Drug Lord

THORSTON FUTH/LAIF FOR TIME
Vasella reflects on his business in the meeting room adjoining his office

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Coordinating some 200 task forces and 600 project teams, Vasella set about knocking heads together. By the time he was done, 12,500 people had been laid off; an $80 million venture fund helped ex-employees with good ideas start businesses. He got the unions to accept performance-based compensation, a concept new to Swiss industry at the time. "Ex-Sandoz people say there is more freedom," says Novartis' elected employee representative Kathrin Amacker. "Ex-Ciba people say there is more drive and deadline consciousness."

Novartis' sales in 1998 and 1999--slowed by a dearth of lucrative products increased just 2% a year, while those of its main competitors were growing at about 10 times that rate. Looking for a unifying vision for his new company, Vasella championed "life sciences," the idea that biotechnology would unite nutritional, agricultural and pharmaceutical businesses. But the expected synergies did not materialize for Novartis, or for any other company that tried the life-sciences approach. Once he saw his vision wasn't working, Vasella was quick to abandon it. He divested Novartis of its agribusiness unit in 2000.

Novartis has since fashioned itself as a health-care company, but its core business, which generated 63% of group sales last year, is branded pharmaceuticals, led by brands such as Diovan and Sandimmun. Vasella leaves the other units including generic drugs, animal health, Gerber, the eye-care unit CIBA Vision and over-the-counter medicines in the hands of trusted lieutenants. Novartis announced earlier this year that it will divest the unit that makes foods such as Ovaltine. Some analysts say Novartis could pick up its growth if it got rid of more of its noncore businesses. But Vasella argues there's no reason for Novartis to do so until the price is right.

Novartis quietly bought a 20% voting stake in Roche last year, startling the firm's managers and prompting speculation about an impending acquisition. But Vasella is biding his time now that he has, in the words of WestLB Panmure analyst Michael King, "parked the tanks on Roche's lawn." Vasella says when he heard that Swiss financier Martin Ebner would be selling his $2.8 billion stake in Roche, he realized the continuing consolidation of the industry might leave a major competitor in his backyard if he didn't act fast. "You don't want to wait to dance until you're stuck with the last girl," he says.

Vasella keeps a keen eye on his cherished drug business from an elegant second-floor office in the old Sandoz headquarters. On a counter behind his black leather chair are a pair of ancient Egyptian vases, a sword from the Han dynasty and a large blue-green bust of Buddha from the Tang dynasty. An avid collector of Oriental art, he recently bought a 13th century Tibetan statue of Buddha made of gilded bronze, which he keeps at his home in Zug. "I talk to him sometimes," says Vasella, "and I say, 'You know, I like you better than Jesus.'" Vasella swims two or three times a week and likes to target shoot on the rare occasion when he can make it to the range. He enjoys walking his Rottweiler and bullterrier and riding his BMW and Harley-Davidson motorcycles over the hilly terrain around Zug. Vacations are precious a chance to spend time with his wife, his 18-year-old daughter and his 14- and 10-year-old sons.

At work and at play, Vasella is a fierce competitor. "Doing it better than the others" is what excites him, he says. "Screw them, in a sense." He spends about a third of his workdays traveling around Europe, Asia and the Americas. The rest of the time, he is usually in back-to-back meetings with managers. "He challenges us," says John Manser, Novartis' treasurer, who meets with Vasella once a month to discuss the firm's investments. "He wants to know what sectors, what stocks he goes to that level." Notes another top manager: "He's not a patient guy. He won't sit with you for 15 minutes as you carefully explain something. He wants to know the facts, and you better have them down cold."

The research strategy at Novartis is among the most productive in the industry. It invests 17% of drug sales in pharmaceutical R. and D., or $2 billion annually. Thanks to innovations in technology and management, Novartis carries its drugs through development in only two-thirds the time it takes the average drug company. Its tightly coordinated R.-and-D. and marketing efforts focus on areas, such as cardiovascular diseases, in which treatments are judged to offer the greatest potential for profit. Senior vice president for business development Paul Sekhri, who helped pick these areas by going systematically through some 980 categories of ailments, says Vasella took a keen interest in how they were chosen. But while Vasella has taken aim at larger markets, he has ensured that more specialized products, such as ophthalmologic drugs, are not neglected. If there is enough of an unmet medical need, they too can be enormously profitable. David Epstein, head of Novartis' oncology unit, observes that a drug that works well on a limited population can build its market over time simply by keeping its users alive.