Bullish on India

Since 2013, Novartis has sharpened focus, with last April’s asset swaps with GSK and Eli Lilly the next step in this process. In India, the Swiss company took a hit in April 2013 when the Supreme Court rejected its patent for its oncology drug Glivec. However Novartis India’s Vice Chairman & Managing Director Ranjit Shahani is sure that while there will always be some road bumps, these will be temporary, asserting that they are in the right place at the right time By Viveka Roychowdhury

After a cycle of diversification, pharmaceutical majors, at least globally, are firmly back to focusing on their core strength areas. Novartis’ portfolio transformation, after last April’s announcement of selected asset swaps with GSK and Eli Lilly, is just the latest confirmation that the era of big bang buys has given way, at least for now, to incremental consolidation.

While announcing the completion of the GSK transactions at a global level early this March, Joseph Jimenez, CEO of Novartis had said that this “focuses Novartis, and further establishes our leading positions in key growing business segments.” This is in continuation of the Swiss major’s efforts since 2013, to focus on three core verticals where they have achieved global scale: innovative pharmaceuticals, eye care and generics. (See box: Novartis: Transformative transactions since 2013) Divestment of Novartis’ animal health division to Eli Lilly at a global level has already completed on January 1 this year.

In India, the company is still going through the regulatory processes to complete each of these transactions says Novartis India’s Vice Chairman & Managing Director Ranjit Shahani. The deal went one step closer to completion when GSK Pharma’s board approved the transfer at its quarterly results meet in February.

The impact of these transactions will be seen in the FY 2015 global balance sheet, but the FY2014 results give some indication that the transactions will be profit neutral and will off load businesses which were recording operating losses as well.

Comparing results for the fourth quarter of 2014 and the same period in 2013 including the blood transfusion diagnostics unit, vaccines net sales declined 25 per cent (-20 per cent cc) and operating loss increased to $1.1 billion from $1 million in the year-ago period. Consumer Health net sales increased 5 per cent (+8 per cent cc) to $ 4.3 billion in 2014, driven by strong performance of key global brands and product re-launches in OTC (+9 per cent cc) and Animal Health (+5 per cent cc).

Novartis: Transformative transactions since 2013


  • January 2014: Completed sale of blood transfusion diagnostics unit to Grifols for $ 1.7 billion.
  • April 2014: Announced three-way asset swap with GSK and Eli Lilly
  • January 2015: Completed sale of animal health business to Eli Lilly and Company for approximately $ 5.4 billion
  • October 2014: Divested influenza vaccines business to CSL for $ 275 million, transaction expected to close at the end of 2015
  • March 2015: Divested non-influenza vaccines business to GSK for up to $ 7.1 billion plus royalties. The $ 7.1 billion consists of $ 5.25 billion paid upon completion and up to $ 1.8 billion in future milestone payments


  • March 2015: Acquired certain oncology products and two pipeline compounds from GSK, for an aggregate cash consideration of $ 16 billion. Up to $ 1.5 billion of this amount is contingent on certain development milestones
  • March 2015: Novartis OTC creates JV with GSK Consumer Healthcare, combining two companies’ consumer divisions, in which Novartis owns 36.5 per cent share

Comparing results for 2014 and 2013 including the blood transfusion diagnostics unit, vaccines net sales declined 23 per cent (-21 per cent cc) and operating loss for 2014 amounted to $ 552 million compared to a loss of $ 238 million in 2013.

Shahani, who joined Novartis India in 1997, a year after the mega merger between Ciba-Geigy and Sandoz, finds himself – once again- at the helm of strategic rebalancing act. The Novartis of today is itself a product of three major M&As (See box: Novartis timeline).

Given that the company is in the throes of a major global refocusing, Shahani concedes that M&As, divestments and investments do impact operations and people. But as he points out, even though there were some job losses at the time of the Sandoz and Ciba-Geigy merger, the company today employs significantly more people than in 1996.

The current three-way asset swap is a very strategic move, he says, in the best interests of all the businesses of the companies involved, as well as the patients. With Novartis’ animal healthcare sold to Eli Lilly, i.e. Elanco goes from being a small player in the animal healthcare business, to one of the top three players. Similarly, once GSK’s oncology business is transfered to Novartis, the latter becomes the second largest oncology player. And this logic holds for when the OTC JV is formed with GSK and the vaccines business goes to GSK.

Impact of the Glivec verdict

This April also marks another milestone for Novartis India, this time a disappointment rather than an achievement. Two years after India’s Supreme Court pronounced its landmark judgment against Novartis’ Glivec on April 1, 2013, Shahani rues the fact that India lost the game (to attract pharma R&D spend) a while back. To illustrate his assertion, he points out that since 2005, when we announced our entry as a product patent country, six global pharma companies – Pfizer, Astra Zeneca, Roche, Novartis, Sanofi and Eli Lilly – have invested in greenfield R&D centres in China, not India. Similarly, India would have been the logical place for Novartis to base its research in tropical diseases like dengue fever, TB and malaria; yet the Novartis Institute for Tropical Diseases (NITD) was set up in Singapore, as “global pharma companies will only invest where the ecosystem for IPR is encouraging.”

