By hmimcu Novartis, which does not rank highly in the global pharmaceutical company rankings today, also had its glory days. 2014, Novartis also topped the list of global pharmaceutical companies, but in the following years, due to declining revenue and weak growth, Novartis’ ranking has been declining, and in 2022 Novartis ranked seventh in global drug company revenue.
A drug company wants to gain a foothold in the world of drugs, often need a heavyweight drugs for its global market, such as Bayer’s aspirin, Pfizer’s penicillin, and the former drug giant Novartis “Gleevec”.
Gleevec, the core product that helped Novartis become a pharmaceutical giant, is not as well known as aspirin and penicillin, but this leukemia drug, which ushered in the era of molecular targeted therapy for tumors in the world, has caused a huge sensation in China.
Gleevec is the “life-saving drug” that turned Xu Zheng’s middle-aged, down-on-his-luck uncle into a drug god in the movie “I am not the God of Medicine”.
As a company that once dominated the pharmaceutical world, Novartis, which was only founded in 1996, has only been around for twenty years, but the origins behind Novartis are 265 years old.
From the initial three small Swiss factories engaged in weaving, making dyes, printing labels, and surviving by picking up the pieces behind the German giants, to a prominent role in the pharmaceutical field, what does Novartis rely on to gain a foothold in new areas and how to fight against the strong rise of competitors?
1、History of chemical industry
In 1758, Novartis’ predecessor, the trading company J.R. Geigy, was born in Basel, the third largest city in Switzerland, selling chemicals, raw materials for dyes, raw materials for medicines, etc.
Basel’s border with France and Germany, its backdrop of advanced global markets and the Rhine River, a water, transport and sewage corridor, and the absence of German and French patent protection policies for dyestuffs, have allowed the textile industry to develop very rapidly.
By 1830, Geigy was already producing traditional dyestuffs from vegetable, animal or mineral sources by hand. As the Swiss dye industry flourished, the silk dyeing factory CIBA was founded in 1840. geigy and CIBA would not have imagined that their fates would thereafter be closely linked.
The hot market demand soon gave rise to revolutionary technology, and in 1856, the red industrial dye aniline violet was born in England, and in 1858, magenta dye was discovered by French chemists. This industrial dye, made from coking kerosene, was easier to color and much more profitable than vegetable dyes.
British and French businessmen soon registered patent protection for the dye and began to capture huge monopoly profits. The Swiss company CIBA obtained a patent for magenta dye through a multinational family marriage, and in 1859 it began producing the industrial dye at its factory in Basel.
Geigy, of course, did not want to be weak. Since there was no patent protection in Switzerland, Geigy also entered the industrial dyestuff field quickly in 1860, and relied on its previously accumulated overseas channels to spread its products worldwide. 1870, CIBA through the annexation of domestic and foreign factories continued to grow, and also exported industrial textile dyestuffs to the world through agencies, and provided label printing for many countries.
In 1886, Dr. Alfred Kern (1850-1893) and Edouard Sandoz (1853-1928) founded the chemical company in Basel, Switzerland.
In 1886, the chemist Alfred Kern and his friend Sandoz set up a dye factory Alfred & Sandoz (the company was later renamed Sandoz due to Alfred’s early death) in Basel, one for technology and one for marketing. Thus, the three brothers of the Novartis family finally came together.
Interestingly, even they would not have expected that being three companies selling dyes would influence the landscape of the global pharmaceutical industry a century later.
Alfred was a skilled doctor, and with the double convenience of no patent protection in Switzerland, Sandoz was able to produce six dyes the following year, and by 1892 the company was able to produce 28 dyes with an annual output of 380 tons, a 30-fold increase in production in five years. sandoz also developed services such as printing paintings and product packaging in imitation of Geigy and CIBA.
In 1894, of the 142 industrial dye patents in the world, Germany took 116, Switzerland 15, and the UK and France a total of 11.
But soon the great changes in the world gave the Swiss dye industry a chance to soar.
In 1914, World War I broke out. Germany, which had 85% of the textile dye industry, suddenly stopped exporting fuel to Britain and its allies. In just two or three years the price of dyestuffs rose more than tenfold, yet demand still outstripped supply. The market that Germany lost naturally fell on Switzerland.
The First World War made the Swiss dye giant a fortune, but it also fostered two great enemies in the dye field, the United States and Japan.
Faced with the rise of their rivals, in 1918 CIBA, Geigy and Sandoz set up a monopoly interest group, Basel AG (Basel Limited Liability Company), planned to last for 50 years, to hold together to defend against foreign enemies (the three companies’ annual profits were divided 2:1:1).
