Sales: CHFr 35.80 billion ($22.21 billion) (2000)
Stock Exchanges: Zurich New York
Ticker Symbols: NVS (NYSE); NOVN (SWX)
NAIC: 325412 Pharmaceutical Preparation Manufacturing; 541710 Research and Development in the Physical, Engineering, and Life Sciences; 621511 Medical Laboratories; 541380 Testing Laboratories
Novartis AG was founded in 1996 with the merger of Ciba-Geigy Ltd. and Sandoz Ltd. Based in Basel, Switzerland, Novartis is an international leader in the development and marketing of Pharmaceuticals and nutrition products, in addition to operating a number of research institutes dedicated to the study of gene therapy. Although the controversy surrounding the emergence of genetically-modified foods in the late 1990s compelled the company to spin off its agribusiness holdings in 1999, entering the 21st century Novartis was poised to become a major player in the booming U.S. pharmaceuticals market, with a number of potential “blockbuster” drugs ready to be launched in 2001-2002.
The History of Ciba-Geigy
In the early years of the 20th century, the world’s strongest chemical industries were in Germany, the United States, and Switzerland. German companies, fearful of losing their leading position to rapidly advancing American firms, openly colluded and coordinated business strategies. After World War I the German companies formed a cartel, the notorious IG Farben. In order to remain competitive with the Germans, the three largest Swiss chemical companies, Ciba Ltd., J.R. Geigy S.A., and Sandoz Ltd., formed a similar cartel called Basel AG. This trust lasted from 1918 to 1951. By 1970, however, market conditions led Ciba and Geigy to merge, forming one of the world’s leading pharmaceutical and specialty chemical companies.
Geigy was the older of the two companies—one family member was in the drug business as early as 1758. Through several generations, the Geigy family had married into the prosperous silk manufacturing establishment in Basel and then became established in the dye trade in 1883. Only a few years later, the Geigy family set itself apart from other dyers in Basel by embracing newly discovered synthetic dying processes.
Several years earlier, in 1859, a French silk weaver named Alexander Clavel moved to Basel, where he established a dyeworks called the Gesellschaft für Chemische Industrie im Basel, or Ciba. In 1884 Clavel abandoned silk dying for a more lucrative trade in dyestuff manufacturing. Ciba gained a reputation for Fuchsine, a reddish purple dye, and Martius yellow.
By 1900 Ciba was the largest chemical company in Switzerland. With a major alkali works located at Monthey, it was one of the only Swiss manufacturers of inorganic dyes. Ciba, however, started a limited diversification into the pharmaceutical business with the introduction of an antiseptic called Vioform. Between 1900 and 1913 net assets quadrupled while profits nearly tripled. During this period, Geigy remained steadfastly committed to organic dye production; some of the dyes were still derived from coal tar.
Early in the century both Ciba and Geigy established factories in Germany, due in part to a labor shortage in Switzerland, but also to avoid enforcement of environmental laws designed to reduce pollution in the River Rhine.
Until World War I, German chemical companies dominated the world dye trade with a 90 percent market share. Those companies, including BASF, Hoechst, and Bayer, could easily have run Swiss competitors out of business through price competition; they had proven their ability to hold back the American chemical industry in its infancy. Instead, Ciba and Geigy developed practices that would permit international expansion while not provoking the Germans. Central to this strategy was the abandonment of bulk dye production (a German specialty) in favor of more expensive specialty dyes.
In time, the German companies developed a vested interest in the survival of their Swiss counterparts. Eighty percent of the raw materials used by the Swiss companies came from Germany. In eliminating Swiss competitors, the German companies would eliminate customers whose capacity they could not economically absorb. Furthermore, competition among German companies to fill a sudden void left by the Swiss could have destabilized the careful balance maintained by the cartel. As Swiss companies became acclimated to the German system, they were granted certain privileges, such as an exclusive right to export to Germany. Cooperation between Swiss and German companies also took the form of an occasional profit-sharing pool, as the one that existed between Geigy, Bayer, and BASF for black dye.