Even human capital has taken flight, with the brain drain of top talent in the R&D arena continuing, notwithstanding attempts, of both the Indian government as well as corporate India, to lure them back. Shahani gives examples from his own company, where the Head of Global Development and Head of Research in Europe, are both of Indian origin; no doubt just two of many such minds who choose to work globally rather than within the country.

The situation is particularly ironic when you consider that Novartis’ predecessor company Ciba-Geigy was the first global major to set up an R&D centre in India, in Mumbai way back in 1963, inaugurated by the country’s first Prime Minister Pandit Jawaharlal Nehru. A new molecule was discovered at this centre within a short period of 10-12 years. But post the switch from product to process patents in 1970, the company waited to see how the country’s IPR policy would evolve but decided to pull the plug on the R&D centre in1982.

Mixed signals …

Shahani’s stance during the Glivec case was that the company pursued it up to the highest levels so that more light could be shed on the interpretation of Section 3(d) and other aspects of India’s IPR policy. Today, two years down the line, Shahani says the IPR ecosystem in India remains very patchy. Compulsory licensing (CL), working of patents, etc continue to be mentioned by ministry officials while they are not in line with the IPR policies of other countries.

Shahani is encouraged by the fact that Prime Minister Narendra Modi seems to recognise this fact and has therefore called for an IPR policy to be formulated. He also signed a bilateral treaty during his US trip, so Shahani concedes that there seems to be the right intent.

But he points out that at the same time the Minister of Commerce, Nirmala Seetharaman’s stance is that India is TRIPS compliant requiring no changes to the IPR policy. To Shahani’s mind, this doublespeak is sending mixed signals to global pharma companies.

Referring to a recent development, he argues that if agrochemicals can get data protection increased from three to five years, he doesn’t see any logical reason why the pharma sector too cannot have data protection. He refutes charges that data protection is TRIPS plus, saying that TRIPS too allows for data protection by specifying that other companies can refer and use the data submitted for approval only for research and not commercial purposes. He cites these and other issues which remain open ended, and therefore don’t give confidence to global companies to invest in research.

… but India plans still in place

Inspite of these setbacks on the IPR and pricing front, Shahani says the company will continue to launch new products in India to meet unmet medical need. Chronic heart failure drug LCZ696 and psoriasis medication Cosentyx (secukinumab) will be launched in India soon after their respective global launches.

These setbacks will also not prevent Novartis from continuing and expanding its patient access programmes and India-specific pricing strategy. Novartis launched its blockbuster diabetes drug Galvus, at a significant lower price and Shahani hints that there are other such product launches in the pipeline.

Even though the patent on Glivec was rejected, he points out that the company continues with the patient access programme for Glivec, through which more than 17,000 patients who are on Glivec continue to receive the drug free of charge i.e. more than 90 per cent of patients with chronic myeloid leukemia (CML) who are prescribed Glivec get it free. He calls it ironic that given this access programme, the government brought Glivec under price control and slashed its MRP by 93 per cent. According to him, the average annual weighted price of a paying Glivec patient in Novartis’ Glivec access programme is Rs 5000/-. In comparison a patient has to pay Rs 11000/- for the generic counterpart, which has come down further to Rs 9000/- thanks to price control.

He rues the fact that Glivec has unfortunately been in the news in India for all the wrong reasons, taking away from the scientific breakthrough behind it, referring to the fact that it specifically targets cancerous cells and fixes the malfunction, thus making a life-threatening disease a chronic illness that can be managed.

Pricing woes

Besides IPR, drug pricing is another bugbear for pharma companies in India. While IPR divides the industry into propagators and the rest, the pricing issue often sees both camps on the same side.

Shahani, like all his peers, is disappointed with the increasing span of price control. He points out that the pricing policy was barely announced and in place, when the regulator ad hoc started to bring a larger number of drugs under price control – negating the two years and more of serious discussions by multiple stakeholders and the final approval by a cabinet sub committee. Various industry associations have protested that this will not help planning and strategic management in the pharma industry. Shahani reveals that while Ministry officials have been sympathetic up to a point, recent events show that nothing has changed.

Looking ahead, he cautions that the direction the drug pricing policy is taking will create challenges including those of access for many drugs as these will no longer be made by companies who see cash losses mounting.

Novartis India: Performance April-December 2014

Total income from operations: Rs 665.7 crore, up marginally from Rs 660.6 crore in previous corresponding period.

  • Pharmaceuticals: Total income of Rs 455.5 crore up; from Rs 442.9 crore in the previous corresponding period.
  • Generics: Total income of Rs 38.5 crore down from Rs 43.9 crore in the previous corresponding period.
  • Animal health: Total income Rs 71.1 crore down from Rs 82.7 crore in the prior corresponding period.
  • OTC: Total income Rs 100.8 crore up from Rs 91.1 crore in the previous corresponding nine months.

