Novartis Chairman Stresses Need for R&D Investment March 22, 2014 3:46 a.m. ET 'We need to add value—life-prolonging or quality-of-life benefits,' says Novartis Chairman Joerg Reinhardt, pictured last month. European Pressphoto Agency BASEL, Switzerland— Novartis AG NOVN.VX +0.63%needs to continue investing in research to develop new drugs that national health-care systems are willing to pay for, a task that gets harder as generic versions of older medicines become available, the company's chairman said.Joerg Reinhardt, who assumed his role in August, says the benchmark for evaluating drugs is constantly rising as branded medicines lose patent protection, allowing for less-expensive copies to enter the market. Health-care systems will choose less-expensive generic drugs, which often work just as well as the original versions, to keep costs down, he said."We need to add value—life-prolonging or quality-of-life benefits—that are meaningful enough for payers around the world to say, 'Yes, I'm willing to pay a premium over generic opportunities,' " Mr. Reinhardt said in an interview. "With every new product coming off patent, the benchmark comes up."Mr. Reinhardt's comments come as pharmaceutical companies rethink their research-and-development efforts to channel resources to more-promising experimental drugs and avoid others that might be tempting but more difficult to deliver. Some companies, such as Merck & Co., MRK +0.45%are streamlining their operations, while leaning on outside labs for experimental drugs. Switzerland's Roche Holding AG ROG.VX +0.95% has reshuffled its R&D staff to revitalize its operations. Novartis raised its spending on in-house R&D by 5.6% last year to $9.85 billion, an amount Mr. Reinhardt said will remain stable. The budget was among the highest in the industry and bucked a broader trend. Spending on R&D across the sector dropped 2.2% to $135 billion last year from a high of $138 billion in 2011, according to PricewaterhouseCoopers. Novartis is consolidating its activities in Shanghai, Basel, Boston and La Jolla, Calif., a move intended to foster cooperation between researchers in different disciplines as teams of scientists bounce ideas off each other. The company also will be able to tap the academic communities of the four cities."A larger group of people benefiting from the infrastructure that's been created at a research place is a better approach than having small groups with limited infrastructure spread around the world," Mr. Reinhardt said.Born in Germany, Mr. Reinhardt earned a doctorate in pharmaceutical sciences and worked at Novartis and predecessor Sandoz for nearly 30 years. In 2010, he moved to Bayer AG BAYN.XE +2.15%to lead the health-care business after Joe Jimenez was chosen as Novartis's chief executive.Since returning, Mr. Reinhardt has demonstrated his commitment to R&D, spearheading the creation of a board subcommittee to oversee the company's research. The subcommittee, believed to be a first in the industry, is responsible for reviewing Novartis's R&D strategy and organization. It also will advise the board on scientific trends and activities that are critical to R&D.The purpose of the committee is to ensure that the board is closer to the decision-making process for one of the company's key investment areas, Mr. Reinhardt said.Because Novartis is facing challenges brought by the expiration of patents on blockbusters such as hypertension treatment Diovan and leukemia drug Gleevec, the company is smart to invest in research capabilities, said David Kagi, a health-care analyst with J. Safra Sarasin."They have a high need to invest in R&D, both to overcome their patent issues and because they are more exposed to price pressures," Mr. Kagi said. Part of the reason is that some of Novartis's drugs treat broad disease classes, such as diabetes or hypertension, which are treated by many drugs already on the market.Mr. Reinhardt said a year-old review of Novartis's portfolio was progressing and would be completed by year-end. Three of the company's smaller units—vaccines, over-the-counter treatments and animal health products—are under scrutiny for restructuring, joint ventures or sale.Novartis has had "conversations with different potential partners" about the units, Mr. Reinhardt said. He said acquisitions for as much as $5 billion were possible approaches to build the scale the smaller units need.The review also covers Novartis's one-third stake in Roche's voting stock, which Novartis started accumulating in 2001 with the idea of a possible merger. The deal didn't happen, though the companies operate in partnership on the sale of some drugs.Mr. Reinhardt said he didn't expect a bigger strategic interaction with Roche but said he had met with the company's new chairman, Christoph Franz.
Novartis chairman vows to preserve top R&D budget in retrenchment March 24, 2014 | By John Carroll At Novartis, only the top executives are allowed to discuss R&D strategy in any kind of a meaningful way. So when they talk, everyone--including the company's big research staff around the world--pays very, very close attention.So listen up: The new chairman at Novartis ($NVS), Joerg Reinhardt, sat down with The Wall Street Journal to review the company's careful restructuring--R&D is being concentrated in Basel, Shanghai, Boston and La Jolla, CA--and committed Novartis to maintain research spending at its current level near the $10 billion mark. That mark falls just behind Roche's research budget, the top R&D spender in the biopharma world with a 2013 budget of $10.23 billion. And it must be particularly welcome news in La Jolla.Reinhardt says R&D spending will remain level at a time many pharma rivals are cutting back. And everyone in the company should expect to see the work consolidated in key regions, something that is likely to reassure workers in designated areas while raising fears for everyone outside the protected zones.The Biotech Primer: An insider's guide to the science driving the biotech and pharma industriesThis 200-page book takes an in-depth look at the biotech industry and the science that drives it. Although the industry itself is constantly changing, these fundamental concepts upon which it is built will remain important for years to come - and decision-makers who understand these fundamentals will be better able to evaluate and predict new trends. Click here to buy today! Sign up for our FREE newsletter for more news like this sent to your inbox! "A larger group of people benefiting from the infrastructure that's been created at a research place is a better approach than having small groups with limited infrastructure spread around the world," Reinhardt told the Journal. And it gives the giant a chance to work more closely with the academics in those areas.The new strategy--overseen by a unique special committee--has already led to some significant alterations, especially with the closure of its research unit in Horsham, U.K., and some shifting of jobs and personnel in the U.S. The company has reportedly laid off thousands of staffers in recent months, including 500 at its home base in Basel.This strategy falls right in line with the brave new world of Big Pharma as defined by most of the top companies these days. That hub strategy inspired AstraZeneca to concentrate its forces in Cambridge, U.K., sacrificing Alderley. Sanofi ($SNY), largely foiled in an attempt to reorganize R&D in France, has been shifting into Boston. Pfizer ($PFE) and Roche ($RHHBY) have both eliminated big outlying research posts in major retrenching efforts.
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