After World War I, the U.S. used the Act and high tariffs to support its own dye chemical industry, and Switzerland’s situation worsened. So they simply bought an American company and placed themselves directly on the American market. In 1951, Basel AG was dissolved.
In 1970, faced with increasing competition from Germany, the United States, the United Kingdom and the emerging chemical industry in the Persian Gulf, as well as the growing burden of R&D costs, CIBA and Geigy chose to merge and CIBA-Geigy was born.
In 1970, Louis von Planta, president of Kaki, and Robert Kappeli, president of KMB, shook hands and announced the merger of KMB and Kaki.
But the wheels of history did not give CIBA-Geigy a chance to breathe, and in 1973, the oil crisis broke out, global prices of energy resources and raw materials soared, and many chemical companies went out of business. Some U.S. chemical giants such as Pfizer began to shift their focus to pharmaceuticals, and diversified pharmaceutical companies began to focus on drug development.
Where will CIBA-Geigy and Sandoz go as the chemical industry is dying?
2、Drug transformation
There is absolutely no need to panic about these three chemical companies, which actually started their pharmaceutical business by hand almost a century ago. Dye industry and modern pharmaceutical industry, two seemingly unrelated business, why can do together by hand?
In 1878, Paul, a medical doctor who had studied dye technology, introduced cell staining and its corresponding dyes in his doctoral dissertation. In 1885, he had the idea that if he could add a specific virus to the dye, he would be able to treat it with precision. Modern medicine and the dye industry came together with the introduction of arsenic vannamides, which killed syphilis bacteria.
In 1884, the antipyretic drug Antipyrine exploded in Germany, and in 1895, Sandoz entered the pharmaceutical field by cooperating with the German company Hoechst in the production of antipyretic Antipyrine, from which it received a fixed share. CIBA entered the pharmaceutical field in 1887 by making a generic version of this drug.
Sandoz is not only co-producing, being in Switzerland it is bound to have a hard time turning down the generics business. Both Sandoz and CIBA copied the German prescription drug, industrial saccharin (which was sold as a prescription drug in Germany because of concerns about its impact on the sugar chain of interest). Once again, Sandoz and CIBA were the king of the pack, supporting the Swiss chocolate industry in the process.
Due to the huge demand for saccharin, Switzerland began to smuggle it to neighboring countries. Driven by the huge profit, saccharin was even mixed with paraffin to make candles, which were smuggled to churches in Austria, where the candles were remelted to refine the saccharin. This business continued until the end of World War I, when Germany lifted the ban on the production of saccharin.
In 1918, Arthur, a Sandoz scientist, succeeded in extracting a high-purity alkaloid, ergometrine, from ergot.
In 1921, the ergometrine product Gynergen ergotamine tartrate was marketed for the treatment of postpartum hemorrhage. Since then, Sandoz has developed a series of drugs to treat nerve disorders, blood clots, Parkinson’s, migraines, and the hallucinogenic product LSD that once fascinated Steve Jobs. Although Sandoz was notable for its research and development, the pharmaceutical division did not make its first profit of 27,000 Swiss francs until 1924.
In 1924, Sandoz launched a groundbreaking product, calcium gluconate, a drug that not only carried a third of the company’s revenue for years afterward, but also ended the painful history of calcium supplementation relying on injections and dirt-like pills, laying the foundation for modern calcium therapy. Calcium supplements can treat so many diseases that one German pediatrician joked that it would be hard to find a disease in the world for which calcium supplements have not already been used.
CIBA was also expanding in the pharmaceutical field, acquiring the antifungal hydroxychloroquine through the acquisition of BCF in 1908. Between 1918 and 1939, CIBA released eight sex hormone and hormone drugs.
Unlike these two companies that were looking for a second curve early on, Geigy, its former predecessor, only branched out from the dye industry in 1920 and dove headfirst into agricultural chemical product development. It was not until 1938 that Geigy set up its own pharmaceutical R&D division, but since then it has taken a bend in the pharmaceutical field.
But it was its agrochemicals – pesticides – that made Geigy’s comeback a success.
In 1939, Dr. Muller, a chemist at Geigy who worked on leather tanning preparations and plant disinfectants, developed DDT, an insecticide that killed bugs without causing any harm to humans. Muller was awarded the Nobel Prize in Physiology and Medicine for his work, and Geigy began to make a name for himself in the industry.
