Novartis Korea has evolved considerably since predecessor company Sandoz arrived in 1984, directing its investment effort -- with the collaboration of Invest KOREA and KOTRA -- into research and drug development.
As Korea and the world in general move from manufacturing as the prime source of value to the creation of knowledge, so too, are shifts taking place in the nature of foreign direct investment (FDI, see Partners in the Making). Because of the huge importance of research and development to the competitiveness and success of individual players in the pharmaceutical industry, investment in this field is a critical issue.
This trend is apparent in Korea, with the increasing commitment by the multinational pharmaceutical corporations to invest in research in Korea on account of the quality of its personnel, equipment and clinical research centers of excellence. Among this number is Novartis, which, through its local 100-percent owned subsidiary, Novartis Korea Ltd., is progressively looking more to Korea as a location for its research efforts and in which to cultivate the life sciences of tomorrow.
Novartis Korea is a 500-employee strong organization that registered a turnover of US$294 million in 2007 (272 billion won) and is dedicated to marketing, sales -- and research. Headquartered in Basel, Switzerland, the company was created in 1996 through the merger of two former Swiss giants in the pharmaceutical field, Ciba-Geigy and Sandoz. The history of Novartis in Korea began in 1984 with the arrival of this latter entity. Today, the company maintains a presence through four divisions: Pharmaceuticals; Vaccines & Diagnostics; Sandoz Korea (a separate legal entity), the only multinational generic drug company in Korea and the result of rebranding effort to give the Sandoz name a new identity as a generics portfolio; and Consumer Health, which deals with over-the-counter healthcare and lifestyle products such as CIBA Vision (also a separate legal entity) contact lenses.
Major products of Novartis Korea include hypertension treatments Diovan, Co-Diovan, and Exforge, this latter in co-promotion with Pfizer; Glivec, a drug to combat chronic myeloid leukemia (CML); Neoral, an immune system suppressant for use with transplant patients; Lescol, a preparation to treat hyperlipidemia; Femara, to prevent the reoccurrence of breast cancer following surgery; and new products Lucentis used to treat wet age-related macular degeneration (AMD), a sight-degeneration condition, Exelon Patch (Alzheimer's dementia) and Aclasta (osteoporosis).
Hailed as a miracle drug when it first appeared on the Korean market, Glivec soon attracted controversy because of its price. In September 2005, the Korean government increased its level of support to 90 percent of the price while an existing Novartis patient assistance program covered the remaining 10 percent. Thus, the drug is available to Korean leukemia patients free of charge.
CLINICAL RESEARCH LEADER
Drugs currently under development, or undergoing approval with Korea's Ministry for Health, Welfare and Family Affairs (MHWFA) and the Korean National Health Insurance Corporation (KNHIC) for purposes of reimbursement, and that will be introduced in the coming years include Galvus (diabetes), Rasilez (hypertension), Xolair (severe asthma), Sebivo (Hepatitis B) and Tasigna (a next-generation leukemia drug).
However, since its inception, the company has evolved considerably to arrive at its present form.
"Novartis Korea does not have a manufacturing plant," explained country financial officer Frank Jordan. "The Novartis Korea manufacturing plant in Korea was closed in 2003 as part of the global integration of our manufacturing operations to ensure the high quality of our pharmaceutical operations in the most efficient way, and to reduce the costs of healthcare to patients through streamlined operations." Also no longer part of Novartis operations in Korea is an agrochemicals plant at Iksan purchased in 1999 due to the entire relevant division -- Novartis Agro -- being spun-off by head office in a drive to focus solely on healthcare.
As other corporations that have been featured in this column, Novartis frequently makes corporate decisions of a global nature to fortify its core functions that sometimes effect its operations on the ground in Korea. In December 2006, for example, Novartis sold its medical-nutrition division to fellow Swiss multinational, Nestlé for US$2.5 billion. The following year, Nestlé was the buyer for another business spun-off by Norvatis, this time Gerber baby foods, which changed hands for US$5.5 billion. Motivated by the same goal, Novartis during 2008 bought a 25-percent stake in Alcon from Nestlé for US$11 billion with right to take a majority stake in what is the world's leading eye-care company. The move "Fits in with the pharmaceuticals ophthalmic portfolio and fits in with the CIBA Vision portfolio," said Mr. Jordan. "The acquisition was global but Alcon does operate in Korea."
"The healthcare industry is a knowledge-based rather than a manufacturing-based industry," said the Novartis Korea financial officer, elaborating on the approach his company is taking to Korea and stressing that it is essentially a "knowledge investor."
"In line with this," he continued, "Novartis Korea is actively engaged in conducting clinical research projects for developing new drugs which will contribute to development of the healthcare and medical industry in Korea."
