By Wayne Koberstein, contributing editor, Life Science Leader
An old man on a bicycle in Basel once reminded me of the old Sandoz, one of the original maverick innovators in pharma. He looked just like one of the scientists at the Swiss giant on his way home from the discovery lab, both quixotic and professorial. By that time the old company had combined with Ciba to become Novartis, reducing Basel’s mighty three to only two, including Roche. So when the name Sandoz was resurrected for the new Novartis generics division, it was unclear whether corporate was being ironic or downright cruel to the spirit of its innovative predecessor. But after several challenging years in the division’s largest affiliate, Sandoz U.S., the initial ambiguity has faded, and a new picture is emerging. According to Don DeGolyer, president of the U.S. unit and head of commercial operations, North America, the Sandoz generics business he now leads has returned to old values — patient needs and access on the one hand, innovation on the other.
What DeGolyer describes is nothing less than a reformation of Sandoz U.S. that allowed it to put the difficult times behind. “Not only did we make the transition but we also restored Sandoz to its rightful place here in the United States,” he says.
RETURN TO BASE
DeGolyer says that when he assumed the helm in March 2010, the U.S. company had lost traction in its markets and in its operations. “We had a negative CAGR from 2007 to 2009. Here we were — the largest country within Sandoz, which has a presence spanning 140 countries — but we weren’t leveraging all of our assets. Our complex and differentiated portfolio focus was clearly in line with where the industry was headed. But we had a long way to go in building our product base and market share.” Omnitrope, the only Sandoz biosimilar marketed in the United States, had a mere 5% market share in 2009, he says. “We had a good commodity portfolio, but the market was evolving as we were getting our hands around the market dynamics — pricing, growing competition — and many of our key accounts were consolidating. There was not enough focus in the company on creating future value with our complex products portfolio.”
“Complex products” is an industry term that applies to generics that are difficult to develop, manufacture, or commercialize. Straight generic versions of off-patent prescription drugs are still the bread and butter products for Sandoz and most of its competitors. But economics and technology are driving the once-stalwart generics fold into the complex camp. Many companies in the industry now combine new formulations, delivery systems, and support services for generic compounds into “complex” products that have the potential to generate sustained growth.
At least, that’s the theory. Complex products present complex problems — in conception, in development, in production, in every way that taxes a company’s management, operations, and resources. By that equation, DeGolyer believes Sandoz comes out ahead of the pack. It’s not really a boast when he says, “Many companies talk about complex products, but the difference between Sandoz and some of our competitors is the fact that we’re delivering on that promise.” Sandoz does lead with a global portfolio of complex products that comprises well over 40% of its total portfolio by sales.
The difference between the company’s current market leadership and previous performance is inarguably dramatic. As DeGolyer says, “The entire Sandoz team is proud that today our results speak for themselves.”
The simplest and most meaningful measure is sales growth. 2010 reflected the pace of change with a 42% growth in sales. And despite the much higher baseline, 2011 still showed an impressive 25% — making Sandoz the fastest-growing company in the U.S. generics market, according to DeGolyer.
How Sandoz found a pathway back to relative prosperity and purpose is the main lesson of this article. DeGolyer — asked to describe the thought-and-action process the company traveled to its turnaround — gives a detailed and instructive account, potentially useful to any executive charged with a similar challenge.
GIVE A LISTEN
“The first thing I did was to go on ‘a listening tour’ of the company’s employees and customers,” he says. “I first asked them what they liked and wanted to preserve about the company, and then, what would your wish be to measurably improve the company? And then finally, how would you compare us to the competition? And what I heard from our employees is that we were a good company with quality products and people, but we were very internally focused.”
Specifically, DeGolyer says, company functions were “siloed,” keeping to themselves, resisting any collaboration with each other. The internal focus led to isolation of the company as a whole. Beyond sales and marketing, which he had previously headed, he saw a lack of focus on the external markets and customers. “As I was visiting people on the shop floor, I found some employees didn’t know who our customers were, which I found very surprising.”