Seeing the fire of Geigy, Sandoz also entered the agrochemical industry in 1939, and CIBA made a strategic follow-up the following year.
With the economic boom and the widespread availability of health insurance after World War II, the pharmaceutical industry had a golden 20 years of development. Geigy and Sandoz, who had tasted the sweetness of technology development, were more decisive in investing in new technologies and the effect of investment was immediate. CIBA, which does not have heavyweight R&D results, is starting to lose its pace.
In 1949, Geigy launched its first major drug, Protaxon, for rheumatism and gout, which continued to dominate the market (we know it as Fotarine, the product of more than 20 years of continuous improvement). In the decade between 1956 and 1966, Geigy’s revenues grew from CHF 500 million to CHF 2 billion with the introduction of drugs for psychiatric disorders, epilepsy and hypertension.
In 1967, Geigy’s sales had already surpassed CIBA’s annual revenue of CHF 2.7 billion, and Sandoz’s results were equally surprising.
Sandoz entered the antibiotic field in 1963 with the acquisition of Biochmie, and in 1972, Sandoz scientists discovered a fungus from the Norwegian highlands that inhibited the growth of other fungi and broke down the active ingredient, cyclosporine, which was “immunosuppressive”. –In 1983, Sandoz launched cyclosporine, which became the company’s flagship product for the treatment of autoimmune diseases such as organ transplant rejection, rheumatoid arthritis and psoriasis.
Sandoz also expanded in the pharmaceutical industry, entering the nutritional products industry in 1967, merging with Durant & Huguenin in 1969, the last of the six Swiss dye companies, and entering the construction chemicals industry in 1985. In the 1990s, Sandoz expanded into the gene therapy sector through acquisitions.
Having fallen somewhat behind in the R&D process, CIBA decided to grab the coattails of the pioneers. in 1969, CIBA and Geigy joined forces to establish the Fritrich-Misch Institute, specializing in basic biochemical and pharmaceutical research. in 1970, the two companies merged directly and CIBA-Geigy was born.
Since the 70s and 80s, CIBA-Geigy has flourished in the flood of the times, diversifying into household consumer goods, seeds and agrochemicals, precision scales, vaccines, ophthalmology …… business and steadily growing turnover. The company was expected to have a smooth career thereafter, but the anti-pesticide/herbicide movement in the agrochemical industry was intensified by the awakening of people’s environmental awareness.
In fact, as early as 1962, the book “Silent Spring” brought into the public eye the dangers of DDT in making spring silent without birdsong, and in 1972, a global ban on the use of DDT was subsequently announced, led by the United States.
In 1989, CIBA-Geigy’s sales of agrochemicals, dyestuffs and pharmaceuticals were CHF 20,608 million, but profits were only CHF 1,557 million. The loss of dyestuffs and pesticides, which contributed half of the revenue, was bound to hurt the company and reduce its international position.
At this time, Sandoz, which was taking off in the pharmaceutical field, entered CIBA-Geigy’s vision.
In December 1991, Sandoz acquired a 60% stake in Systemix, a company with technology to purify hematopoietic stem cells, and in July 1995, Sandoz acquired Genetic Therapy, Inc. (GTI), a company founded by Frendch Anderson, the world’s father of gene therapy, completing its early presence in the gene field.
At that time, CIBA-Geigy ranked ninth in the world in the pharmaceutical industry, with 2.3% of the world market share, and Sandoz ranked fourteenth in the world, with 2.1% of the world market share. Due to increased competition and rapid growth in R&D costs, mergers and acquisitions are taking place in the pharmaceutical industry.
Wanting to further enhance their competitive position, Sandoz and CIBA-Geigy almost immediately hit it off.
3, born with a golden spoon “rich second generation”
The birth of Novartis is arguably one of the most successful “mergers” in history.
Its history can be traced back to three companies with which its fortunes intersected: Cargill, which was founded in Basel, Switzerland, in the mid-1800s to trade in chemicals and dyes; Steamboat, which began producing dyes in 1859; and Sandoz, which was founded as a chemical company in Basel in 1886.
The three giants are connected by only one consensus – “interest”. In those days when monopoly was prevalent, the three chemical giants “allied” to prevent their position from being challenged.
After the 1990s, the pharmaceutical industry grew at a rapid pace, and the pharmaceuticals business of both Ciba-Cargill and Sandoz grew significantly, with pharmaceuticals becoming the largest source of their profits.
And so, with a golden spoon in its mouth, Novartis was born in 1996, when the $30.9 billion merger of Spark-Cargill and Sandoz was one of the world’s largest chemical giants.