Novartis Korea leads the local industry in clinical research and ongoing commitment to various clinical research programs. In 2008 alone, the company undertook 120 clinical trials representing an annual investment of US$15 million. Beyond clinical research activities, Novartis is also contributing to the advancement of bio and life science through the Novartis Venture Fund. With over US$600 million under management and invested in 60 companies worldwide, Novartis Venture Fund expanded into Korea in September 2007 and plans to invest US$20 million in Korean bio-venture companies over the next five years.
PURELY MEDICAL FOCUS
Novartis has some 140 drugs under development globally. These pipelines are recognized by industry experts, who have ranked Novartis as having one of the best pipelines amongst all major companies in the global pharmaceutical industry. Among that number, Novartis Korea is participating in 49 multi-national clinical research projects in Korea for developing new drugs in the parent company's global portfolio. Meanwhile, another 27 trials are in progress with local researchers. The considerable level of organization involved in drug trials indicates the high degree of commitment in terms of resources that must be met by an enterprise such as Novartis to replenish a portfolio that continually loses products to the generic market. "Even to launch a local trial, it is necessary to go through a very stringent process with our global office," advised Mr. Jordan. "Moreover, even to conduct a clinical trial there are very stringent processes with obtaining approved protocols through our global office. This ensures a total focus on medical research totally delinked from any business results. Locally we employ highly qualified medical doctors who have a very ethical outlook on what they do with trials to ensure the strict focus around medical outcomes for patients."
Novartis Korea engages a sizeable number of physicians to work on each of the three phases of testing that are demanded before a drug is permitted to be marketed, which is Phase 4 under MHWFA rules.
"Very strict protocols are in place governing the number of patients and number of researchers who can be brought on board on a particular trial," continued Mr. Jordan. "One trial can be run in six different research centers. We can shift the number of patients around between centers to get the benefit of the expertise of different healthcare personnel and so achieve optimum results," he observed. "We also maintain two clinical trial offices in local hospitals whose staff are dedicated to assisting the research we undertake there."
This expertise is one element that has singled out Korea in the eyes of Novartis as an ideal location to pursue this type of research.
"Korea is definitely a place of choice [to carry out clinical trials]," said Mr. Jordan. "It has excellent infrastructure, medical facilities and researchers. Everything is here to make clinical development a success." He believed that these conditions present an opportunity for Korea in terms of drug development, little of which is undertaken in the country today on account of cost. One billion dollars is required to take a drug from the initial stages to market, but less than one percent finally makes it. "While this is a significant investment, by Korea achieving the groundwork that allows an increasing amount of research, this would allow the country to get onto the world stage in new drug development," said Mr. Jordan.
Korea ranks high in importance for Novartis as a market, a factor which in itself is serving to drive the in-country expansion of drug development by the multinational.
The South Korean pharmaceutical market is estimated to be approximately US$10 billion, making it the 11th largest in the world. Business Monitor International's (BMI's) revised second-quarter '08 Business Environment Ranking table for the 14 key markets in Asia placed the country in third position, after Japan and Australia. The key drivers behind the market's rapid nine-percent growth are high per capita consumption, and a rapidly increasing aging population, among others. Prescription products are expected to remain the dominant force in the market, although the OTC sector will benefit from demographic, economic and regulatory imperatives.
FOSTERING NEW DRUG DEVELOPMENT
Within Novartis, Korea is one of the multinational's top-five emerging markets. Novartis Korea is ranked 13th globally in the Novartis group and considered as possessing significant opportunities to expand in view of the country's aging population and the increase in the incidence of those diseases (or medical needs) that the Novartis portfolio of drug treatments is designed to combat (or meet): hypertension, leukemia, and immune system suppression. While some analysis of Novartis' drug trial results is performed locally by outsourcing it to clinical research organizations, all the data so generated is assessed by Novartis at a global, corporate level.
"As one of the requirements in Korea to have a drug approved for launch locally, it is necessary to include a certain number of Korean patients in the trials as Koreans as seen to react differently to medicines than Westerners," said Mr. Jordan. "We just need to make sure that what we launch in Korea matches, through good clinical evidence, the needs of Korean patients and not just the needs of our global patients."
Therefore, by performing research of the type of drugs whose indications match the disease profile/medical needs of Korea, Norvartis in fact is building a pathway into the expanding domestic market. In fact, failure to involve Korean patients in the initial clinical research for any drug intended for the local market at a sufficient level requires a "bridging study" that doesinclude an appropriate number of Koreans, meaning that it would take longer for the treatment to reach the patients.
