Novartis CEO Turns to Tech Formula in Race for Blockbusters

(Bloomberg) -- Novartis AG’s new boss is bringing a Silicon Valley approach to Switzerland.

Vas Narasimhan, who took over last month, has adopted tech-industry tools in a bid to accelerate the production of blockbuster drugs and catch up with rivals that have pulled ahead in returns from research. The Basel-based company is embracing mobile apps, scrums, virtual reality and partners like QuantumBlack, a data-crunching firm that started out helping Formula One drivers gain an edge. 

In a sign of the new direction, digital strategy leader Bertrand Bodson, the former Amazon.com Inc. and J Sainsbury Plc executive hired in August, was elevated to Novartis’s executive committee this week. The company has also committed more than $300 million to overhaul its data systems over five years.

Narasimhan, 41, wants Europe’s biggest drugmaker by market value to act “more like a software company,” said Badhri Srinivasan, who co-founded such a firm himself before hopping to Novartis in 2016 to head global development operations. “A huge focus within Novartis and with Vas is the cultural revolution we need to make.”

Average costs of bringing a new medicine to market -- a process riddled with dead ends -- surged to almost $2 billion in 2017, Deloitte LLP estimates. Large pharma companies have seen returns on research and development spending plunge by about two-thirds since 2010, according to the consulting firm.

Mounting resistance to higher-priced medicines, like Novartis’s $475,000 treatment Kymriah for a deadly form of leukemia, compounds the challenge of innovation. Also looming is disruption to the field from giants like Apple Inc., said Colin Terry, a Deloitte partner.

“The question is, how does the industry fix itself?” Terry said. Companies are focusing on “the R&D costs, which they can actually control. That’s why people are energized by this data-driven and digital model.”

Drug companies ranging from GlaxoSmithKline Plc to Sanofi are collaborating with artificial intelligence specialists, hiring data scientists or even buying tech startups to try to become more efficient. Glaxo lured Hal Barron, a former Genentech executive with strong Silicon Valley ties, to become research head as it drops less-promising drug candidates. Novartis said it expects to become more active in investing in health-tech companies.

Cold War

UBS Group AG analyst Michael Leuchten said he isn’t sure the cyber influence will have a big impact on R&D productivity. And while savings sound good -- Novartis spent $9 billion last year, about 18 percent of revenue -- drugmakers are loath to cut research funds for fear of showing weakness.

“It’s a little bit of a Cold War scenario,” he said. “If you’re a pharma CEO and you say you’re scaling back R&D because you don’t think you’re going to make a return, it’s probably a sell signal.”

Yet Narasimhan, a 13-year Novartis veteran who succeeded Joe Jimenez as CEO, has to do something to counter the impact of expiring patents on serial blockbusters like Gleevec for cancer and Gilenya, a multiple sclerosis treatment. In a Bloomberg Intelligence analysis of 13 pharma companies’ R&D returns last year, Novartis ranked ninth. The shares have lost more than 5 percent this year, adding to the urgency.

The CEO is rolling out a program to cultivate ties and shake up R&D with potential partners in innovation hubs like Palo Alto and emerging centers like Hyderabad, India, said Jake LaPorte, head of digital development. In another effort, supercomputers and virtual reality are helping Novartis predict how drugs will affect protein targets. Narasimhan has also borrowed a tech-sector approach to project management, called scrums, to speed up decision-making on new products and ideas. He wasn’t available to comment for this story.

McKinsey & Co.-owned QuantumBlack has its roots in using data to help racing teams design strategy and has a service that predicts the likelihood of injuries among soccer players in the U.K.’s Premier League. Hired when Narasimhan was drug development head, the London-based firm has probed clinical trial data for ways to make better R&D decisions. About 80 percent of key drug studies are beset by patient recruitment delays.

Chipping Away

“That’s a massive problem,” LaPorte said. “By making smarter decisions with data I think we’re starting to chip away at it.”

Using watches that measure movement and smartphones, Novartis was able to carry out a study evaluating the quality of life of patients taking heart drug Entresto with only 136 patients, instead of the 5,600 patients that would have been needed otherwise, he said. The company this month expanded its alliance with a company called Science 37 using technology to allow at least parts of trials to be carried out in homes and doctors’ offices.

After decades of doing things the same way, big pharma is ripe for disruption and needs to commit to innovation to reach its goals, said Srinivasan, the tech-turned-pharma exec. The rate at which pharma products fail would be unacceptable in his former field, he said.

“We’re in an industry today that is desperately crying out for change,” he said.

To contact the reporter on this story: James Paton in London at jpaton4@bloomberg.net.

To contact the editors responsible for this story: Eric Pfanner at epfanner1@bloomberg.net, John Lauerman, John J. Edwards III

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