Access and pricing are not necessarily interlinked, he points out and there is far more that a country like ours needs to do to improve access and it all begins with infrastructure.

In terms of ranking in the Indian pharma market (IPM), Novartis ranks 24th as per IMS Health’s Market Reflection Report for February, perhaps a reflection that MNCs, which constituted 26 per cent of the IPM, have taken a larger hit thanks to the drug pricing policy.

Shahani does concedes that companies like Novartis, and indeed all pharma companies in varying degrees, have been impacted by the drug pricing policy, but reinterates that his company will continue to launch new products to meet unmet medical need, while looking at creative ways to build market share. The company is also looking at projects such as PPPs to improve access and patient outcomes, says Shahani.

The BoP model

Novartis India was one of the earliest MNC pharma companies to have a strategic plan to tap rural markets in India through the Arogya Parivar initiative. Started in 2007, based on an idea from Prof C K Prahalad who wrote the book, The Fortune at the Bottom of the Pyramid, Shahani says that it has been a great success, expanding to 11 states across rural India. Giving an update, he shares that for the last four year period, more than 10 million villagers attended health education sessions and 450,000 were diagnosed in health camps. Arogya Parivar is now embarking on further expanding the rural distribution network and portfolio in India. The model has been replicated and expanded to countries like Kenya, Indonesia and Vietnam after adapting the model to suit local conditions.

As a market penetration strategy for Novartis’ products, across branded generics OTCs and pharmaceuticals, Arogya Parivar makes perfect business sense, tapping into a large market. Rural India makes up 11 per cent of the global population with huge unmet medical needs.

But Novartis is aware that medicines are just one side of the problem in rural India; lack of doctors and diagnostics is a larger problem. Which is why Novartis, in partnership with Indian Cancer Society held cancer screening camps in Maharashtra in March and with other NGOs for similar camps in Seemandhra and Telangana.

Reputation reversals

The Indian government is not alone when it comes to scrutinising Big Pharma. Many countries, China being the most cited, have cracked down on global pharma’s unfair marketing practices and Novartis too has been pulled up on some occasions on this count. Shahani states that they do not tolerate unethical behaviour by their associates anywhere in the world and at Novartis India, they are committed to creating a culture of integrity and demonstrating ethical leadership.

Being seen as an very regulated sector as well as one facing the backlash from government and lay society, has meant that the industry has to struggle to attract talent. Novartis tries to counter this with initiatives like the annual BioCamp, but Shahani points out that while the BioCamp participants certainly are a rich talent pool, they do not see this as a recruitment tool but as a way to expose bright young minds to the opportunities in the healthcare industry, be it at Novartis or elsewhere. He’s proud of the fact that two of the BioCamp India participants went on to become global individual winners, (coincidentally both women) and affirmation of the talent that exists in the country.

Even with the competition the industry faces from other more glamourous and fast growth sectors like BFSI and FMCG, Shahani points out that they have around 7000 employees in India and are a net exporter of talent to Novartis Group, with the Hyderabad operations providing high-end services to Novartis Group right up the value chain, all affirmation of the “tremendous talent we have in our country.”

Looking ahead

Novartis India’s predecessor companies Ciba-Geigy and Sandoz were one of the earliest MNC pharma companies to start manufacturing in India way back in 1947, when as Shahani points out, most companies were trading in their products. That showed a strong intent of investing and growing in the country, even given the transition which the country was going through.

As we near our 69th Independence Day, Shahani reinforces this commitment. Novartis intends to stay and grow in India with the company expanding its presence not just through its product portfolio. but also on the manufacturing front, through the company’s Turbhe, Kalwa and Mahad sites. Novartis India is today also an outsourcing destination for its global parent for some APIs and IT services as well.

Thus the India operations are a very important part of Novartis’ global strategy, says Shahani. There are opportunities but also disappointments, like the Glivec incident, along the way. But on the whole he is hopeful that there will be a change thanks to the new government, referring to the DIPP’s taking a “more mature stance” on CL applications. He advocates the need to look for pragmatic solutions, pointing out to many low hanging fruit that can be dealt with quickly, like data protection, etc. The situation is better today, with many MNC pharma companies launching new products in India soon after their global launches, and at India/Asia-specific pricing.

India, in some cases is the biggest beneficiary of Novartis’ global access programmes, for instance, Novartis donates almost 100 per cent of the world’s supply of leprosy drugs to WHO and more than 60 per cent of these drugs come to India.

He opines that rather than focusing only on pharma companies, we need to look at healthcare in a more holistic manner, suggesting that insurance and improved health infrastructure could be two ways of improving access to quality healthcare as well as affordable healthcare. But for this, he stresses that all stakeholders need to come together.

Summing up, Shahani is optimistic that Novartis India is in the right place at the right time. “There will always be some road bumps but these will be temporary. India is a key country for Novartis Group and we would like to build on the progress we have made,” he sign offs.


Arogya Parivarchronic myeloid leukemiaIndian Pharma MarketNovartis India