Given this imperative, clinical research in R&D by Novartis Korea in terms of human resources has steadily advanced. In 2001, the company engaged six persons including one physician. By 2007, 52 persons were committed to clinical research. With 64 persons engaged at the end of 2008, including six physicians, the company plans to increase the total to 120 by 2012.
An even bolder initiative regarding investment into local drug research was made by Novartis AG with the expansion into Korea of the Novartis Venture Fund (NVF) in September of 2007. One of the world's largest and best-established venture funds in the bioscience field, the NVF strives to foster new drug development and new technology in life science industry by providing financial investment and consultation to venture companies with innovative ideas. Founded in 1996, the NVF has currently more than US$600 million under management and is an investor in more than 60 private companies globally.
GLOBAL COMMERCIALIZATION
In October 2008 the Fund announced it will invest US$20 million in Korean bio-ventures over the next five years, i.e., from 2008 to 2012. This marks the first time that the NVF has formed a country specific fund and is a decision based on the Korean market's new drug development potential, the likely synergies to be generated in the life-science R&D field, the country's strategic geopolitical location in Northeast Asia, and the superb expertise of its human resources.
The same month Neomics Inc., a local bioscience startup working in the field of oncology, was selected as the first recipient of investment by the Fund. Under the contract between the parties, Novartis Venture Fund will initially invest US$1 million in Neomics. Another bio-venture company, PharmAbcine, specializing in therapeutic antibody treatments, was selected as a recipient for investment through the GATE Project. An acronym for "Get Armed To Explore Global Markets" the GATE Project was officially launched last March as a combined initiative between Novartis, the Korea Health Industry Development Institute (KHIDI), Samsung Advanced Institute of Technology (SAIT), McKinsey & Co., and the Korea Trade-Investment Promotion Agency (KOTRA) to provide technology commercialization support to local bio venture start-ups, help them build global competitiveness, and so attract further overseas investment. The GATE Project selection committee received 31 applications over a six-month period before deciding to contract with PharmAbcine. Under the terms of the agreement, the NVF will initially invest US$1 million in the bio-venture.
For KOTRA, working through the High-Tech Industry Team of Invest KOREA, a priority of the GATE Project is to assist the entry of foreign companies into the Korean or wider Asian market through forging strategic partnerships, as well as to promote the global commercialization of domestic biotechnology. For Novartis, the Project serves as a means of new drug development and eventual commercialization, which the corporation has pledged to support. McKinsey, which enjoys a global partnership with Novartis at a corporate level, will contribute to the Project by coaching PharmAbcine in its international negotiations. SAIT joined the Project as an evaluator of the technologies of applicant companies as well as lending financial support to successful applicants. KHIDI, a government-supported institute under the Ministry of Health, Welfare and Family Affairs, also participated in the technological review of applicant companies and supports the commercialization of those who are successful.
The process that resulted in the award to PharmAbcine began in January 2008 with the kick-off meeting of the GATE Project Working Group. An opening conference was held in March, and the process of technological evaluation took place in May. The business evaluation phase of the Project took place in July and due diligence in September. Throughout all the steps involved, Novartis was engaged as a partner.
RESOLVING URGENT PROBLEMS
The reputation of the Novartis name was further burnished when Peter Jager, CEO of Novartis Korea, was elected president of the Korean Research-based Pharmaceutical Industry Association (KRPIA) in early December. Founded in 1999, the now 31 member companies of the Association, most of whom -- but not exclusively -- are multinationals, are committed to discovering health care solutions to meet patient needs through the development of original drugs as opposed to manufacturing generic copies.
On Mr. Jager's appointment, Mr. Jordan commented: "Korea faces great challenges and opportunities as the 11th place in global pharmaceutical market by value. With Peter's leadership, KRPIA will make continued efforts to advance Korean health and medical care environments by actively resolving urgent problems caused by various policy changes and also proactively utilizing unfolded opportunities."
Mr. Jordan said that worldwide Novartis prefers to be an industry leader, and one way is to encourage country heads to take industry leadership roles. "This is not uncommon in Novartis globally," he said. "Peter historically has been involved in industry associations in many countries, which is in line with how we position ourselves with governments."
In stating their vision, many companies stress a financial or market-share goal. Not so for Novartis Korea. The vision for this company? "To be the no. 1 respected pharmaceutical company in Korea," said Mr. Jordan, adding that the company currently ranked no. 5 in this aspect. Indeed, the company invests significantly in generating positive regard among the host community by its efforts to expand local capability in the life sciences as well as running numerous corporate social responsibility programs designed to improve patients' quality of life or access to Novartis drugs, a case in point being its support of the cost of leukemia treatment Glivec mentioned above. These efforts, plus the match between the company's portfolio and Korea's disease profile means that its links with the country can only grow, and that Novartis will consolidate its position as a knowledge investor.
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