Competing against itself
A recent Wall Street Journal article ("Mixing Medicines", 5/4/06) explores drug giant Novartis's attempt to be a leader in two markets that are seemingly in conflict. As the article points out, Swiss-based Novartis AG is one of the top five makers of brand-name drugs. It has also in recent years (in its Sandoz division) become the #2 generic drug maker, after Israel-based Teva. It grew its generics capability by a series of major acquisitions.
As the article notes:
Some executives in the industry are skeptical that this divided house can stand. They wonder how one part of a company can vigorously defend patents even as another part tries to knock them down to make copycat drugs.
The reason that Novartis has taken the course of betting on two horses is, the article notes, the tough road facing the brand-name pharmaceutical market. This comes from two courses: national health services getting stingier about buying drugs as their populations age, and the slowdown in the expansion of US drug spending. Industries studies see brand-name drugs growing at under 8% a year, while generics are expected to grow at up to 18%.
On the pharmaceutical side, Novartis is focusing on select serious diseases (cancer, MS) and in vaccines (note the purchase of the 50% of Chiron it did not already own). Otherwise it is concentrating on generics and over-the-counter drugs.
But the article points out problems in Novartis. Sandoz executives feel frustrated because the brand-name drug division works at a different rate than the generics makers, and company management has not quite managed to adjust.
Some executives at Sandoz complain that Novartis is hobbling their speed. "In Novartis, if you sell the [branded] product one month later or not it doesn't make a big difference, because there is no other company to sell it," says Bedri Toker, Sandoz's top executive in Turkey, who came from one of the companies acquired by Novartis last year. "But as a generic company I have to be first because there are many companies that can sell the same product....The way of thinking is very different."
Novartis, a prudent and bureaucratic company is used to development efforts that take years. By comparison, the generics marker is like the Wild West, where the company that is fastest on the draw wins big advantages. In the US, it's even worse, as the first introducer of a generic version of a brand-name drug is given exclusivity for half a year. Getting the generic accepted requires expert maneuvering, both in terms of timing and legal aggressiveness. The article notes several occasions in which the Sandoz drug missed being first on the market thanks to excessive paper shuffling and slow decision-making at Novartis. Meanwhile, generics only companies like Teva and The US's Mylan Laboratories.
The article is a good indication of how hard it is to manage a company with divisions that run at radically different speeds. This was always a problem with conglomerates. The benefit of covering all the bases can mean a disadvantage in terms of maneuverability to dedicated companies with a single focus that upper management is fully committed to. In a way, it's like running a regular airline and a discount airline within the same corporation (as, for example, Delta Airlines did until recently.) It's hard to make fair and smart decisions when one part of the company represents the seeming foe of the other.
