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Novartis AG: Science-Based Business

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  • 1. Novartis AG: Science-Based Business Case Analysis Ishpreet Singh – 12P139 Karan Jaidka – 12P141 Kshitij Agrawal – 12P142 Kshitij Ahuja – 12P143 Manav Gupta – 12P146 Vikas Jain – 12P178 Group 1 – Strategic Management – II PGPM 2012-14
  • 2. Introduction  Pharmaceutical industry was rapidly changing  Novartis had to invest heavily in basic research to stay ahead of competition  Novartis was hedging with its faster growing generic drug business  Objective was to maintain the discovery engine, while not disappointing shareholders
  • 3. The R&D Culture at Novartis  Ongoing Research and Development was a critical part of the overall strategy  2007 Corporate R&D spending totalled USD 6.43 bn (17% of net sales)  R&D spending on pharmaceuticals = 21.2% of net pharma sales  Business strategy intimately associated with research strategy  Combination of extensive internal discovery and development capabilities  Research strategy included organic research coupled with strategic collaborations and in-licensing of compounds  Decision taken to decentralize research operations, invest heavily in creating new research centers  Research Philosophy: Lowest risk is when you bet on Science
  • 4. Research at NIBR  The Novartis Institutes for Biomedical Research (NIBR) was headquartered at Cambridge  Commitment to provide all possible resources to researchers at NIBR to create drugs that filled unmet medical needs  No bureaucracy inflicted on NIBR researchers  Freedom to pursue ideas and come up with new promising ideas  NIBR’s Focus: Recent advances in genetics and to better understand molecular similarities between diseases  NIBR scientists sought to understand how a chain of genes might be the root cause of many diseases  NIBR re-organized around 9 specific disease areas and other functional platforms  Co-existence of scientific groups focusing on fundamental mechanisms and also specific disease areas  Main aim of re-organization: To consolidate research operations as much as was practical  Major reason for NIBR’s success: Constant review of developments at NIBR by an external scientific advisory board
  • 5. Formation of Corporate Research Institutes  Novartis funded 3 corporate research institutes  Mission: To address unmet needs, focusing on the developing countries and neglected diseases  Focus: To foster collaborative breakthrough basic science related to drugs Friedrich Miescher Institute for Biomedical Research (FMI) Functioned like a university lab, increasing ties with academic research labs Very close relations with the university, and hence, could not be integrated into pharma Genomics Institute of the Novartis Research Foundation (GNF) Close ties with the Scripps Research Institute Focussed on translating breakthrough ideas into applications (entrepreneurial) GNF developed significant intellectual property in- house GNF contributed 8 CSPs and 2 SPOCs to the NIBR pipeline Novartis Institute for Tropical Diseases (NITD) Public-private partnership, focussed on drug discovery for tropical diseases Creation of a separate budget to fund the development of medicines
  • 6. The Novartis Venture Fund (NVF)  Established in 1996  Focus: Development of novel therapeutics and platforms  The NVF was one of the world’s largest corporate biotech venture funds  Equity investments in 113 companies  The fund historically invested upto USD 5 mn per company over the lifetime of its investment  Later increased to USD 15-20 mn, focus on high-risk and early stage financing  The Novartis Option Fund was established as an alternative financing vehicle  It was a conceptual therapeutic program  Anticipated equity investment of up to USD 20 mn per company
  • 7. External Research Partnerships and Strategic Alliances  Novartis had collaborations with academic institutions and corporations  Global pharmaceutical and biotech companies  Novartis had more than 400 collaborations and alliances globally (2006)  Novartis also strengthened relations with academic institutions  Long term relationship with Scripps through GNF  Academic partnership with Broad Institute of Harvard and MIT and Lund University  Academic collaborations were aimed at changing how drugs were manufactured  Other major alliances included:-  10-year alliance with MorphoSys AG to develop therapeutic antibodies  Novartis was also responsible for pre- clinical and clinical development and commercialization  5th largest strategic alliance in the industry To complement and accelerate its own drug development efforts To gain access to new talent and know-how To develop new products in strategic disease areas To acquire platform technologies To access new markets Reasons behind Novartis entering into Strategic Alliances
  • 8. The Road Ahead  The results obtained after the launch of NIBR were very pleasing  Novartis had more programs, new targets and more molecules  Improvement in productivity was also witnessed  But the road doesn’t end here for Novartis  They still need to arrive at the perfect balance between external collaboration and internal research  Both cannot survive independently  Since Novartis has its main goals as developing new drugs and also faster time-to-market, both strategies have to work hand-in-hand  Novartis’ dependence on Science as a low-risk bet on solving critical problems was monumental

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