Vasella, Daniel 1953–

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Daniel Vasella
1953–

Chairman, Novartis AG

Nationality: Swiss.

Born: November 1953, in Fribourg, Switzerland.

Education: University of Berne, PhD, 1980.

Family: Married Anne-Laurence (trustee, Foundation Switzerland di Cardiologia); children: three.

Career: Sandoz Pharma, 1993, head of worldwide development; 1995–1996, CEO; Novartis, 1999–, chairman.

Address: Novartis AG, 608 Fifth Avenue, New York, New York 10020-2303; Lichtstrasse 15, Basel, Switzerland CH 4002; http://www.novartis.com.

■ Daniel Vasella led one of the largest corporate mergers in history, the $41 billion 1996 union of Sandoz and Ciba-Geigy, which formed Novartis, a leading worldwide pharmaceutical firm. At that time, all pharmaceutical firms were affected by the high cost of developing drugs and the demand for lower-priced drugs by health maintenance organizations (HMOs). The Ciba-Sandoz merger was one of five major mergers between 1991 and 1996. (The other four mergers were Pharmacia and Upjohn, Glaxo and Wellcome, Roche Holding and Syntex, and Bristol-Myers and Squibb.) In 2002 Novartis delivered record results and had consistent growth for the sixth straight year. Vasella's intensely competitive nature helped convince early doubters regarding the wisdom of the merger. However, his work as an executive was a dramatic contrast to his early career as a medical doctor.

EARLY PROFESSIONAL LIFE

After marrying in 1978, Vasella completed medical school and a string of residencies. In 1984 he began working as a physician at a university hospital in Bern, Switzerland. While he enjoyed direct care of patients, he wanted to learn more about the business of medicine. In 1987 Vasella sought the advice of Max Link, a senior executive of Sandoz, the Swiss conglomerate,

and subsequently he was offered a job at the company's New Jersey headquarters. At age 34 Vasella joined Sandoz as a trainee. He became product manager for a new drug, Sandostatin, approved to treat a rare pancreatic cancer. The head of Sandoz's U.S. pharmaceutical unit joked that Vasella could consider his job well done if he made Sandostatin a $5 million product, a minuscule amount for a branded drug. But it was no joke to Vasella, who realized that to make Sandostatin a commercial success he had to find new uses for it. He believed he could do that only by radically streamlining and integrating the drug-development process.

IMPACT ON DRUG DEVELOPMENT PROCESS

At Sandoz, as at most pharmaceutical companies in the 1980s, new products came to market through a three-step sequence Researchers sought out potential drugs. Development teams tested and refined them in the hope of winning regulatory approval. Finally, the approved drugs were marketed to physicians. These steps were typically conducted in isolation, so developers sometimes found out too late that a candidate drug had severe side effects or could not be mass-produced economically. Sometimes marketers discovered late in the process that there was little demand for the new drug that they would soon be asked to sell. Vasella changed this three-step system. He had clinical researchers, chemists, and production and marketing managers collaborate to locate profitable new uses for Sandostatin. His efforts paid off, as Sandostatin won approval for treating the side effects of certain cancers, and sales rose rapidly, reaching $486 million in 2001.

In 1993 Vasella returned to Switzerland to head corporate marketing at Sandoz's headquarters in Basel, Switzerland. The next year he briefly led the company's global drug-development programs, and he was COO before becoming CEO of Sandoz's drug business in 1995. Vasella applied the lessons he had learned while managing Sandostatin to all the company's drug-development efforts.

CONSOLIDATION LEADS TO MERGER

During 1996 the forces conducive to industry consolidation were apparent. To survive in an intensely competitive new environment, drug companies had to cut overlapping costs while developing profitable new treatments. Specialized effective drugs offered the highest margins and best price protection against HMOs and other health-care consumer groups, which sought to force drug costs down.

