A Changing of the Guard at Novartis: What Is In Store?

By Patricia Van Arnum - DCAT Editorial Director

September 20, 2017

Novartis Headquarters in Basel, Switzerland; Source: Novartis

Earlier this month, Novartis announced that Joseph Jimenez, current CEO , will step down as CEO in February 2018 and turn the reins over to Vasant Narasimhan, MD, current global head of drug development and chief medical officer at Novartis, who will become CEO, effective February 1, 2018. So what is in store for the new CEO?

Narasimhan takes over at a crucial time for Novartis as the company seeks to overcome relatively flat sales and achieve greater gains from its prescription-drug portfolio and considers strategic options for Alcon, its eye-care division. So what products will make the mark for the company and what strategic options are on the table?

A changing of the guard

Novartis VNarasimhan CEO 9 17 160px

Vasant Narasimhan, MD, current Global Head of Drug Development and Chief Medical Officer for Novartis, will become CEO, effective February 1, 2018
Source: Novartis

In taking the helm of Novartis in February 2018, Narasimhan will bring his experience from leadership roles across Novartis in commercial, drug development, and strategy. He became global head of drug development and chief medical officer at Novartis in February 2016 and took the lead role in the newly formed Global Drug Development organization, where he is responsible for overseeing drug development across the company’s innovative medicines and biosimilars portfolio. Jimenez, who has been CEO of Novartis since 2010, will step down as CEO, effective January 31, 2018 and will support the transition until he officially retires on August 31. 2018.

Jimenez is turning over the reins to Narasimhan at a significant juncture for Novartis as it faces generic-drug competition for its top-selling product, the anti-cancer therapy, Gleevec/Glivec (imatinib), and as it faces forthcoming decisions on the future of Alcon, its eye-care division, which has underperformed. Novartis paid $51.6 billion to acquire Alcon from Nestlé as part of a multi-year process that was finalized in 2011. Due to underperformance, Novartis announced in January 2017 that it is considering strategic options for the business with a decision expected by the end of this year. Analysts also point to the possibility that Novartis may sell its approximate $14-billion stake in Roche, another decision that the new CEO will face.

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Joseph Jimenez,
current CEO of Novartis, will step down as CEO
January 31, 2018
Source: Novartis

But for Narasimhan, the key choices ahead reside in bolstering the company’s pharmaceutical business. Novartis consists of three divisions: Innovative Medicines (its prescription-drug business), Sandoz (its generics and biosimilars business), and Alcon (its eye-care division). The Innovative Medicines Division is a product of recent organizational change. In May 2016, Novartis announced changes to the focus of its former Pharmaceuticals Division by creating two business units, Novartis Pharmaceuticals and Novartis Oncology, as part of its Innovative Medicines Division. In July 2016, the company established the Global Drug Development organization, a new organization that Narasimhan now heads, to oversee all drug development activities for its Innovative Medicines Division and the biosimilars portfolio of the Sandoz Division.

In moving to the CEO position next year, Narasimhan will be inheriting a company that had flat sales in its mainstay pharmaceutical business in 2016 and thus far in 2017. In 2016, Novartis reported flat sales (on a constant currency basis) in its Innovative Medicines Division, only a 2% increase in net sales in Sandoz, and a 2% decline in sales at Alcon. In 2016, the Innovative Medicines Division accounted for $32.6 billion, or 67%, of the company’s net sales, and for $7.4 billion, or 85%, of operating income (excluding corporate income and expense, net) (see Table I ). In 2016, Sandoz accounted for $10.1 billion, or 21%, of group net sales, and for $1.4 billion, or 17%, of group operating income. In 2016, Alcon accounted for $5.8 billion, or 12%, of group net sales, and for $–0.1 billion, or –2%, of group operating income. Overall, net sales for Novartis in 2016 were $48.5 billion, down 2% in reported terms, but flat when measured in constant currencies.

Table I. Novartis At A Glance.
Division 2016 Net sales Percentage change year over year (constant currency basis)
Innovative Medicines $32.562 billion 0%
Sandox $10.144 billion 2%
Alcon $5.812 billion --2%
Total net sales $48.518 billion 0%

Source: Novartis

 

Thus far in 2017, net sales continue to be flat. Novartis reported first-half 2017 revenues of $23.78 billion, up 1% year over year on a constant currency basis. On a segment basis, Innovative Medicines, which consists of its innovator prescription drugs, had net sales of $16.0 billion, up 2% on a constant currency basis, with volume growth of 7 percentage points.

