from one of his three

children.

A GOOD LISTENER

A childhood blighted by illness and loss led Vasella to a career in

medicine. As a resident at the University of Bern, he worked with Dr. Rolf

Adler, then head of internal medicine, who encouraged him to undergo

psychoanalysis. It helped him work through his losses and sparked a lifelong

interest in the field. (Vasella collects first-edition works of Sigmund

Freud, among other authors.) Analysis also made Vasella a better doctor,

says Adler, now professor emeritus at the University of Bern. " He was always

question- ing both himself and others, but he was a good listener, too. "

Adler was disappointed when the young doctor decided to leave medicine for a

career in business in 1988. The reasons were telling: Vasella was unwilling

to wait out the years it would take in academia to be given a chance to

lead. Moving to New Jersey, he took a position as a salesman for the Swiss

drug company Sandoz, where his wife's uncle was chairman. In 1992 he

returned to Switzerland to head marketing, and two years later he took over

as CEO. In 1996, at the age of 43, he pulled off a merger between Sandoz and

another mid-tier drugmaker, Ciba-Geigy, to form Novartis.

Vasella's boldest move came in 2002, when he abandoned the traditional

drug-development model. He declared that Novartis would investigate only

diseases for which new drugs were desperately needed and where the genetics

of the target illnesses were well understood. While other CEOs saw the

pursuit of rare diseases as commercial suicide, Vasella believed many of the

illnesses shared the genetic underpinnings with more common ailments.

Vasella also decided to move Novartis' main global research operation from

Basel to Cambridge, Mass., a short distance from MIT, Harvard, and other

paragons of biological research. Vasella spent about $4 billion on the move

and then quickly made another controversial decision: He recruited Dr. Mark

C. Fishman, a renowned cardiologist from Harvard who had no industry

experience, to run the center and overhaul Novartis' drug-discovery

business. " When Dan first called, I thought he had the wrong number, " says

Fishman, whose work studying zebra fish resulted in the discovery of 100

genetic mutations involved in the cardiovascular system. Fishman was happy

at Harvard and saw little reason to leave, but Vasella persevered.

Fishman was the expert who convinced Vasella that medical research will reap

the best results by focusing on a small number of important molecular

pathways-the complex sequences of interactions among chemicals, proteins,

and larger cell structures in the body that underlie all illnesses. " There

are 24,000 genes in the genome, but there are only a few dozen pathways

conserved throughout evolution, " he says. With little known about how each

gene functions in a larger cellular context, Fishman compares the genes to a

mere list of words in a dictionary. Molecular pathways, he believes, are the

missing grammar. Fishman reckons that finding all the links in a pathway and

then locating the key signals that can turn genes on or off will lead

Novartis to therapies for illnesses once deemed incurable: " The theory is,

we will be able to apply them in disease after disease because the pathways

are shared. "

While Fishman's new colleagues admired his knowledge of developmental

biology, there were also hard feelings. Many Novartis scientists were

struggling with the new management and the shift in power from Basel to

Cambridge. " Some were angry and demotivated, " Vasella concedes. " The changes

bred a lot of insecurity. " In particular, many questioned the choice of

Fishman. " People in research wondered what value someone who had never led a

research organization in the pharmaceutical industry brought, " recalls

, chairman and CEO of San Francisco biotech Cerimon Pharmaceuticals

and the former global head of development at Novartis.

The biggest pushback came from the senior executives in sales and marketing

who were used to calling the shots. Many couldn't fathom how a business

model focused on small groups of patients would ever make money. The

marketing side " was living happily off Diovan [Novartis' top-selling

hypertension drug], only to have Mark Fishman tell them the age of the

blockbuster is over, " says. Things got worse when Fishman banned

running commercial analyses of new drug candidates until the company had

sufficient clinical data. This approach, backed by Vasella, was heresy in an

industry that spends vast sums trying to assign a hypothetical value to each

potential drug at every stage of the R & D process. " Dan threw a strategy on

the table and said: 'This is it, go make it work,' " says.

