Novartis Moves to the Next Stage

On Oct. 20, Swiss drugmaker Novartis (NVS) reported strong third-quarter results and announced a major management shakeup, its second in a year. Novartis tapped new managers for three of its four core businesses and announced plans to cut 550 U.S. sales representatives.

The changes are part of a new strategy to focus marketing efforts on the people who are actually paying for drugs instead of simply prescribing them. That means moving from the old one-size-fits-all approach, where sales teams organized by particular medicine brands targeted their marketing mainly to physicians, to one focused on forging closer ties with managed care organizations and insurers.

Novartis reckons the new initiative will boost sales while trimming costs by up to $80 million annually beginning in 2010. "With a strong new leadership team, Novartis is positioning itself for continued growth in a demanding environment," says Novartis Chairman and CEO Daniel Vasella.

Joerg Reinhardt, current head of the vaccines business, will take on the newly created role of chief operating officer. Reinhardt, who will concentrate on the day-to-day running of the company, will split some of his workload with Vasella—putting him on track to be a potential successor. "This will allow me to concentrate more on strategic issues and get in closer touch with markets and customers that I have not done to the degree I would like," Vasella says.

Cancer and Cardiovascular Drugs

The management changes also include the creation of other new roles and the redeployment of longtime company veterans such as Andreas Rummelt, the current head of the Sandoz generic drugs division, who will now run quality assurance. He will be replaced by Novartis' head of emerging markets, Jeff George, a former management consultant whose rsum includes management roles at Gap Inc. (GPS). David Epstein, who currently runs the company's oncology business, will oversee a new unit focusing on molecular diagnostics.

The news of the management shuffle overshadowed the strong performance of the Basel-based drugmaker amid a gloomy global economic backdrop. Helped in part by a weak dollar, Novartis reported net profits of $2 billion on sales of $10.75 billion, up 32% and 12%, respectively, from the third quarter last year. For the nine months ending Sept. 30, 2008, net income rose 19%, to $6.7 billion, on sales of $31 billion, a 12% increase from the previous year. The company's New York-traded shares were up 1.5% at mid-day on Oct. 20.

The results, Vasella says, are due in large part to the strength of the company's oncology and cardiovascular medicines. Over the last nine months, best-selling hypertension treatment Diovan and leukemia drug Gleevec raked in sales of $4.3 billion and $2.8 billion, respectively. Moreover, Novartis anticipates more than 10 major regulatory submissions, including both new drugs and new indications for existing medicines, in 2008.

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