But after the merger, Novartis threw itself entirely into the pharmaceutical industry, abandoning its century-long chemical business, and after a series of business divestitures, Novartis narrowed its focus to biotechnology and genetic technology research and applications.
This shift may be related to the birth of Novartis’ first “heavyweight drug”. In the year of the merger, Novartis developed its own targeted therapy for chronic granulocytic leukemia, Gleevec (also known as Imatinib). It took 41 years from the discovery of the pathological mechanism to the actual launch of this drug.
Many pharmaceutical companies are relying on a drug “a battle of fame”, such as Bayer’s aspirin, Pfizer’s penicillin, etc., Novartis developed “Gleevec”, is to help it among the pharmaceutical giant a “heavy bomb The “Gleevec” developed by Novartis is a “heavy bomb” to help it become a drug giant.
Gleevec has established Novartis’ position in the industry since its launch in 2001, and Gleevec’s annual sales peaked at $4.685 billion in 2015.
After the full expiration of Gleevec’s patent protection in 2015, domestic generic drugs have been listed one after another, and the price of Gleevec has been decreasing under the impact of a series of policies and generic drugs. For example, Xinwei (Imatinib Mesylate) produced by Hansen Pharmaceuticals is the first generic version of Gleevec, and is priced at 624 yuan per box after reimbursement by medical insurance, which is cheaper than the Indian generics.
4、Establishment of Novartis
To prevent a challenge to its position, the Swiss giant merged again in 1996 and Novartis (Latin novaeartes, meaning new technology) was born (Sandoz holds a 55% stake).
In 1996, the merger of Auto-Bar-Gardner and Sandoz resulted in the creation of Novartis, which became one of the world’s largest pharmaceutical and health companies. Photo: Workers are replacing the old sign at Novartis’ St. Johann plant in Basel on Feb. 3, 1997.
After the merger, Novartis has 135,000 employees, the company has annual sales of CHF 36.2 billion, total assets of CHF 58 billion and cash and cash equivalents of CHF 19 billion. In order to avoid the suspicion of monopoly, they divested the side business which was already regarded as a chicken, and began to concentrate on the three major businesses of pharmaceuticals, agrochemicals and nutrition.
After the divestment, the company has 94,000 remaining employees, total revenue of CHF 21.1 billion and total profit of CHF 3.9 billion. The pharmaceutical business accounts for 2/3 of the total revenue and 3/4 of the profit, and holds 4.4% of the global pharmaceutical market share, surpassing Merck, which ranks second in the world, behind Glaxo Wellcome in the UK.
Under the guidance of the “merger of equals” concept, Novartis’ board of directors and core management were divided 50/50 between the former two companies. At the same time, in each business unit of the company, a merger task force was established, and a total of 200 task forces were set up to analyze and guide the merger of nearly 600 projects. All junior employees were required to submit resumes and undergo interviews, called “Hire-and-Fire”.
When the two cultures merge, the one who wins in a short period of time is usually the stronger one, plus the shareholding of Sandoz is higher, and the CEO of Novartis is also the former CEO of Sandoz. ” management style.
In this way, the company’s decision-making, execution has improved, 3 months Novartis completed 65% of the company’s business and project consolidation, but the staff’s motivation and creativity is also limited, the staff complained about this.
With the new CEO’s complete lack of understanding of CIBA-Geigy’s business, the future “drug god” Gleevec, which was still in its infancy, started to become precarious. Because it was only available to patients with slow-growing leukemia, the audience for Geigy was so narrow that people did not even believe that the project, which had been invested for three years, would pay for itself in the future.
Matter, the scientist of the Gleevec project, angrily approached the new CEO and righteously criticized the confusion and inefficiency brought about by the merger, convincing the CEO not to believe the market’s thinking that the number of patients is small and therefore the new drug is not worth much, and that patients will buy it again and again as long as it is effective.
Instead of angering the new CEO, Matter was infected by his professionalism and passion, and Gleevec was saved. Knowing that “professionalism and passion are equally important for R&D”, the CEO even gave Matter the responsibility of general manager of Novartis Cancer Research.
The progress of Gleevec did not go smoothly. The animal testing phase of Gleevec, which had been a sure winner, was suddenly found to cause blood clotting and increased liver toxicity, which directly shelved the introduction of Gleevec. After nearly two years of painstaking exploration, the formulation department made the active ingredient methanesulfonate, solving the solubility problem, and finally Glivec was ready to see the light of day.
Novartis, however, has entered its darkest moment since the merger.