GAME-CHANGING TRIAL

The most important test case for Vasella's ideas may turn out to be an

illness almost nobody has heard of. It's an inflammatory disorder called

Muckle-Wells syndrome in which a single genetic mutation results in the

buildup of proteins that can cause rashes, joint pain, and fatal kidney

damage. Muckle-Wells afflicts just a few thousand people worldwide, too

small a number to attract most drugmakers. But Fishman and Vasella have a

hunch the drug they've developed for it will prove effective in more

widespread diseases. " With other companies, rare diseases are an

afterthought, " says Fishman. " For us they are often the starting point. "

The drug, a synthetic antibody that can tamp down out-of-control immune

responses, isn't new. Novartis briefly tested it against arthritis, then

abandoned it. In 2004 one of Fishman's scientists asked to retest it in a

trial involving just four patients suffering from Muckle-Wells. Within 24

hours of receiving the medicine, all four showed dramatic improvement, and

within a week the disease was barely detectable in the blood. Patients

remained in remission for as long as six months.

Despite these promising results, development efforts soon bogged down in

debates over what the drug's exact commercial value might be. " This is

precisely what paralyzes the industry and leads to the destruction of

innovation, " says Trevor Mundel, a physician-cum-mathematician brought in by

Fishman as head of global development. The confusion persisted for a year

and a half, Vasella recalls with irritation. The initial tests " took way too

long, much longer than necessary. "

Vasella ultimately resolved the disputes, and Novartis went on to test its

drug in several rare autoimmune ailments. Using advanced computer models to

show how different patients might respond to the treatment, Novartis was

able to persuade the Food & Drug Administration that it was safe to move

directly to late-stage trials involving hundreds of patients with

Muckle-Wells and a related cluster of immune system diseases, thus shaving a

year off the expected development time and saving tens of millions of

dollars. While Pfizer, GlaxoKline (GSK

<http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?sym

bol=GSK> ), and others are also using simulation, " Novartis is far ahead of

the rest of the industry, " says Dr. Lee, director of the Center for

Drug Development Science in Washington.

Vasella places a high premium on medical experience. After a major

restructuring in 2007 that led to the loss of 1,260 sales and marketing

jobs, Vasella replaced some of the company's senior leaders with medically

trained scientists who grasped his approach. According to , some of

the old guard fled voluntarily. " They saw rewarding projects such as

Muckle-Wells and said: 'If this is what the future of the company looks

like, it's not for us,' " he explains.

On June 3, The New England Journal of Medicine published important data on

Novartis' phase 3 trial of the Muckle-Wells drug, now called Ilaris. More

than 90% of children and adults suffering from the immune disorders the drug

was designed to treat had rapid and sustained remissions. The drug is under

priority review with the FDA, and Novartis hopes to seek approval for use

against a variety of autoimmune diseases, including Type 2 diabetes and

severe arthritis.

There is much more in the pipeline. Novartis is neck-and-neck in a race with

Germany's Merck to launch the first oral treatment for multiple sclerosis.

And Novartis' drug Afinitor, approved by the FDA in March for advanced

kidney cancer, shows promise in six other forms of the disease. In trial

data released this month, Afinitor shrank tumors by 50% or more in one-third

of patients suffering from lymphoma, a cancer of the lymph system. And

Gleevec? Fresh evidence shows that it targets the same genetic mutation

involved in certain forms of melanoma, the deadliest of skin cancers. The

lesson, says Fishman: " Well-designed drugs just keep on giving. "

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Guest guest

Sorry, I have no love for Novartis... in my opinion they are a bunch of

blood sucking leaches! There is no justification for the way they exploit

the victims of CML. The price they charge for Gleevec is pure extortion!

Their profits on Gleevec are uncontionable.

