Although it's based in neutral Switzerland, Novartis has been aggressive in attacking illnesses on multiple fronts, including pharmaceuticals, vaccines, and consumer health. Its largest division, Pharmaceuticals, develops and manufactures prescription drugs for blood pressure, cancer, and other ailments. Novartis' Sandoz subsidiary produces generic drugs and active pharmaceutical ingredients, while the Vaccine and Diagnostics segment makes immune health and blood-screening tools. Its Alcon division makes ophthalmic drugs, surgery systems, and contact lenses. The Consumer Health unit includes OTC medications such as Excedrin and Theraflu, as well as agricultural animal and pet care products.
Novartis has operations in 140 countries around the world, including sales, administrative, research, and manufacturing locations. The US is the company's largest geographic market, accounting for about one-third of revenues, followed by Japan, Germany, and France (each accounting for less than 10% of sales).
Prescription drugs account for more than half of Novartis' annual revenues. Its blockbusters include high blood pressure treatment Diovan, leukemia drug Gleevec/Glivec, age-related macular degeneration drug Lucentis, and Zometa, an intravenous treatment for bone tumors caused by prostate, lung, and breast cancers. Other strong products include hormone balancing drug Sandostatin, Exelon for Alzheimer's disease, and Femara, which is used to treat postmenopausal women with early and advanced breast cancer.
The company's Sandoz and Alcon units each account for nearly 20% of sales. Sandoz is currently among the largest manufacturers of generic drugs in the world, while Alcon is a leader in cataract and vision correction surgical equipment.
Novartis' steady growth pace has produced rising revenues over the past decade, including a 15% increase to some $59 billion in 2011. The annual sales increase was largely attributed to the acquisition of Alcon, as well as to positive currency impacts and sales of newly launched products. However, net income dropped 7% to $9.1 billion in 2011 due to acquisition and restructuring costs, as well as increased sales, marketing, manufacturing, and other operational expenses.
Like most large drugmakers, Novartis is facing increasing pressure to keep its operations lean and develop new blockbusters in the face of patent expiration and rising levels of generic competition. Several of the company's former best sellers, including Famvir (antiviral), Lotrel (high blood pressure), and Trileptal (epilepsy treatment), are experiencing dwindling sales due to launches of generic versions in recent years. The company is especially hurting as top seller Diovan, which previously accounted for more than $6 billion in sales (or 20% of the firm's annual pharmaceutical revenues), lost patent protection in the US market in 2012 and in Europe in 2011.
To balance out the reduced sales from off-patent products, Novartis is conducting cost-cutting programs, including a number of workforce reduction, plant closure, divestiture, and outsourcing measures announced in 2011 and 2012.
To ward off competitive pressures and support its prescription drug business, Novartis maintains a healthy drug pipeline with about 140 candidates in clinical development stages. Novartis relies upon a steady regimen of internal development, partnerships, and acquisitions to keep its pipeline up and running. R&D programs are focused on core therapeutic areas including cardiology, metabolism, oncology, neurology, respiratory, ophthalmic, and infectious disease. The company is especially focused on increasing its development of biologic (protein and gene-based) drugs. Recently launched products in the US market include chronic obstructive pulmonary disease (COPD) treatment Arcapta in 2011. In addition, oncology drug Afinitor gained FDA approval to treat pancreatic tumors and breast cancer in 2012.
In addition, Novartis is counting on its new drug for multiple sclerosis, Gilenya (licensed from Mitsubishi Tanabe), to be a big revenue earner in the coming years. Gilenya was launched in the US market in 2010 and is the first oral treatment for MS. It is also among the most expensive drugs for the disease. The drug was approved in the European Union market in 2011.
Though the Alcon, Sandoz, consumer health, and vaccines and diagnostics units are smaller than the core pharmaceuticals business, Novartis maintains strong acquisition and internal research programs in those divisions as well. For instance, to further its goals in personalized medicine, Novartis is working to develop more sensitive molecular diagnostics that can be used to monitor patients and determine which medicines will most effectively treat their ailments.
Mergers, Acquisitions, & Divestitures
Along with new drugs, the company's other pharma growth efforts are conducted through numerous acquisitions. Making a bold move in the eye-care market, Novartis made ocular drug and vision care company Alcon a wholly owned subsidiary in 2011 after a drawn-out series of share purchases: Novartis first acquired about 77% of Alcon from Nestlé for some $39 billion (through two transactions in 2008 and 2010). Then, in early 2011, Novartis acquired the remaining shares in Alcon through a public tender offer worth nearly $13 billion. Novartis then combined its existing CIBA Vision eye care unit into Alcon, which became Novartis' fifth operating segment.
To expand its Sandoz division, Novartis completed a $1.5 billion deal to acquire generic drugmaker Fougera Pharmaceuticals in 2012. The purchase strengthened Sandoz's position in the global dermatology medication market.
Additionally, the company periodically divests underperforming or noncore assets to focus on its key areas of growth. For instance, in 2011 the company sold global rights to eczema treatment Elidel to Meda for some $420 million.
In 2014 the company announced it would spend up to $16 billion, depending on milestones, to purchase GlaxoSmithKline's oncology unit. At the same time, it will sell its vaccine business to GSK for about $7 billion and the two will combine their consumer products. The deal brings Tafinlar and Mekinist, two recently approved skin cancer drugs, into the Novartis camp. Annual revenue will drop slightly but profits will rise as it picks up higher margin products.