The onset of World War I in Europe in 1914 severely upset the equilibrium that had existed between Ciba, Geigy, and their German counterparts. Unable to secure raw materials and chemical intermediaries from German suppliers, factories in Basel were forced to suspend dye production. The Swiss later negotiated an agreement with the British, who had been dependent on German dyes and were unprepared for their trade embargo. The British agreed to supply the Swiss with raw materials on the condition that Swiss dyes would be sold preferentially to Britain. While Swiss factories in Baden were seized by the German government, the Swiss were free to export to the lucrative (and formerly German) markets in Britain and the United States and to establish factories in France and Russia.
Ciba’s profits increased dramatically, from SFr 3 million in 1913 to SFr 15 million in 1917. While the end of the war reopened world markets, it also found the industry in a severe state of overcapacity. By 1921 Ciba’s profits had fallen to SFr 1 million. At this time the German companies decided to reform their cartel, this time under the aegis of a large holding company called IG Farben. Ciba, Sandoz, and Geigy were invited to join IG Farben but, true to Swiss neutrality, elected instead to form their own cartel, Basel AG.
Basel AG, founded in 1918, was fashioned after IG Farben. The group consisted of Ciba, Geigy, and Sandoz—virtually the entire Swiss chemical industry. The agreement mandated that all competition between the three companies would cease, technical knowledge would be freely shared, and all profits would be pooled. Ciba would receive 52 percent of the group’s profits, while Geigy and Sandoz would each be entitled to 24 percent. Any sales between the companies were to be invoiced at cost, raw materials would be purchased jointly, and the manufacture of any product would be assigned to whichever company could produce it at the lowest cost.
From the cartel’s inception, Geigy’s weak market position was a source of tension for its partners. Geigy still produced vegetable dyes, which were gradually losing market share to organic dyestuffs. Despite Sandoz’s contention that it was being forced to subsidize Geigy, Basel AG remained stable. In fact, it was considered more successful than the larger and more powerful IG Farben. All three firms invested their profits into a broader range of chemical interests, including chemicals and Pharmaceuticals. By 1930 these divisions contributed more than one quarter of the group’s profits. A joint venture between Sandoz and Geigy led to the establishment of the Cincinnati Chemical Works, a subsidiary that gave Basel AG a tariff-free foothold in the American market.
In 1929, placing profit before independence, Basel AG joined with IG Farben to create the Dual Cartel. French dyemakers joined the group shortly afterwards, forming the Tripartite Cartel. In 1932, with the addition of the British cartel Imperial Chemical Industries, the group was again renamed the Quadrapartite Cartel. This pan-European cartel existed until 1939, when World War II forced its dissolution.
Due to the secrecy characteristic of Swiss firms, little is known about Basel AG’s activities during the war; the company had subsidiaries in both Allied and Axis nations. At one point, Ciba angered its partners by placing its shares in Cincinnati Chemical Works under the custody of an American trust. Apparently fearing the eventual seizure of those shares by the alien property custodian, Geigy and Sandoz protested in American courts but were unable to retrieve Ciba’s shares.
In 1939 Dr. Paul Mueller, a researcher with Geigy, discovered the insecticidal properties of DDT. Originally thought safe enough to be sprayed directly on refugees to eradicate lice, DDT was considered a“wonder chemical.” Research during the war led to the development of several ethical drugs, including Privine, a treatment for hay fever, and Nupercaine, a spinal anesthetic used in childbirth. The companies also developed drugs for treatment of high blood pressure and heart disease.
After the war Ciba notified Geigy and Sandoz that as a result of U.S. antitrust laws, the 1918 agreement could not be respected among subsidiaries in the United States. Geigy made a similar declaration regarding American assets in 1947. Two years later Sandoz again raised the issue of cross-subsidization and proposed that the cartel be dissolved. Geigy opposed the motion, but Ciba, unwilling to abandon its lucrative markets in the United States, eventually sided with Sandoz; the postwar environment no longer justified cartelization for self-protection. Basel AG was finally dissolved in 1951.