On Thu, Jun 11, 2009 at 9:45 PM, Zavie <zmiller@...> wrote:

>

>

> <http://www.businessweek.com/magazine/content/09_25/b4136030131343.htm>

> Novartis: Radically Remaking Its Drug Business

> CEO Dan Vasella's growth mantra for Novartis is follow the science, not the

> financials

> Five neuroscientists file nervously into Novartis' (NVS

> <

> http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?sym

> bol=NVS> ) vast boardroom in Basel. CEO L. Vasella is seated at the

> table, along with nine senior executives that make up the company's

> innovation board. The scientists hope to persuade Vasella to move forward

> on

> an experimental vaccine for Alzheimer's disease, an illness that afflicts

> 25

> million people worldwide. Even a moderately effective treatment would be a

> blockbuster, but testing the vaccine would take years and several hundred

> million dollars.

> When one of the scientists points out that other drugmakers are targeting

> the illness, Vasella just shakes his head. " We still don't know whether

> Alzheimer's is one disease or several, or if the current approaches even

> address the right disease mechanisms, " he says, frustration edging into his

> voice. He sends the proposal back for a rethink.

> Vasella's ability to quickly set aside one of the world's most troubling

> diseases reflects a radical shift for Novartis-and one that may offer the

> drug industry its best chance to come up with the kinds of innovations that

> have eluded it for so long. Most big drugmakers shower their research and

> development funds on diseases such as cancer or depression, where huge

> potential markets beckon despite a deficit of scientific understanding. In

> recent years this approach has led to high rates of failure when drugs are

> tested in clinical trials. Seven years ago, Vasella, 55, took a calculated

> risk and turned Novartis' R & D model upside down. He resolved to push drugs

> through the long testing process only if they are backed by proven science.

> It doesn't matter whether the diseases the drugs treat are rare and the

> initial markets minuscule. Once a drug proves its worth against one

> disease,

> Vasella reasons, it can be tested against others. " If you are guided purely

> by financial estimates and not the science, you end up wasting time and

> money, " he says.

> Vasella's goal is to institutionalize the lessons from one of the company's

> most successful creations, the cancer drug Gleevec. Initially approved for

> a

> rare blood cancer that strikes just a few thousand people each year, it has

> proven effective against six other life-threatening diseases. The drug

> pulled in $3.7 billion in revenues last year for Novartis, which posted a

> total of $9 billion in operating income on sales of $41.5 billion. Vasella

> admits Gleevec was something of a fluke: The drug has a complicated history

> that mostly predates Novartis' shift in strategy. Yet Gleevec's triumph

> helped crystallize Vasella's thinking. Today Novartis has 93 drug

> candidates

> in the pipeline, 40% more than three years ago, and 80% of Novartis' drugs

> last year made it from early testing to late-stage development. That's a

> 60%

> improvement over 2005.

>

> LOSING PATENTS

>

> If Novartis can quickly build on this track record, it could mark a turning

> point for both the company and the industry. While plenty of biotech

> companies place a premium on science, for the past two decades most

> pharmaceutical companies have been more interested in developing and

> marketing blockbusters aimed at major diseases. In years past, this

> approach

> produced giant wins, including a host of famous cholesterol drugs as well

> as

> other moderately effective, mass-market medicines. But experts say drug

> companies have exhausted the easy targets. With patents on many older

> blockbusters starting to expire, the industry is poised to lose an

> estimated

> $140 billion in sales to generic competition over the next five years.

> Those

> revenue sources must be replaced.

> Despite multibillion-dollar research budgets, none of the top companies has

> a wealth of promising compounds in its development pipeline. The industry

> also faces regulators more vigilant than ever about safety, and health

> insurers starting to balk at covering costly drugs that bring only modest

> benefits.

> All these travails help explain the recent frenzy of drug-industry mergers

> and acquisitions, including the $68 billion union of Pfizer (PFE

> <

> http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?sym

> bol=PFE> ) and Wyeth (WYE

> <

> http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?sym

> bol=WYE> ) and the $41 billion marriage of Merck (MRK

> <

> http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?sym

> bol=MRK> ) and Schering-Plough. Yet the bigger these companies become, the

> fewer new drugs they seem to produce. U.S. pharmaceutical makers spent

> $65.2

> billion on R & D in 2008, nearly double the tally in 2002, but only eight

> completely new or first-in-class drugs reached the market last year, half

> as

> many as in 2001.

