Shoklo Malaria Research Unit, Mae Sot, Thailand--Courtesy of Novartis


Emerging Markets Sales 2012: $13.84 billion
Percentage of Sales in Emerging Markets: 24%

Though Novartis ($NVS) has hooked up with its share of emerging markets drugmakers, the Swiss drugmaker's key partners aren't companies; they're governments. From Saudi Arabia to Russia to Singapore, Novartis works with local officials to advance their healthcare ambitions--while advancing its own.

Consider Russia, where Novartis is the leading foreign healthcare company. In 2010, the Russian prime minister announced it would require drugmakers to establish local production in order to win government business. Soon after, Novartis said it would invest $500 million over 5 years in the Russian market. The company is building a manufacturing plant in St. Petersburg, primarily to turn out generic drugs. But it's also investing in public health initiatives, including a partnership with Yaroslavl, a city northeast of Moscow, focused on helping people manage high blood pressure and other cardiovascular diseases. It's no accident, of course, that Novartis sells CV drugs, including the hypertension fighter Diovan. And the big investment in Russian manufacturing puts it in line for increasing sales to government health programs. It's no accident, then, that Russia was one of the company's fastest-growing markets, with an 18% increase to more than $500 million.

Saudi Arabia has a similar desire: to develop its own domestic pharmaceutical sector. Novartis beefed up its presence in the country last year and inked a deal with the Saudi government to increasingly weight its local workforce with Saudi nationals. That local support can only endear the company to officials when procurement time comes around. In Singapore, the company's Alcon division opened a new production site, and its pharma business announced plans for a $500 million state-of-the-art biotech manufacturing facility. In a separate (but perhaps not unrelated) deal, Singapore's economic development arm extended its financial support for the company's R&D efforts at the Novartis Institute for Tropical Diseases. The drugmaker also inked a deal with the Malaysian government to boost the country's healthcare capabilities, with such contributions as venture-fund financing for healthcare startups and local clinical trials--as well as increased access to branded and generic drugs.

Of course, working hand-in-hand with local governments isn't new; in many if not most countries, the government is the key payer in healthcare. Government officials hold the purse strings, and they determine whether to put the squeeze on drug prices--as they have in Western Europe and some emerging markets. Working with authorities in public health is a tried-and-true strategy for educating patients about taking care of themselves--including taking medications--and building goodwill with patients and their doctors. Winning brownie points with those authorities has to be part of that equation. Novartis' competitors, including Sanofi ($SNY) and Bayer, have their own public health initiatives with emerging markets governments, for instance.

It has to be noted, however, that not all governments are cooperative in all cases. In India, Novartis' high-profile fight for a patent on its leukemia drug Glivec went all the way to the Supreme Court, and it ultimately failed. Jimenez has been trading barbed letters with Indian officials ever since.

And government partnerships aren't Novartis' only growth tactic. The company is conducting more clinical trials in emerging markets--some 44% of its studies reportedly take place in Asia-Pacific, the Middle East and Africa. That research builds new foundations for local drug launches. The company is also cutting deals on drug prices. In China, Novartis struck a discount arrangement with Jiangsu province to give the government three doses of Glivec for each dose it pays for. That reduces the government's nominal cost to about $12,000 per dose, without qualifying as the sort of discount that triggers automatic cuts in other reference-price markets. And while hiring hundreds of employees in these countries, Novartis is also working to address the joint problems of turnover and competition for talent by setting up a management-development program called LEAD, whose participants meet with top pharma execs, participate in training sessions and workshops, work on projects and match up with mentors. Focused first on the BRIC countries, LEAD was rolled out across 16 emerging markets for its most recent iteration.

For more:
Novartis CEO Jimenez says China is a difficult market, but worth it
Novartis plant in Russia two years out: Jimenez explains need for EM manufacturing
Indian official disputes Novartis chief's patent complaints
Pfizer, Novartis eye bids for Brazil's Ache in deal worth $5B
Novartis plots new $500M Singapore plant as biologics pipeline fills


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