We, at Novaras, are committed to improving health and well-being through innovative products and services. We aspire to capture and hold a leadership position in all of our businesses with a strong, sustainable performance based on continuous innovation. Our long-term success is founded on meeting the expectations of all our stakeholders —our customers, our people, our shareholders and the communities in which we live and work. This is who we are.
Geigy’s poor financial performance called into question its survivability outside the cartel. During the 1950s, however, the full market potential of DDT was realized. Suddenly profitable, Geigy expanded its market in agri-chemicals by introducing a corn herbicide called triazine.
Both Ciba and Geigy grew steadily during the 1950s. Between 1950 and 1959, Ciba’s sales grew from SFr 531 million to SFr 1.02 billion, and Geigy’s grew from SFr 260 million to SFr 738 million. By 1960 both Ciba and Geigy were diversified manufacturers, competing directly in pharmaceuticals, dyes, plastics, textile auxiliaries, and agricultural and specialty chemicals. Each year Geigy’s sales grew stronger, until in 1967 the company overtook Ciba.
Although older than Ciba by 25 years, Geigy maintained a more youthful image. While Ciba sold itself as the company “where research is the tradition,” Geigy recruited engineers with the slogan, “future with Geigy.” But in 1970, while Ciba and Geigy personnel were quibbling over their respective talents, the leaders of both companies were discussing a possible merger.
The idea to merge was first raised when the two companies jointly established a factory at Toms River, New Jersey. With increasingly difficult conditions in export markets—particularly the United States—officials of the two companies began to explore the benefits of combining their textile and pharmaceutical research; Geigy’s strength in agricultural chemicals complemented Ciba’s leading position in synthetic resins and petrochemicals.
Ciba and Geigy were both in excellent financial condition. However, some of the same market conditions that had led them to form Basel AG in 1918 were once again prevalent. Competition against German companies in export markets had intensified. But it was as a defense against emerging petrochemical industries in oil-rich Persian Gulf states that the merger was most attractive.
The largest obstacle to a merger between Ciba and Geigy was U.S. antitrust legislation. Antitrust sentiment in the United States was so strong that federal prosecutors vowed to block the merger in Switzerland if it threatened to restrain American trade in any way. In order to win approval in the United States, Ciba agreed to sell its American dyeworks to Crompton and Know-les, and Geigy consented to turn over its American pharmaceutical holdings to Revlon. Despite further challenges, including one from consumer advocate Ralph Nader, the merger was approved.
Mechanically, the merger consisted of a takeover of Ciba by Geigy. This was done to minimize tax penalties amounting to SFr 55 million. Geigy’s chairman, Dr. van Planta, assumed the chairmanship of the new company, with Ciba’s chairman, Dr. Kappeli, serving as honorary chairman.
As promised, the Ciba-Geigy merger has proven “synergistic.” The more profitable but less diversified Geigy has benefited from Ciba’s research capabilities. Ciba, on the other hand, has profited from Geigy’s more modern approach to marketing and management. In the United States, the company’s American subsidiary passed the one billion dollar sales mark in 1978, and doubled that figure only six years later. The company’s worldwide sales that year were SFr 17.5 billion, 30 percent of which came from U.S. operations. Despite a 14 percent drop in profits between 1978 and 1980, Ciba-Geigy has maintained strong annual sales growth since 1981 ; profits as a percentage of sales was 8.1 percent in 1985.
In contrast to its impressive performance on the balance sheet, Ciba-Geigy has suffered a few problems with its public image. In the mid-1970s a Ciba-Geigy product marketed in Africa as an ordinary analgesic produced a horrifying side-effect: the loss of large pieces of flesh. In addition, its plant at Toms River discontinued production of Posgene in response to a Greenpeace campaign that warned the community of a possible accident similar in magnitude to the tragedy in Bhopal, India.