By 1996 Sandoz and Ciba-Geigy, Swiss companies founded in Basel at the end of the 19th century, were both still profitable enough to survive on their own. But Vasella saw the potential for economies of scale. Sandoz had divisions in pharmaceuticals, nutrition, agribusiness, and chemicals; Ciba-Geigy had divisions in health care, agriculture, and industrial chemicals. The two firms reasoned that a merger would strengthen their combined position in the fast-consolidating pharmaceutical industry, enabling them to exploit new synergies between pharmaceuticals and agrichemicals. In a PR Newswire statement made on March 7, 1996, Vasella predicted: "We will build our company based on a common spirit of entrepreneurial energy, teamwork, and enthusiasm for our new future." When the Sandoz–Ciba-Geigy merger was announced, Sandoz managers reiterated the fact that this action was not a takeover but a marriage of equals.

Following regulatory approval, Vasella was named CEO of the new company. The combined company was named Novartis, a word Vasella appears to have invented himself from novae artis, Latin for "new skills." Novartis aimed to maintain its core industries of pharmaceuticals, agribusiness, and nutrition. When the merger was completed, health care represented 59 percent of Novartis's business; agribusiness, 27 percent; and nutrition, 14 percent. Under the terms of the transaction, Novartis was a tax-free combination that absorbed both Ciba-Geigy and Sandoz. Sandoz shareholders received 55 percent, and Ciba-Geigy shareholders received 45 percent of the merged company.

POSTMERGER MANAGEMENT STYLE

Vasella described his own management style as a "Top Down, Bottom Up, Top Down" process with a two-pronged focus: being clear in decision making and getting the best from good people. TD-BU-TD—as it was known in the company—meant that top management decided what it wanted, sent those targets down through the organization for consultation, and then issued the final plan. The Financial Times (London) on February 10, 1997, quoted Vasella as saying: "We want to send clear signals that outstanding success will be outstandingly rewarded. We have set written targets and compensation for the top 400 people for the next three years, payable in either half cash, half options or two-thirds cash and one-third options." Vasella also set a new goal: Novartis would aim to become the leader in life sciences and establish a strong health-care position in the therapy and product areas as well as emerging technologies.

Novartis generally outperformed the market. Emphasis on innovative products combined with strong marketing made the company highly competitive. In the United States, Novartis's pharmaceutical sales grew 12 percent in 2001, making Novartis one of the fastest-growing major pharmaceutical companies. In 2002 the U.S. market accounted for 42 percent of the company's global pharmaceutical business sales. Analysts at Sanford C. Bernstein & Company predicted that Novartis's total sales would grow at a combined annual growth rate of 9 percent between 2002 and 2007. Gross profit was expected to grow 10 percent during that period, reflecting increased efficiency. Novartis finished 2002 with high profit margins and a strong cash position.

Novartis was initially successful with the introduction of its breakthrough cancer drug, Gleevec, a capsule that combated certain types of leukemia and stomach tumors. The company also answered the global economic downturn that began in 2001 by laying the foundation for future growth, having spent heavily on research and development. Its prescription drugs included treatments for nervous system and ophthalmic disorders, cardiovascular diseases, and cancer; it also made dermatological products and drugs to prevent organ-transplant rejection. Novartis's consumer health unit included such brands as Gerber baby foods, ExLax, Maalox, Tavist, and Theraflu. The Ciba Vision Unit made eyedrops, contact lenses (Focus), and contact lens solutions. Its animal health unit offered parasite control products (Sentinel) and pharmaceuticals for pets and farm animals.

CONTROVERSY OVER NOVARTIS

Despite its success, Vasella's firm had its share of controversy. In 2001 Novartis announced that it would give Gleevec away to people around the world who could not otherwise afford it. Experts estimated that as many as 600,000 patients—most of them in poor countries—could benefit. At the time, Gleevec cost an average of $27,000 a year. Novartis created an international patient-assistance program, run by the Max Foundation, a tiny nonprofit that Novartis selected after established charities turned down the job. But critics said that No vartis distributed the drug to just over 1,500 patients outside the United States. They contended that Novartis's so-called charity was a ploy for its commercial goal of building Gleevec sales to $1 billion annually. Moreover, as of 2003, Novartis was the target of a lawsuit regarding its role in South Africa and the regime's policy of apartheid. The suit, brought under the U.S. Alien Tort Claims Act, which was also used to pursue Holocaust claims, accused 34 companies of having supported and financed apartheid. Nonetheless, Vasella continued to be optimistic overall, as all early indicators were that the merger Vasella led was substantively successful.

See also entries on Sandoz Ltd. and Novartis AG in International Directory of Company Histories.