Key performers in the first-half of 2017 in the company’s prescription pharmaceutical business were: Cosentyx (secukinumab), a drug to treat moderate-to-severe plaque psoriasis, active psoriatic arthritis, and active ankylosing spondylitis, with first-half 2017 sales of $900 million, up 106% year over year; Entresto (sacubitril/valsartan), a drug to treat heart failure, with first-half 2017 sales of $190 million, up 300%; Promacta/Revolade (eltrombopag), a drug to treat low blood platelet counts in adults with chronic immune (idiopathic) thrombocytopenia, with first-half sales of $210 million, up 35%; Jakavi (ruxolitinib), a drug to treat polycythemia vera and myelofibrosis, disorders of the bone marrow, with first-half sales of $186 million, up 32%; Tafinlar (dabrafenib + Mekinist (trametinib)), two anti-cancer drugs for treating metastatic melanoma and metastatic non-small cell lung cancer with first-half 2017 sales of $403 million, up 28%; and Gilenya (fingolimod), a drug for treating relapsing forms of multiple sclerosis, with first-half sales of $1.56 billion, up 5%.

Sandoz, the generics arm of Novartis, reported first-half 2017 net sales of $4.9 billion, down 2% (constant currency basis) year over year. Volume growth of 6 percentage points was more than offset by 8 percentage points of price erosion. Sales in the US declined 8% on a constant currency basis mainly due to pricing pressure in retail generics. Net sales across Europe and the rest of the world grew 2% on a constant currency basis.

Alcon, Novartis’ eye-care-division, reported first-half 2017 net sales of $ 2.9 billion, up 2% on a constant currency basis year over year. It reported an operating loss of $62 million compared to $38 million in the prior year period.

Product strengths

Oncology is Novartis’ largest product franchise, accounting for $12.8 billion of revenues in 2016. The key issue for Novartis going forward is addressing increased generic-drug competition for its top-selling oncology drug and overall top-selling product, Gleevec/Glivec (imatinib), a drug to treat a certain form of leukemia and certain types of gastrointestinal stromal tumors. Gleevec/Gilvec had 2016 sales of $3.3 billion. Under Jimenez’s tenure, the company’s oncology franchise was increased with the addition of oncology assets acquired from GlaxoSmithKline (GSK) in 2015 as part of a three-part transaction between Novartis and GSK. Under that deal, Novartis acquired certain oncology products and pipeline compounds from GSK, GSK and Novartis created a consumer healthcare joint venture that combined the two companies' consumer healthcare divisions, and GSK acquired Novartis' non-influenza vaccines business.

Oncology was the largest piece of that deal for an aggregate cash consideration of $16 billion (with up to $1.5 billion of this amount contingent on certain development milestones). With the closing of the deal, some key products included: Tafinlar (dabrafenib), a BRAF inhibitor, and Mekinist (trametinib), a MEK inhibitor, both indicated for treating metastatic melanoma and non-small-cell lung cancer; Votrient (pazopanib), a kinase inhibitor for treating advanced renal cell carcinoma and advanced soft tissue sarcoma; Promacta (eltrombopag) for treating thrombocytopenia; Tykerb (lapatinib) for treating HER2+ metastatic breast cancer; and Arzerra (ofatumumab) for treating chronic lymphocytic leukemia. Novartis also gained opt-in rights for GSK's current and future oncology R&D pipeline (excluding oncology vaccines), which could be a source of new compounds and new targets. Sales of the acquired GSK oncology products in 2014 were approximately $2.0 billion.

Two of those drugs acquired, Tafinlar (dabrafenib) and Mekinist (trametinib) were among the key growth products for Novartis in 2016. Overall, growth products contributed $17.1 billion, or 35% of net sales in 2016, and the performance of these growth products will be key for Novartis in the near term. In 2016, these growth products included Gilenya (fingolimod), a drug for treating relapsing forms of multiple sclerosis, with 2016 sales of $3.1 billon; Cosentyx (secukinumab), a drug to treat moderate-to-severe plaque psoriasis, active psoriatic arthritis, and active ankylosing spondylitis , which reached blockbuster status in 2016 with sales of $1.1 billion; Jakavi (ruxolitinib), a drug for treating blood cancer, with 2016 sales of $581 million; and the combination cancer therapy Tafinlar + Mekinist, acquired from GSK in 2015, with 2016 sales of $672 million.

