Novartis invested heavily in research and development, spending over $6 billion in 2007 alone. It pursued both internal discovery and external partnerships. Novartis decentralized its research through institutes like NIBR that were given freedom and resources to pursue new ideas. NIBR was reorganized into disease areas and platforms to consolidate operations. Novartis also formed research institutes focused on neglected diseases and established a venture fund to support external innovation. It had over 400 collaborations and alliances to complement internal efforts, gain new technologies, and access new markets. Moving forward, Novartis needed to balance internal and external strategies to develop new drugs and reach the market quickly while maintaining its science-based approach.

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