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Novartis makes right moves to stay healthy

(China Daily)
Updated: 2008-12-30 07:55

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Swiss pharmaceutical giant Novartis began its involvement with China more than a century ago, when one of Novartis' predecessors, Geigy, entered the China market with the dye business in 1886. As a critical step in establishing its global R&D network, Novartis announced the most advanced comprehensive R&D center in China in the Shanghai Zhangjiang Hi-tech Zone in November 2006. The company has invested more than $330 million in China and its sales revenue here reached approximately 2.6 billion yuan last year.

In collaboration with its Chinese partners, Novartis developed Coartem, a drug combination that is regarded as the most effective and available treatment for malaria. It is distributed through the WHO as part of the worldwide Roll Back Malaria initiative, which has saved hundreds of thousands of lives in the world's poorest nations.

According to Dr. Daniel Vasella, chairman and CEO of Novartis, the company has a long-term commitment to the China market. He recently spoke with China Daily reporter Qian Yanfeng about the market potential in China, and the challenges in adapting to the changes within the pharmaceutical industry.

Q: Is there any latest technology breakthrough in your cooperation with Chinese research institutions, in Coartem for example?

A: We are cooperating with several Chinese academic institutions like Fudan University. I envision that in the future we'll focus on diseases more prevalent here in China in the R&D area like liver cancer and other cancers. We'll collaborate also intensively with hospitals so that we can select patients really well and have very close relationships.

In Coartem, the latest is that we are going to launch a dispersible tablet that is easier to take for children. We have delivered last year about 66 million treatments below cost - we are subsidizing it to some degree. We hope we can also deliver the new dispersible tablet at the same price as the old one despite the fact that it is more expensive to produce.

It is estimated that we have been able to - here I want to reemphasize the discovery has been made here in China, and that the research institutions in China have been instrumental in doing that - save close to 500,000 lives. It is a very important medical innovation, and the best medication available today. That has been possible thanks to the collaboration between Chinese research organizations and Novartis development organization.

Q: For many multinational companies, cost is the major driver for the establishment of R&D centers in China. What about Novartis?

A: We were among the very first to invest in China, also in discovery research, not just development. The reason is not all about costs, because I think cost will balance out internationally. The reason is much more access to brains, so the more important aspect is where do you have the best scientists and how can you tap the best scientists.

Second, you have seen investment of several companies in R&D in the biomedical field, and that has only been possible because China made a commitment to protect intellectual property. Otherwise this development would not take place. In summary, cost is much less important than quality.

Q: What's your plan for expansion in China?

A: We have been growing dynamically in China, and we plan to continue to expand. In fact we plan to hire 20 percent more staff next year.

Second, we have started an R&D development endeavor in Shanghai. We hope with the help of the government, we would continue to expand that over the next several years. That is conditional on whether we can find enough really great scientists. We started with about 100; now we are building up. It needs time because you want to grow in a sustainable way rather than hire 300 to 400 people rapidly.

The third element is expansion geographically within China so that we can better serve also smaller cities and hopefully in the mid- to long-term, rural areas. There I think Novartis is specifically well positioned because we have innovative products, vaccines, generics and OTC, so we have all arms to serve the population well. Obviously in the rural areas, where there is only very small health insurance which will be increased over time, one focus is first on essential drugs before going to the latest biotech drugs.

As a consequence of the more rapid growth of our operation here in China, the relative weight of the Asian market in general will increase, so we will see a shift from the more mature western markets to less mature eastern markets. I think that also reflects the economic rebalancing of the world.

Q: What are the major changes you have witnessed in China's pharmaceutical industry on the policy side and what other improvements would you expect?

A: The fundamental change is the respect for intellectual property. Second is the government has invested into the education of researchers and scientists, and that has formed the basis for companies to come and invest.

The third element is the insurance scheme for the patients, which is crucial. I think the desire to help the rural population is very important, so I am also looking forward to a very clear plan about how to progress the country and how to improve it.

Overall, I have been impressed by the Chinese government in general by a long-term planning, a long-term determination to progressively upgrade and improve the life of people. But I think the approving time of drugs could be further sped up.

Q: Has the ongoing global financial crisis affected your business? Do you think there would be a reshuffling in the pharmaceutical industry?

A: First of all, until now we have not seen any change in demand. Businesses continue to grow. Growth has accelerated in the third quarter, especially in the US. So I don't see any direct negative impact from the crisis.

Secondly, in certain countries I assume that the financial crisis will push the export industry towards internal consumption and infrastructure projects. In China for example, I expect the export industry will suffer; on the other side, I think it is a fantastic opportunity to push infrastructure projects where the long-term future of the country is being improved. And investment in healthcare is one of these, because if you have healthcare insurance and medical services, then the population feels safe and better and would be more productive. So from that point of view, I am not too concerned for our industry.

Q: Since it becomes more and more difficult to discover new drugs, and generics are increasingly supported by payers, many pharmaceutical companies are turning to generics as their next growth point. What is your opinion on that?

A: Generics are increasingly supported by payers; that's correct. And I think if you have an equivalent treatment and can get it for less cost with generics, why would you pay more? But if the therapy is better, then of course I would be willing to pay more if I have the money.

Now if we look into the future, we see that diabetes, cancer, hypertension, and in many countries obesity, are becoming major drivers for healthcare costs. We also know we have to find better treatment and prevention. If we don't, we'd have much bigger problems than more expensive drugs. So paradoxically, investing in innovation is the best cost saving in the long term. That is something that really needs to be understood, because in the short term the cheapest is maybe the cheapest, but in the long term if you only focus on the cheapest we will pay a much bigger price.

Q: Will you consider acquiring some biotech companies as a way to facilitate the discovery of new drugs and save costs?

A: There are two difficulties. One is that it has become more difficult to discover new drugs, and there the acquisition of biotech companies can help to fill your pipeline. Secondly it becomes more difficult to register a drug, so the approving time period is long.

At Novartis we have taken an approach where we continue to build our in-house research to be world-class. We have invested a lot in Cambridge in the US and now started here in Shanghai. Meanwhile, we complement that with small acquisitions. So it's not either/or, it's both. And I think that's the right way to go.