Unlike the airline commercial where the boss hands everyone a ticket, DeGolyer couldn’t send all his employees out to meet the customers in person. His solution was to bring key customers into the company so all associates could hear the bitter truth: “We weren’t meeting their needs, and it was really negatively impacting our performance. We learned that our customer engagement and communications were not where they needed to be, we needed to expand our product portfolio with key accounts, and our strategy needed to focus on achieving leadership in the very attractive and rapidly evolving U.S. marketplace.”
Big internal changes were forthcoming. Cultural norms, for example, discouraged operational functions, such as manufacturing, from looking outside to the world of customers, normally the exclusive realm of the commercial team.
“What I wanted to build was a mentality that centered on speed and simplicity for our customers,” DeGolyer says. “But we had to put a much greater priority on systematically developing people who would be role models for strong leadership and accountability. One employee described the situation to me: ‘We spend more time fighting ourselves than we do the competition.’ If we were going to turn the business around, we needed to understand and prioritize our customers’ agendas and work together across every function of the company toward a common purpose.”
To encapsulate the new “market- and customer-based” strategy, DeGolyer defined the company’s overall goal: “to be the most respected generics company in North America.” Progress would be measured by five main parameters: product quality, company growth and performance, development of a complex-product pipeline, productivity, and employee culture and talent. “At the core of it all,” says DeGolyer, “is the unifying aim of serving our customers and, ultimately, patients.”
“We put a face on our vision and mission by talking about real patients like senior citizens, folks on a fixed income, or people who are out of work. We saw it as a noble mission to provide access to high-quality and more affordable medicines for those patients.”
Those words, “access, high quality, and more affordable” hearken back to the beginnings of the generics industry in the United States, when a grand political compromise wedded an ensured period of exclusivity for branded medicines with a mechanism for multisourcing off-patent drugs. At that time, the first companies to produce generics were fueled with a mix of profit motive and populist idealism. Perhaps the industry had since drifted into a kind of lowmargin commodities culture with insufficient focus on innovation. To ensure that Sandoz successfully bucked the trend inevitably required an overturn in personal attitudes and even personnel, as DeGolyer relates.
“In our company culture, there was not enough focus on performance. We made it very clear that mediocrity was not acceptable, and we believe in a fact-based, performance-oriented culture.” People got the message that the new culture may not be for everyone. At the executive level, he says, the resulting turnover produced a diverse and deeply experienced leadership team. “Today, we have a very diverse leadership team with experience ranging from generics to brands, to various markets including Europe, India, and Latin America.”
Higher cultural standards paralleled efforts to improve the quality of the company’s products. From 2008 to 2010, the industry had experienced a four-fold increase in FDA warning letters, at a time of greater demands for product quality from regulators and customers alike. Compliance and quality are a top priority for Sandoz, DeGolyer says. “Being part of Novartis and having one global standard for quality across our enterprise is ultimately an advantage, and we’re redoubling our resourcing in this area, to enhance technology, systems, and people. Our goal is to achieve competitive advantage through quality — and quality above and beyond mere compliance.”
THE POTENTIAL OF BIOSIMILARS
Broadening the product portfolio fulfilled another key strategic imperative, says DeGolyer. Sandoz U.S. now sells several hundred products and has increased its development pace as well as portfolio size and variety. As mentioned, its line now includes a much larger portion of complex products, particularly biosimilars, injectables, ophthalmology, respiratory, and dermatology products.
Biosimilars represent both potential and real growth for Sandoz at this point. Its human growth hormone, Omnitrope, has expanded in market share from 5% or number seven in its market in 2009 to 18% or number two currently, says DeGolyer, giving credit to some patientfriendly ancillaries. “We enhanced our patient support services, we made improvements to our device, we achieved formulary access with managed care organizations, and we built out our specialty field force.” Worldwide, Sandoz is the global leader in biosimilars and is pushing forward aggressively with development of a large portfolio.
