Keeping the pipeline full: thanks to its indefatigable CEO, Novartis's R & D effort is paying off

Chief Executive, The, July, 2004 by Fran Hawthorne

Soon after his Swiss pharmaceutical company, Sandoz, merged with rival Ciba-Geigy in 1996 to form Novartis, CEO Daniel Vasella set out to meet some of his researchers. One of them told him about a drug compound languishing in Ciba-Geigy's labs that seemed to show promise against a rare form of leukemia. Even more intriguing, it worked in a completely different way from conventional cancer therapy; Instead of hitting healthy and cancerous cells alike with blasts of radiation or chemotherapy, it targeted only a particular activity of the cancer cell.

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Many colleagues questioned the wisdom of pouring money into a product with such a narrow market, but Vasella persisted. Over the next five years, he personally pushed the drug closer and closer to final proof. As it became clear that the drug might be extraordinarily effective, he insisted on speeding up the production schedule. When cancer patients wrote to him, asking to be included in the trials, he answered every letter and email himself.

Finally, in May 2001, the U.S. Food and Drug Administration approved the drug, named Gleevec, in a record two and a half months. "Dan Vasella really put himself on the line with Gleevec," says Michael Parker, director of ISO Healthcare Consulting in New York. "He drove it through the company when others in the organization weren't so comfortable."

The drug may have been unusual, but for Dan Vasella, the M.O. definitely was not. A medical doctor who spent eight years in clinical practice, he thrusts himself into his company's labs more like a scientist than a CEO. He constantly meets with researchers, reads daily updates and even conducts job interviews for middle managers. Every quarter, he holds a "town hall meeting," in person and via Webcast, with all 78,500 of Novartis's employees.

Vasella doesn't like cutting costs, and says he doesn't believe in setting a fixed budget percentage for research and development. That may be unconventional thinking, but whatever he's doing, apparently it works. In the pharmaceutical world, nothing really matters except the chemicals in the test tubes. And recently, the test tubes at most companies have been pretty dry, as the burgeoning sciences of genomics and proteomics (a field of study that uses similar techniques to analyze proteins) have taken longer than expected to produce marketable results. Only 21 innovative new drugs were approved by the FDA last year, compared with 53 in 1996. (The FDA also approves scores of other drugs that are simply new uses for existing products.)

But Novartis, after struggling for the first few years after the merger, now has one of the strongest product pipelines in the industry. It has introduced 12 new products since 2000 and plans to file for U.S. approval of 10 more by the end of 2006. Vasella was the only pharma executive included in Time magazine's list of the world's "100 Most Influential People" this spring, and readers of the Financial Times recently voted him Europe's most influential business leader of the past 25 years.

A native of Switzerland, he speaks in a soft, vaguely German accent, his English flecked with old-fashioned turns of phrase like "if I may say." Behind the Old World courtesy, however, is an aggressive, ambitious executive who is known to send emails at 3 a.m.

There are risks in Novartis's future, to be sure. One danger is that Vasella's approach to R & D could spread the company thin by chasing too many targets, rather than concentrating on a handful of winners. Vasella's obvious hunger for another merger, as evidenced by his recent unsuccessful romancing of French drug giant Aventis, could also backfire in the labs. Mergers can be highly disruptive.

Family Medical Woes

But for now, Novartis is clearly winning. In large part, the 51-year-old Vasella says, his management philosophy stems from his medical background. "If you have a strong connection to your end-customer, which is the patient, and if you care about the impact, that's a starting point" for successful R & D, he explains. Many experts agree that in an industry where the work is as technical as pharmaceuticals, it helps if the CEO is a scientist or doctor. "Really having an M.D. who understands the biology of the disease is instrumental, particularly as we get closer to individualized medicine," says Gerald J. McDougall, the partner in charge of PricewaterhouseCoopers's global pharmaceutical consulting practice.

Vasella certainly has seen medical practice up close. As a child in the small Swiss town of Fribourg, he suffered from tuberculosis and meningitis. When he was 10, his older sister Ursula died of cancer; watching her three-year battle with the disease, he says, inspired his interest in medicine. Three years later, his father, Oskar, died of complications from surgery. The younger Vasella earned his M.D. from the University of Bern in 1979 and spent the next eight years working in pathology and then internal medicine, eventually becoming Bern's chief resident.