Sandoz’s gene business, which once had high hopes, began to suffer a series of setbacks; in 1999, a patient receiving gene therapy died suddenly and unexpectedly, and gene therapy went into a downturn, with the CEO and nearly two-thirds of the gene therapy company’s staff leaving (Novartis’ perseverance in the gene business, however, led to its first FDA-approved gene cell therapy in 2017 afterwards (Kymriah).
In the first half of 1999, environmental and competitive pressures caused sales of the company’s agrochemicals to fall by 10% to about 3 billion Swiss francs. A year ago, Novartis established a human genetics research facility and a plant genetics laboratory in the U.S. Just when Novartis was ready to roll up its sleeves and make a splash in the GM market, GM crops were investigated by the U.S. and there was growing public resistance.
Agrochemicals performance just fell immediately, and the pharmaceutical business was on thin ice. The U.S. market, which Novartis cares so much about, continued to lose market share. Many of Novartis’ mainstay drugs have expired patents, and 75% of the company’s drugs have been on the market for more than five years.
Novartis was forced into the path of reform, it directly divested the agrochemical business, and the rest of the ammunition, all on the research and development of new drugs. In order to raise more funds for research and development, Novartis was listed on the New York Stock Exchange on May 11, 2000. 2001 Gleevec was approved for marketing, and its sales exceeded one billion dollars in 2003, which became the company’s saving grace.
To cope with the onslaught of generics after the patent cliff, Novartis found a very novel idea: join them and become their leader. in 2002, Novartis acquired Lek in Slovenia, allowing it to take over all the generic business. in 2005, Novartis acquired all the shares of the German generic Hexal and 68% of the shares of Eon lab. Since then about half of the global sales of generics have been made by Sandoz, a Novartis subsidiary.
But after all, the price of generic drugs is very low, so this part of Novartis’ business is not only a meager profit, revenue can only account for 20%. Innovative drugs are the real engine. In 2006, Novartis acquired the vaccine giant Chiron, and in 2010, it acquired the ophthalmology boss Alcon for $51.6 billion.
In 2010, Novartis became a leader in eye care when it acquired a majority stake in Fort Worth, Texas-based Alcon.
In 1977, Nestle 280 million dollars to buy Alcon, 33 years rose 187 times. But for Novartis, the acquisition of Alcon became a failure in its career. Acquired vaccines and ophthalmology and other companies, the performance is not as good, worse is the shy pocket Novartis, but the revenue is getting lower and lower.
At the end of 2012, the patent of Diovan, the first generation of Novartis’ heavyweight drug, expired, which meant that the antihypertensive drug, with annual sales of $6 billion, would suffer a huge shrinkage in sales under the blow of generic drugs. Aliskiren, an antihypertensive drug that was expected to have high expectations, was suddenly found to have side effects four years after its launch in 2011, a huge blow that made Novartis lay off 1,000 employees.
In 2015, Gleevec’s patent expired, and the following year generics flooded the market and prices dropped significantly. Where should Novartis go from here?
Novartis began to reorganize its business lines, eliminating the vaccine business, health care business and flu vaccine business, which were underperforming and slowing down, and used the cash from the sale to acquire inclisran, a drug candidate for cardiovascular disease, develop The Medicines Company, the first FDA-approved RNAi drug, and GSK’s oncology division, and increase the layout of more promising growth potential The Medicines Company
But these actions still can not save its fire, in order to further focus on innovative drugs, Novartis decided to accelerate the “thinning”, in addition to divesting generic business Sandoz, Novartis also sold five ophthalmology drugs. But in the rivals running wild, Novartis has fallen out of the top five in the world.
In 2022, Novartis reported total revenues of CHF 48.51 billion, down 2% year-on-year (up 4% at constant exchange rates), and net profit of CHF 6.30 billion, down 71% year-on-year. Sandoz, the generics business, with net sales of CHF 8.34 billion (down 4% year-on-year), is expected to be divested in the second half of 2023.
After such a thorough slimming, Novartis will be able to catch up, we can only wait and see.
But from the early days when the three giants merged in order to fight against the German monopoly and the rise of the United States and Japan, to the post-World War II breakup in order to enter the U.S. market and the decline of the chemical industry, the three companies merged again and resolutely abandoned the chemical industry, which occupies half of the world and has a hundred-year history, to transform into the pharmaceutical industry and bid farewell to the generic business, betting on a future that is not entirely clear but very certain. For a giant, this kind of boldness to break off and not be bound by the past is indeed very admirable and worth learning from many companies.