Injectables are famously challenging to produce, store, and deliver, but they are critical to treatment in so many therapeutic areas and applications, and no company like Sandoz could compete without them. And there is no use competing if you can’t stay ahead of the pack. Sandoz has used acquisition and organic growth to expand its injectables production and supply chain and, together with other measures, become the market leader there as well. One “complex injectable” product (enoxaparin), launched in July 2010, has become the first generic to claim blockbuster status sales of more than $1 billion in 2011. A previous acquisition, of Ebewe (Parenta in the U.S.) in 2009, had added other complex (oncology) injectables to the portfolio.
Ophthalmology products have further lengthened the litany of “number ones” for Sandoz in the U.S. and global markets. It achieved leadership in that category with the 2011 integration of Falcon, the U.S.-based generics business of Alcon after Novartis acquired the global eye-care company.
Respiratory category growth is another longer-term opportunity. Sandoz did, however, acquire a “significant amount” of generic respiratory products and expertise for its pipeline with its purchase of Oriel Therapeutics in 2010, DeGolyer says.
Dermatology took Sandoz on a big leap forward with its July 2012 acquisition of Fougera. That purchase not only created a new U.S. and global number one in generic dermatology in the company, but also a small branded dermatology subsidiary of Fougera, PharmaDerm.
Despite the apparent success of the Sandoz turnaround in the United States, it may still seem a bit strange that the now-leader in generics exists inside Novartis, one of the world’s largest innovator companies — albeit an unusually diversified one. But one conjecture about Sandoz the pundits can no longer make, says DeGolyer, is that it suffered because of that association. Instead, he says, the causes of its challenges proved to be among the most basic problems in business: lack of performance and customer focus.
Far from being a handicap, says DeGolyer, being in the Novartis family is a “significant advantage” as well as a complementary arrangement. “Now that we have deep experience in the generics business, we can leverage the broad capabilities of the entire Novartis enterprise. It is a virtuous cycle: We offer patients and payers a range of options, and at the same time, we are increasing access to affordable, high-quality medicines. So we view the branded and generics businesses as absolutely complementary.”
For Sandoz, however, DeGolyer says the main competition is not other Big Pharma companies but the top-tier generic competitors — “the top four companies that make up almost 50% of the U.S. generic prescription volume.” Still, he believes his company has the best of both worlds. “The value of being inside of Novartis is that it’s more than just resources; it’s the fact that we can see the branded business, generic business, and specialty business all converge and being a part of the whole global portfolio that allows us to leverage the range of capabilities in the corporation, whether that’s clinical, manufacturing, regulatory, commercial, or, not the least among them, recruiting top talent.”
WINNING TO PLAY
Don DeGolyer has been president of Sandoz U.S. and the head of commercial operations for North America since March 2010. He has a broad range of GM responsibility that includes three commercial operating units, plus the research and development sites at its East Hanover, NJ headquarters campus. He also oversees five manufacturing sites as well as business development and licensing among the 16 direct reports heading various functions. He joined Sandoz in October 2009 as senior vice president and head of U.S. commercial operations, which was his introduction to the generics business. He was responsible for the company’s retail, institutional, and biopharmaceutical operating units and oversaw all of the new product selection for development activities. Prior to that, he was senior vice president of U.S. managed markets & established medicines at Novartis Pharmaceuticals Corp. and was also a member of the company’s executive committee there. Before joining Novartis in 2002, he was president of global therapeutics for Oxford GlycoSciences, a U.K.-based company in proteomics and rare diseases. He began his pharma-industry career at Pfizer and J&J, progressing through various roles of increasing responsibility. Thus, his experience includes branded medicines, mature products, generics, and specialty medicines, and even a bit of healthcare IT. He is now the vice chair and executive committee member of the GPhA (Generic Pharmaceuticals Association). Married, with two children, he grew up in a family business, working in his brother’s delicatessens on Long Island from the age of 14 and eventually running them on the weekends. “It taught me responsibility, leadership, and frankly, a customer focus, which really plays through how we approach the Sandoz business.” DeGolyer also grew up playing competitive sports, including on his high school basketball team when it won the New York state championship in 1979 and as captain of the University of Rochester basketball team. “All of that teaches you preparation and determination, a will to win, and teamwork. Those qualities also come into play every day at this company and have been key to restoring the luster to Sandoz in the United States.”