Novartis Shifts Focus to Rare Diseases
CEO Vasella Sees Value in Niche Drugs That Can Have Broader .By JEANNE WHALEN
Like most pharmaceutical companies' CEOs, Daniel Vasella, chairman and chief executive of Switzerland's Novartis AG, is facing a large cocktail of problems.
Insurers, governments and others who pay for health care—called "payers" in the industry lingo—are increasingly refusing to cover expensive new drugs that aren't substantially better than older, cheaper treatments. Regulators have become more safety conscious and less willing to approve new products for sale. And through a series of large mergers, pharmaceuticals giants have found bureaucracy creeping in and hampering their development of new drugs.
But there are still a number of opportunities, and Dr. Vasella says he is trying to reposition Novartis to capture them. Advances in genetics are making it more possible to decipher and fix the biological flaws that cause disease. And there are still plenty of difficult diseases that badly need treatments, such as Alzheimer's and multiple sclerosis.
"There are lots of areas where there is a very clear need" for innovation, he said in an interview.
Dr. Vasella became the head of Novartis when it was formed through the 1996 merger of Sandoz and Ciba-Geigy. Early in his career he was a physician in his native Switzerland, but he joined Sandoz when his wife's uncle was the company's chairman and rose quickly through the ranks. Dr. Vasella says he made the switch to business because he believed his work could benefit "not one or 100 but thousands" of patients.
In past interviews he has also said he prefers business to medicine because he can be more openly aggressive. Asked about this, he said aggression "is something which is not only legitimate, but necessary to compete successfully in the marketplace."
Novartis is now one of the world's biggest drug companies, known for multibillion-dollar drugs such as Diovan for blood pressure and Gleevec for cancer.
Dr. Vasella has carried out a wide overhaul of Novartis's drug research in an effort to pump out better drugs. In 2002, he hired a genetics expert from Harvard—Mark Fishman—to run the company's research from a new set of labs in Cambridge, Mass. Their mantra: Focus on diseases that truly need treatments, and whose biological causes can be decoded and fixed.
There have been some initial signs of success, Dr. Vasella says. "We have increased substantially...the number of compounds in the pipeline, and the number of positive proof-of-concept trials in man," he says, referring to the small human studies that first show whether a drug is working.
The first drug to emerge from this new research approach was recently approved for sale in the U.S. Called Ilaris, it treats a rare inflammatory disease affecting only a few thousand people world-wide. Novartis focused on this disease because its genetic causes were clear, making it feasible to develop a drug. The same genetic triggers may underlie other inflammatory diseases, and Novartis is testing the drug in these disorders, as well.
"We've developed [the drug] in a very targeted way and are now expanding into additional areas," a model the company intends to employ with other drugs, too, Dr. Vasella says. But the jury is still out on whether the drug will work in other diseases. It's also still unclear how many other drugs from Dr. Fishman's labs will make it to market, because it can take 10 or more years to develop a new treatment.
Developing drugs for rare diseases—and attempting to expand them to larger ones with similar genetic triggers—marks a departure from the way Novartis used to develop drugs. In years past, Novartis and most drug makers tried to develop treatments for common diseases that offered a vast market of patients: hypertension, depression and cholesterol, for instance. It didn't matter whether the new drug was much better than older treatments, because health-care payers—particularly in the U.S.—would pay for most new drugs the industry launched, and hefty marketing campaigns drove demand. These "me-too drugs" generated "quite good returns" for the industry for years, Dr. Vasella says.
But that approach is faltering. Financially strapped payers increasingly compare a drug's cost to its clinical benefits and agree to pay for it only if the benefits justify the cost. Government health systems in Europe are leading this drive, but U.S. insurers are adopting the approach, too.
"Payer awareness of what they buy and why they buy is not going to diminish. And if they have good alternatives which are less expensive, they will go to the less expensive alternatives," Dr. Vasella says.
This increases the pressure on drug makers to focus on diseases for which there are few treatments. Novartis in coming weeks plans to request regulatory approval for a new drug for multiple sclerosis, a disease that badly needs new treatments. Novartis's drug, called FTY-720, would have an advantage over existing drugs because it is a pill that can be taken orally. Existing drugs are all given by injection or infusion, making them more cumbersome for patients. But it isn't clear whether Novartis's drug will pass regulatory reviews for safety and efficacy.
Novartis hasn't completely stopped developing drugs for common ailments. Last year, it began selling Tekturna for hypertension, a disease for which there are already many effective generic drugs. Tekturna generated sales of $202 million during the first nine months of this year, which some analysts describe as disappointing. Some say the drug hasn't found favor with payers or doctors, because they have so many generics to choose from. Dr. Vasella says Novartis is working on clinical studies that it hopes will show Tekturna has benefits beyond what older therapies can offer. "But we will have to demonstrate in the ongoing trials that the outcome is very positive," he says. "People will not just believe it because you say it."
Write to Jeanne Whalen at jeanne.whalen@wsj.com
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