Daniel Vasella: First he cured a company, now he'd cure us

The man who turned Novartis from a Swiss dinosaur into a market leader

Only six years ago, Novartis was everything you didn't want in a pharmaceutical group: complacent, lumbering, devoid of ideas and thoroughly Swiss.

It's a very different story now. The group has been infused with the sort of raw commercial aggression you used only to find in US companies. Its pipeline of new drugs is one of the richest in the industry, it has left the GM foods arena and it stands on the brink of global stardom for its advances in cancer treatment.

The mastermind behind this transformation is Daniel Vasella, the no-nonsense doctor who inherited the helm in 1996 after what was then the world's biggest-ever industrial merger. From the start it was obvious that the deal combining the Swiss dinosaurs Sandoz and Ciba-Geigy was a merger of weakness. As often happens in the drugs industry, they had ended up joining forces when both realised the grim truth: that their biggest drugs were soon coming off-patent and there weren't enough new products on the way to replace them. The late 1990s was the dawning of the new age of genomics, and a merged company seemed precisely the wrong way to embrace it.

But the new chief executive, who had worked as a medic in the US in his 30s, had a string of bright ideas. "I learned everything in America," he says. "From my perspective, the basic tenets of being successful are in line with the US capitalist style."

Vasella, who recently took up prominent board positions at PepsiCo and Credit Suisse, wasted no time putting those capitalist tenets into practice. Within a few months he had cut 12,500 jobs and replaced 15 of the top 21 managers in the company. He lured top minds from US and European rivals and established bonus pools and stock-option plans for all employees. And he wasted no money paying consultants to come up with the new corporate name, but "simply sat down and thought it up".

Once he had beaten the company into shape, Vasella set about tackling the single biggest issue for any drugs group: getting the lab coats to churn out the ideas.

"This was the challenge. Novartis had to become a leader in drug discovery, and I knew we needed to create a climate where our people could work without being bothered. We looked for the kind of people who don't get comfortable anywhere, and organised them into small research units. If you look at the biotech- nology industry, some of the best ideas are coming from small research teams who thrive because they are independent."

But the success of Novartis – it has six more drugs in its pipeline than its nearest rival – may not make it immune to general concerns about the industry. Increasingly, big pharmaceutical groups such as Merck and AstraZeneca are finding investors worried about thinning pipelines and questioning the logic of their business models. Whatever the long term may hold, Vasella remains opposed to outsourcing research: "There are still great advantages of being part of a big organisation: the resources are far better, and you give yourself the opportunity to share new ideas between teams."

The fruits of the Novartis model are many: in various stages of testing, it has drugs to treat asthma, diabetes, schizo-phrenia and arthritis. But one product is on the point of making Novartis a global household name. The group was quick to realise the huge potential of gene-based medicines, and has focused attention on oncology (cancer and tumours). The big product that has emerged from this is Glivec, whose potency in treating a particular type of leukaemia ensured it the fastest-ever approval by the US Food & Drug Administration (FDA). Even more important is what the Glivec technology represents: the world's first glimpse of a potential future of cancer "medicines". Glivec works by targeting particular malfunctioning cells, and Novartis is well advanced in testing whether it can be aimed at solid tumours and other forms of cancer, paving the way for a future without radiotherapy or chemotherapy.

"People have said this drug could be the next penicillin," says Vasella. "It might not have the same breadth as antibiotics did, but I am certainly very, very excited about what this could do for the world."

Having now formed a rosy view of Novartis's future, the market has heartily boosted the stock. The company has risen to become the fifth largest in Europe, and with a capitalisation of 159 billion Swiss francs (£66bn), it has pipped Nestlé as Switzerland's biggest company. That has brought with it a duty that Vasella is less than happy with: "I would love to be able to tell you that being the country's biggest company didn't have any secondary responsibility, but there are a lot of politics that break your concentration."

Many have speculated that political pressure may have played a role in Novartis's purchase last year of a 20 per cent stake in Roche, its Basle-based rival. There has been talk of an all-Swiss rescue should Roche run into financial trouble.

Despite its size, Novartis has been on the lookout for further acquisitions. In 1999 it failed in an attempt to buy Monsanto, the biotech company whose GM products sparked widespread protests. Then, in mid 2000, Novartis announced it was banning GM ingredients from all the products produced by its food division. Later that year it spun off the agribusiness. And a year later it divested its Health and Functional Food division, removing the company from the entire GM furore. Vasella's curt explanation of this refers to the group's need to focus solely on drugs, but analysts were quick to point out the role played by the ferocity of anti-GM feeling, which Novartis executives privately acknowledge had taken them by surprise.

Now, though, Novartis is focused on the coming revolution in cancer treatments. "People ask how we have done it and they are never happy with the answer," grins Vasella, "Novartis has had the one thing you can't imitate: luck."