Novartis Pharmaceutical Arm
Will Be Split Into Three Units
By STEPHEN D. MOORE
Staff Reporter of THE WALL STREET JOURNAL
July 11, 2000
ZURICH -- Novartis AG reshuffled management at its flagship drug division and unveiled a sweeping reorganization of the division to boost marketing clout ahead of crucial launches of several new drugs expected during the next two years.
Novartis said Thomas Ebeling, the drug division's 41 year-old chief operating officer, will become global head of pharmaceuticals, effective Sept. 1. Mr. Ebeling succeeds Argeris (Jerry) Karabelas who will remain with Novartis as head of a new $50 million (52.8 million euros) in-house venture capital unit -- the Novartis Bioventure Fund.
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Both Dr. Karabelas and Mr. Ebeling joined Novartis in 1997 -- among the first outsiders recruited for top executive posts following the $27 billion merger that created the Swiss giant in its present form. Their career prospects soon diverged, however.
Dr. Karabelas previously had been a senior executive at Anglo-American drug giant SmithKline Beecham PLC and was highly regarded in the industry for his marketing acumen. But at Novartis his star faded as the drug division turned in disappointing sales growth the past two years.
Success in Consumer Health
Mr. Ebeling, a native of Germany who earned a degree in psychology before turning to advertising, was poached from PepsiCo Inc. to run Novartis's struggling nutrition division. In the new post, he engineered a turnaround by selling a spate of noncore brands and combining nutrition operations with Novartis's over-the-counter medicines to form a new Consumer Health Division. Last year, Consumer Health was one of the company's fastest growing businesses and reflecting that success, Mr. Ebeling moved to the pharmaceutical division late last year as deputy and heir apparent to Dr. Karabelas.
Inside Novartis, Mr. Ebeling has earned a reputation as a hard-driving executive who doesn't back down from unpopular decisions. He received a pair of boxing gloves as a going-away present when he left the Consumer Health Division last year.
Still, he remains little-known outside the company and some analysts fret his lack of direct pharmaceutical industry experience could prove a problem as Novartis gears up for the succession of new drug launches. "This is a tricky time to change riders considering how important it is for Novartis to get these launches right," cautioned Peter Laing, a London-based pharmaceutical analyst with Societe Generale.
In an interview, Mr. Ebeling predicted that the drug division's reorganization would make his new job easier. Under the overhaul, which also takes effect Sept. 1, world-wide operations in cancer, transplantation and opthalmic medicines will become autonomous, fully-integrated business units -- responsible for everything from developing and testing new medicines to marketing them. In addition, a fourth independent business unit will be formed to handle marketing of slow-growing "mature products."
That will leave a slimmed-down drug division to concentrate exclusively on medicines still in rapid growth phases -- plus at least four new drugs expected to win regulatory approval over the next two years. The success of the new drugs -- for treatment of adult-onset diabetes, allergies and irritable bowel syndrome -- hinges on aggressive promotional efforts of thousands of sales representatives world-wide.
Benefits of Size
In recent years, Novartis has had problems convincing influential general managers in major markets to concentrate their marketing muscle behind strategic products deemed to have the greatest global sales potential. However, since Mr. Ebeling joined the drug division, he has spent much of his time hammering out details of the reorganization -- in close cooperation with those previously recalcitrant general managers.
"The big challenge for most pharmaceutical companies today is getting benefits of size without the downside," Mr. Ebeling said in an interview. "We've found that we have major differences in the way we conduct business in certain disease areas -- and we're trying to acknowledge these differences and cut up our organization accordingly."
Diseases such as cancer and transplantation are treated primarily by specialist physicians and many drug makers form separate sales forces to cater to those specialists. "We want to go a step farther by creating small entrepreneurial units where you have a mini-CEO with all the tools needed to run his own business," Mr. Ebeling added.
Novartis's large collection of mature products could benefit even more from that entrepreneurial touch. During the previous decade, upstart companies such as Roberts Pharmaceuticals Inc. of the U.S. and the United Kingdom's Medeva PLC have revived sales of many neglected, older drugs acquired from major drug companies.
At Novartis, older drugs generate so much cash flow that Novartis can't afford to sell them, says Mr. Ebeling, who is convinced the new Mature Products unit can rejuvenate sales of aging drugs as effectively as rivals. "Sometimes just a reminder to doctors by sampling -- or even an Internet message -- can be enough to boost sales," he said. "And you don't need an experienced, well-trained sales representative to do that."
Attracting New Recruits
The nimble new business units also are designed to create jobs to help Novartis attract new talent. "As the industry consolidates and globalizes, there are fewer opportunities for talents to become CEO or general managers," Mr. Ebeling mused. "That causes frustration -- but with this new structure, we'll create more opportunities and attract new recruits."
Moreover, Novartis Chairman Daniel Vasella insisted that the new specialist units will have freer hands to forge strategic partnerships. "You could see different partners in oncology and transplantation or central nervous system diseases," Dr. Vasella said. "That could avoid some of the downside of huge mergers or takeovers. I still think giant deals will be part of the game -- but this could be a different way of doing things," he said.
As the new Novartis Bioventure Fund gears up to scout new biotech partners, Dr. Vasella also seems eager to step up cooperation with a longtime affiliate -- Chiron Corp. Novartis holds a 44% stake in Chiron and can increase that ownership as high as 55% though senior officials at the Swiss company insist there currently isn't any intention of going above 49.9%.
Nonetheless, Dr. Vasella said the companies should look into ways "of increasing contacts on an operational basis -- things that could be worthwhile doing together." The Novartis chairman cited vaccines as one area of potential interest. "But I'd say that anything we do with Chiron should be at least on a preferential relationship," Dr. Vasella added. "That's not the case right now. Our relationship is friendly -- but very low key."
Write to Stephen D. Moore at stephen.moore@wsj.com
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