Meet the new Novartis: Slimmer structure, same R&D commitment

Novartis ($NVS), the industry's largest employer, is flipping units and streamlining its operation to boost margins, but the company has no plans to take its foot off the gas in R&D, keeping the pace on a $10-billion-a-year research budget with hopes of cranking out 14 blockbusters by 2018.

In its first big statement since agreeing to reform its business through intersecting deals with GlaxoSmithKline ($GSK) and Eli Lilly ($LLY), the Swiss drugmaker convened investors in Basel to get into details on its future. From here on out, Novartis will focus on the self-described "powerhouse" divisions of pharma, eye care and generics, forming an internal shared services system to eliminate fatty redundancies across its sprawling global heft.

But through all the efficiency-minded makeovers, Novartis says it hasn't lost sight of the product engine that got it here, and the company has committed to maintaining its huge R&D spend. The Novartis Institutes for BioMedical Research, its internal drug discovery shop, gets compounds from preclinical development into Phase II at nearly three times the industry average rate, the company said, and NIBR is responsible for about three-quarters of its current late-stage pipeline.

And Novartis has big expectations for that pipeline, expecting to hit the $1 billion annual sales mark for 14 of its candidates in the next four years:

  • In oncology, Novartis is confident in its pioneering work in CAR-T immunotherapies--in which a patient's own cells mount an attack on cancer--and the company is expecting Phase III results on the breast cancer treatment LEE011 by year's end.
  • In dermatology, the company expects to receive final regulatory word on the psoriasis drug AIN457 by early 2015, and the company intends to submit the skin cancer treatment LDE225 to the FDA this year based on stellar Phase II results.
  • In heart failure, Novartis hit a roadblock on serelaxin, which will have to wait until outcomes data becomes available in 2016 to try again at the FDA, but sees blockbuster promise in LCZ696. That drug, designed to treat heart failure with reduced ejection fraction, performed so well that its Phase III trial was stopped early, and the company expects to file an FDA application by the end of 2014.

Novartis has steadily upped the ante on its R&D spend, last year reaching nearly $9.9 billion, 17% of its total revenue. And the company plans to continue that trend through "a systematic approach to resource allocation," pharma division head David Epstein said in a statement, making "a real difference in patients' lives, while at the same time delivering significant returns on investment and contributing to margin expansion over time."

- read the statement
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