> A former physician, Vasella reckons drug executives have strayed too far

> from their scientific roots and forgotten that their core customers are

> patients, not shareholders. " It's the tyranny of quarterly earnings, " he

> says, a trace of an accent revealing his Swiss German upbringing. Vasella

> believes that focusing Novartis' research on smaller, narrowly defined

> groups of patients will lead to more targeted and effective therapies with

> fewer side effects. Regulators will therefore be inclined to approve them,

> and reimbursement will be less troublesome. " With so much waste in the

> health-care system, insurers cannot afford to bankroll me-too drugs, " Dr.

> Lee N. Newcomer, senior vice-president for oncology at United Healthcare

> (UNH

> <

> http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?sym

> bol=UNH> ). " But if new approaches such as Novartis' mean the right

> patients

> will get the right drugs, insurers will likely pay for them. "

> Vasella's vow to break with the status quo has won plaudits from management

> gurus who marvel at the inefficiencies in the drug sector. " He is not a

> prisoner of the existing paradigm. Instead, he is trying to change it, "

> says

> Ram Charan, a leading consultant and author. " Vasella is able to anticipate

> and visualize radical change much the same way Steve Jobs did at Apple

> (AAPL

> <

> http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?sym

> bol=AAPL> ), Andy Grove did at Intel (INTC

> <

> http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?sym

> bol=INTC> ), and Sam Walton did at Wal-Mart (WMT

> <

> http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?sym

> bol=WMT> ). " W. , professor of management practice at Harvard

> Business School and the former chairman and CEO of medical device maker

> Medtronic (MDT

> <

> http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?sym

> bol=MDT> ), says Vasella " has the mind of a long-term strategist. "

> Some on Novartis' board were skeptical at first. " They kept asking: 'How

> will we know this huge investment will work?' " recalls , who

> resigned

> from the board this past February when his son Jeff became head of

> Novartis'

> generics business, Sandoz. " Dan said: 'You won't know for at least a

> decade.' "

> The remark was vintage Vasella: confident, direct, and searingly honest.

> When I first met him nearly a decade ago, Novartis had stakes in both

> agribusiness and pharmaceuticals. Vasella believed gene-based sciences

> would

> soon prove the value of this union, but the synergies never materialized.

> Where hubris might have driven a less self-aware CEO to throw good money

> after bad, Vasella quickly ditched the seeds and chemicals business and

> focused on drugs.

> It was a natural decision, given Vasella's unusual status as a

> physician-CEO

> in a profession where nearly all top executives have backgrounds in law,

> accounting, or marketing. " The industry really needs more leaders who are

> as

> passionate as [he] is about the business. He is a CEO who thinks like a

> doctor, " says .

> Vasella's ability to keep patients in mind may come from his experiences

> not

> only as a physician but also as a patient. He described these to me in 2003

> when we met to talk about Novartis' hopes for Gleevec. As a five-year-old

> growing up in the Swiss town of Fribourg, Vasella developed asthma and

> spent

> two summers on a farm in the mountains, separated from his family. At eight

> he contracted tuberculosis, followed by meningitis, and spent a year in a

> hospital and a sanatorium. But his greatest sorrows came later, starting

> when he was 10. " My older sister had Hodgkin's lymphoma, " he told me. " I

> watched her over three years as she slowly got weaker. She died at 19. "

> Three years later, his father died in surgery. A second sister, also a

> doctor, was killed in a car crash. Perhaps because of these tragedies,

> Vasella is devoted to his family. At the recent innovation board meeting, I

> was impressed when he unapologetically took a call from one of his three

> children.

