Tagesanzeiger, Novartis: Fear grips Novartis
Erik Wirz in an interview with the Tagesanzeiger by Isabell Strassheim
Fear grips Novartis
Vas Narasimhan Vas Narasimhan has significantly raised the profit target, but the development of new drugs has stalled. A conspicuous number of employees want to leave.
The rumour is false, but it has been circulating for months in various circles of the Swiss pharmaceutical scene: Novartis CEO Vas Narasimhan allegedly cancelled a management meeting last year because of too much criticism. This despite the fact that since taking over as CEO of Novartis he has been committed to an open corporate culture and has encouraged independence and criticism.
Ironically, the "unboss" is being portrayed as an old-style boss. What goes wrong?
Narasimhan has never ended a meeting, no matter at what level. He has even institutionalised criticism: Every three months, Novartis conducts a survey of employees called "Our Voice", in which they can express questions and criticism about the CEO, including the option of anonymous feedback via a general online mailbox.
«We have a clear ambition to become the most trusted and respected pharmaceutical company.»
Vas Narasimhan, CEO of Novartis
But the culture of fear that Narasimhan's predecessor, Daniel Vasella, instilled at the Basel-based pharmaceutical company still lingers. In fact, it has intensified for a number of reasons, the most important of which is the ambitious profit target. Narasimhan aims to increase Novartis' operating profit margin to 40% by 2027, up from 31.8% at present.
Narasimhan's goal is nothing less than to lead Novartis to global leadership: "Our clear ambition is to become the most trusted and most admired pharmaceutical company," he said at the last results media conference.
Monitoring associates
To maintain high productivity, the 105 000 associates are monitored. Similar to the requirement for remote working during the pandemic, Novartis is tracking activities. "We use Microsoft's Workplace Analysis," confirms Novartis spokesman Satoshi Sugimoto.
The data is anonymised and aggregated, with a minimum of thirty employees analysed. According to Sugimoto, this approach is expected to provide "evidence-based signals for improving engagement, collaboration, integration, well-being and organisational productivity".
While morale, which suffered following the announcement of 8 000 job cuts last summer, has reportedly improved according to an employee survey, several headhunters in Switzerland consistently report that a significant number of employees in unremarkable positions at Novartis want to leave.
«In some cases, key people and entire teams are leaving,», says Erik Wirz of the executive search firm Wirz & Partner. Novartis neither confirms nor denies this. Novartis neither confirms nor denies this.
«At the moment, even more executives at Novartis want to leave the pharmaceuticals division than the generics division Sandoz,» says Wirz.
Sandoz, which makes low-cost generics, will be spun off later this year.
The charismatic leader is losing ground
Novartis CEO Narasimhan was 41 when he took over in 2018 and was quickly seen as a charismatic figure. He was the most vocal proponent of a new, more agile corporate culture. Even today, he presents himself as highly innovative on social media and talks about seeing himself as the "chief energy officer" of Novartis. He believes that employees need energy to "go the extra mile", and that the CEO needs to lead by example.
But the charismatic Narasimhan is no longer so effective. In the Swiss pharmaceutical scene, Novartis is not seen as an example of trust, independence and an open culture, according to interviews with various headhunters, consultants and analysts. There are repeated reports of employee anxiety. The business pressure on them has increased significantly, and it's a critical moment for the new Novartis.
While Narasimhan has achieved his goal of restructuring the company by separating Novartis from Sandoz and several other side businesses, this has come at an inopportune time. The US market, on which the pharmaceutical industry's profit model depends, is changing as a result of the American Health Care Act. The Biden administration is capping drug prices.
Patents expiring soon
Novartis faces challenges. Sales are expected to rise this year, mainly due to strong sales of the heart drug Entresto.As a result, Narasimhan has raised targets for this year.
However, the generics industry is waiting for a cheap generic version to be launched as soon as possible. According to Novartis, there were already 18 companies in September. This is not surprising, as Entresto is one of the most profitable drugs in the pharmaceutical industry, with estimated sales of more than $5 billion.
Narasimhan is trying to keep competitors at bay with legal action, as is customary in the industry.
Sales of the heart drug may start to decline sooner than expected. This increases the pressure on Novartis to launch new medicines. In the immediate aftermath of the court ruling, Narasimhan reaffirmed his growth target through 2027. Now he and, more importantly, Novartis associates may have to achieve sales growth without relying on heart drugs.
Novartis' second bestseller is Cosentyx, an antibody therapy for psoriasis and arthritis with sales of nearly USD 5 billion. But its patents expire in 2029. Narasimhan is now testing Cosentyx in other diseases in order to obtain new patents, a practice known as lifecycle management.
A misstep with an important therapy
Novartis is primarily focused on developing new medicines. Narasimhan has focused the company on five highly innovative technology platforms. "This is where the future race in the pharmaceutical sector will be decided, and we want to position ourselves to win," he says.
The Novartis CEO is not shy about announcing major new medicines. At the end of 2021, he presented investors with a list of twenty new therapies, each of which is expected to generate annual sales of at least USD 1 billion. Some have already fallen by the wayside, which is to be expected in R&D.
But Novartis has also made missteps. In the case of tislelizumab, a treatment for a type of lung cancer licensed from Beigene in China, the US Food and Drug Administration rejected an application because the clinical trial included too few US participants.
Target: 4% annual sales growth
By 2027, annual sales are expected to grow by an average of 4%. This will only be possible if new medicines reach the market by then, or if existing treatments are expanded to cover additional diseases. Hopes are particularly high for Kisqali, a treatment for breast cancer. New trial results at the beginning of June sent the share price soaring. Kisqali is effective not only in advanced breast cancer but also in early-stage cases. Sales could rise significantly as a result.
However, a closer look at the successful Kisqali trial results may raise doubts. Women must take the tablet daily for three years to reduce their risk of breast cancer recurrence in 10, 20 or 25 years by 25%. "Doctors and patients will be critical of this because Kisqali, like any other drug, is not without side effects," says Michael Nawrath, a pharmaceutical analyst at Zurich-based financial services firm Octavian.
Novartis remains under enormous pressure to succeed. Narasimhan's position is secure until after 2025, when Chairman Jörg Reinhardt steps down due to term limits. Until then, he won't want to dictate a new Novartis leadership to his successor.
* An earlier version of this report stated 2025. However, Novartis has obtained a patent extension in the US until 2029.
Isabel Strassheim she has been a business editor at Tamedia since 2019. She primarily reports on the pharmaceutical and chemical industries, with a focus on Basel. More Infos