Blockbusters and generic competition

Another key for Narasimhan is bolstering the company’s pipeline to deal with generic competition for several of its top-selling drugs. In 2016, Novartis had nine blockbuster drugs (defined as drugs with sales of $1 billion or more) (see Table II at end of article) with four of these drugs facing generic competition. Novartis faced generic competition in the US, Japan, and some European Union (EU) countries for its best-selling product, Gleevec/Glivec during most of 2016. In the remaining EU countries, certain of its Glivec intellectual property rights expired in December 2016, and generic competition there has begun. Sales of Gleevec were $1.05 billion in the first-half of 2017, down 38% year over year.

Patent protection for Sandostatin (octreotide), a drug to treat carcinoid tumors and acromegaly, has expired for a subcutaneous version in the US, EU, and Japan. But there is currently no generic competition in the US, EU, or Japan for Sandostatin LAR, the long-acting version of Sandostatin which represents the majority of Sandostatin sales.

Diovan and Co-Diovan/Diovan HCT (valsartan/hydrochlorothiazide), an antihypertensive drug that had long been Novartis’ best-selling product, has generic competitors in the US, EU, and Japan. In addition, the single-pill combination products Exforge and Exforge HCT, which contain valsartan, the active ingredient in Diovan, and amlodipine, face generic competition. Exforge has generic competition in the US and Japan, and Exforge HCT, which is not marketed in Japan, has generic competition in the US. Generic competition for Exforge began in some countries in Europe in January 2017.

Overall, in 2017, Novartis expects an impact on its net sales of about $2.5 billion as a result of the loss of intellectual property protection for its products, including Gleevec/Glivec. In addition, certain intellectual property protecting its blockbusters, Afinitor (everolimus), a drug to treat breast cancer, and Gilenya, a drug for treating multiple sclerosis, will expire in 2018, 2019, and 2020. In addition, some of the patents protecting these products are being challenged in the US, raising the possibility of an earlier entry of generic competition.

Pipeline highlights

To mitigate these losses, advancing the company’s pipeline will be key for the new Novartis CEO. The company had more than 200 projects in clinical development, as of December 31, 2016. In its second-quarter 2017 results, the company highlighted several potential blockbusters in its late-stage pipeline, under regulatory review, or recently approved. In oncology, the company highlighted three therapies: Kisqali (ribociclib), a drug for treating breast cancer, which was approved in the US in March 2017 and in the EU in August 2017; isagenlecleucel, a chimeric antigen receptor T cell therapy, for treating acute lymphoblastic leukemia; and crizanlizumab, a drug for treating sickle-cell pain, which is on track for regulatory submission in 2018. In its cardiovascular franchise, the company continues to bank on Entresto, which is approved for treating heart failure, and for canakinumab, a drug to reduce cardiovascular risk.

Other key late-stage pipeline candidates are in its neuroscience, immunology and dermatology, respiratory, and ophthalmology franchises. In neuroscience, key products are ofatumumab and siponimod, both for treating relapsing multiple sclerosis, and erenumab for migraines. In immunology, the company is looking to advance another indication for its already blockbuster drug, Cosentyx, to include treatment of non-radiographic axial spondyloarthritis. It is also advancing two asthma drugs, a combination therapy of indacaterol, glycopyrronium, mometasone, and a single therapy of fevipiprant. In ophthalmology, the company is advancing brolucizumab, a drug to treat neovascular age-related macular degeneration.

Table II. Novartis’ Top 10-Selling Innovative Medicines, 2016.
Drug Indication 2016 Sales
Gleevec/Glivec (imatinib) Chronic myeloid leukemia and gastrointestinal stromal tumors $3.323 billion
Gilenya (fingolimod) Relapsing forms of multiple sclerosis $3.109 billion 
Lucentis (ranibizumab Age-related macular degeneration $1.835 billion
Tasigna (nilotinib) Chronic myeloid leukemia $1.739 billion
Sandostatin (octreotide) Carcinoid tumors and acromegaly $1.646 billion
Afinitor/Votubia (everolimus) Breast cancer  $1.516 billion
Galvus (vldagliptin) Diabetes $1.193 billion
Cosentyx (secukinumab) Psoriasis, ankylosing spondylitis, and psoriatic arthritis $1.128 billion
Diovan/Co-Diovan (valsartan/hydrochlorothiazide) Hypertension $1.073 billion
Exjade/Jadenu (deferasirox) Chronic iron overload $956 million

Source: Novartis