>

> A GOOD LISTENER

>

> A childhood blighted by illness and loss led Vasella to a career in

> medicine. As a resident at the University of Bern, he worked with Dr. Rolf

> Adler, then head of internal medicine, who encouraged him to undergo

> psychoanalysis. It helped him work through his losses and sparked a

> lifelong

> interest in the field. (Vasella collects first-edition works of Sigmund

> Freud, among other authors.) Analysis also made Vasella a better doctor,

> says Adler, now professor emeritus at the University of Bern. " He was

> always

> question- ing both himself and others, but he was a good listener, too. "

> Adler was disappointed when the young doctor decided to leave medicine for

> a

> career in business in 1988. The reasons were telling: Vasella was unwilling

> to wait out the years it would take in academia to be given a chance to

> lead. Moving to New Jersey, he took a position as a salesman for the Swiss

> drug company Sandoz, where his wife's uncle was chairman. In 1992 he

> returned to Switzerland to head marketing, and two years later he took over

> as CEO. In 1996, at the age of 43, he pulled off a merger between Sandoz

> and

> another mid-tier drugmaker, Ciba-Geigy, to form Novartis.

> Vasella's boldest move came in 2002, when he abandoned the traditional

> drug-development model. He declared that Novartis would investigate only

> diseases for which new drugs were desperately needed and where the genetics

> of the target illnesses were well understood. While other CEOs saw the

> pursuit of rare diseases as commercial suicide, Vasella believed many of

> the

> illnesses shared the genetic underpinnings with more common ailments.

> Vasella also decided to move Novartis' main global research operation from

> Basel to Cambridge, Mass., a short distance from MIT, Harvard, and other

> paragons of biological research. Vasella spent about $4 billion on the move

> and then quickly made another controversial decision: He recruited Dr. Mark

> C. Fishman, a renowned cardiologist from Harvard who had no industry

> experience, to run the center and overhaul Novartis' drug-discovery

> business. " When Dan first called, I thought he had the wrong number, " says

> Fishman, whose work studying zebra fish resulted in the discovery of 100

> genetic mutations involved in the cardiovascular system. Fishman was happy

> at Harvard and saw little reason to leave, but Vasella persevered.

> Fishman was the expert who convinced Vasella that medical research will

> reap

> the best results by focusing on a small number of important molecular

> pathways-the complex sequences of interactions among chemicals, proteins,

> and larger cell structures in the body that underlie all illnesses. " There

> are 24,000 genes in the genome, but there are only a few dozen pathways

> conserved throughout evolution, " he says. With little known about how each

> gene functions in a larger cellular context, Fishman compares the genes to

> a

> mere list of words in a dictionary. Molecular pathways, he believes, are

> the

> missing grammar. Fishman reckons that finding all the links in a pathway

> and

> then locating the key signals that can turn genes on or off will lead

> Novartis to therapies for illnesses once deemed incurable: " The theory is,

> we will be able to apply them in disease after disease because the pathways

> are shared. "

> While Fishman's new colleagues admired his knowledge of developmental

> biology, there were also hard feelings. Many Novartis scientists were

> struggling with the new management and the shift in power from Basel to

> Cambridge. " Some were angry and demotivated, " Vasella concedes. " The

> changes

> bred a lot of insecurity. " In particular, many questioned the choice of

> Fishman. " People in research wondered what value someone who had never led

> a

> research organization in the pharmaceutical industry brought, " recalls

>

> , chairman and CEO of San Francisco biotech Cerimon Pharmaceuticals

> and the former global head of development at Novartis.

> The biggest pushback came from the senior executives in sales and marketing

> who were used to calling the shots. Many couldn't fathom how a business

> model focused on small groups of patients would ever make money. The

> marketing side " was living happily off Diovan [Novartis' top-selling

> hypertension drug], only to have Mark Fishman tell them the age of the

> blockbuster is over, " says. Things got worse when Fishman banned

> running commercial analyses of new drug candidates until the company had

> sufficient clinical data. This approach, backed by Vasella, was heresy in

> an

> industry that spends vast sums trying to assign a hypothetical value to

> each

> potential drug at every stage of the R & D process. " Dan threw a strategy on

> the table and said: 'This is it, go make it work,' " says.

>

> GAME-CHANGING TRIAL

>

> The most important test case for Vasella's ideas may turn out to be an

> illness almost nobody has heard of. It's an inflammatory disorder called

> Muckle-Wells syndrome in which a single genetic mutation results in the

> buildup of proteins that can cause rashes, joint pain, and fatal kidney

> damage. Muckle-Wells afflicts just a few thousand people worldwide, too

> small a number to attract most drugmakers. But Fishman and Vasella have a

> hunch the drug they've developed for it will prove effective in more

> widespread diseases. " With other companies, rare diseases are an

> afterthought, " says Fishman. " For us they are often the starting point. "

> The drug, a synthetic antibody that can tamp down out-of-control immune

> responses, isn't new. Novartis briefly tested it against arthritis, then

> abandoned it. In 2004 one of Fishman's scientists asked to retest it in a

> trial involving just four patients suffering from Muckle-Wells. Within 24

> hours of receiving the medicine, all four showed dramatic improvement, and

> within a week the disease was barely detectable in the blood. Patients

> remained in remission for as long as six months.

> Despite these promising results, development efforts soon bogged down in

> debates over what the drug's exact commercial value might be. " This is

> precisely what paralyzes the industry and leads to the destruction of

> innovation, " says Trevor Mundel, a physician-cum-mathematician brought in

> by

> Fishman as head of global development. The confusion persisted for a year

> and a half, Vasella recalls with irritation. The initial tests " took way

> too

> long, much longer than necessary. "

> Vasella ultimately resolved the disputes, and Novartis went on to test its

> drug in several rare autoimmune ailments. Using advanced computer models to

> show how different patients might respond to the treatment, Novartis was

> able to persuade the Food & Drug Administration that it was safe to move

> directly to late-stage trials involving hundreds of patients with

> Muckle-Wells and a related cluster of immune system diseases, thus shaving

> a

> year off the expected development time and saving tens of millions of

> dollars. While Pfizer, GlaxoKline (GSK

> <

> http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?sym

> bol=GSK> ), and others are also using simulation, " Novartis is far ahead of

> the rest of the industry, " says Dr. Lee, director of the Center for

> Drug Development Science in Washington.

> Vasella places a high premium on medical experience. After a major

> restructuring in 2007 that led to the loss of 1,260 sales and marketing

> jobs, Vasella replaced some of the company's senior leaders with medically

> trained scientists who grasped his approach. According to , some of

> the old guard fled voluntarily. " They saw rewarding projects such as

> Muckle-Wells and said: 'If this is what the future of the company looks

> like, it's not for us,' " he explains.

> On June 3, The New England Journal of Medicine published important data on

> Novartis' phase 3 trial of the Muckle-Wells drug, now called Ilaris. More

> than 90% of children and adults suffering from the immune disorders the

> drug

> was designed to treat had rapid and sustained remissions. The drug is under

> priority review with the FDA, and Novartis hopes to seek approval for use

> against a variety of autoimmune diseases, including Type 2 diabetes and

> severe arthritis.

> There is much more in the pipeline. Novartis is neck-and-neck in a race

> with

> Germany's Merck to launch the first oral treatment for multiple sclerosis.

> And Novartis' drug Afinitor, approved by the FDA in March for advanced

> kidney cancer, shows promise in six other forms of the disease. In trial

> data released this month, Afinitor shrank tumors by 50% or more in

> one-third

> of patients suffering from lymphoma, a cancer of the lymph system. And

> Gleevec? Fresh evidence shows that it targets the same genetic mutation

> involved in certain forms of melanoma, the deadliest of skin cancers. The

> lesson, says Fishman: " Well-designed drugs just keep on giving. "

>

>

>

>

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