Troubles at Toms River continued; in 1982 the plant was added to the U.S. Environmental Protection Agency’s (EPA) list of “Superfund” cleanup sites when more than 120 chemicals were discovered in local groundwater. Then, in 1984, investigators found a leak in the ten-mile conduit leading from Ciba’s facility. The company discontinued dye, resin, and additive production at Toms River in 1986 and pleaded guilty to one charge of illegal waste disposal in March 1992. The corporation paid more than $60 million in fines and landfill and groundwater cleanup costs and agreed to make donations to New Jersey state conservation projects. The Toms River experience, combined with tightening European Community pollution regulations, helped convince Ciba-Geigy to cite the environment as one of its focuses.
- Alexander Clavel founds silk dyeing works in Basel, Switzerland.
- Kern & Sandoz is formed.
- Geigy is founded in Grenzach, Germany.
- Sandoz Chemical Company Ltd. begins operations in England.
- Arthur Stoll creates Pharmaceutical Department at Sandoz.
- Ciba, Sandoz, and Geigy form Basel AG cartel.
- Basel AG joins IG Farben to form Dual Cartel.
- Geigy begins producing insecticides.
- Dr. Paul Mueller discovers insecticidal properties of DDT.
- Geigy launches anti-rheumatic drug Butazolidin.
- Basel AG is dissolved.
- Sandoz launches neuroleptic drug Melleril.
- Sandoz forms research center in East Hanover, New Jersey.
- Ciba and Geigy merge to form Ciba-Geigy Ltd.
- Ciba-Geigy Ltd. acquires Funk Seeds International.
- Ciba-Geigy Ltd. forms biotechnology unit.
- Ciba-Vision is formed.
- Ciba-Geigy and Sandoz merge to form Novartis AG.
- Novartis divests seed and crop protection holdings.
Environmentalism became one of the cornerstones of Ciba’s “Vision 2000” strategy, a long-term plan to balance the economic, social, and environmental objectives of the company. The company logo was shortened to just “ciba,” but the formal name remained unchanged. The corporation was reorganized from functional/geographical units into 14 separate businesses with autonomous research and development, production, and marketing divisions. Ciba’s businesses could be grouped into three basic areas: healthcare, agriculture, and industry.
The company considered its Pharma, Plant Protection, and Additives divisions its primary businesses. Pharma, the single largest operating unit, ranked among the world’s top five pharmaceutical concerns. The corporation’s leading product was Voltaren, an anti-rheumatic. Ciba’s Pharma unit also claimed the second most popular smoking cessation patch, Habitrol (known as Nicotinell outside the United States). Habitrol encountered stiff competition in the 1990s, but was launched in France and Canada in 1992 and received over-the-counter status in the United Kingdom and Italy that year. One problem with transdermal nicotine patch sales was that the product created a self-defeating market: if the treatment worked, patients would eventually end the therapy; if the patches were ineffective, smokers would not buy them. Ciba-Geigy purchased the Dr. R. Maag plant protection business from Hoffman-La Roche in 1990 and achieved majority ownership of Bunting Group’s plant protection business in 1992.
Ciba-Geigy’s Self Medication, Diagnostics, and Ciba Vision units were recognized by the corporation as growth enterprises. Self Medication was expanded with the 1992 acquisition of Fisons’ North American business, and the purchase of Triton Diagnostics buttressed the Diagnostics group. Ciba Vision’s contact lenses, lens care products, and ophthalmic medicines ranked number two worldwide.
Ciba-Geigy’s Seeds and Composites units were considered long-term investments. In 1990, the company announced that it had successfully inserted marker genes into corn cells that produced fertile plants and passed the new traits on to viable seeds. The company thereby entered the race to genetically engineer plants with the most attractive traits.
The core industrial businesses of Ciba-Geigy in the early 1990s included Textile Dyes, Chemicals, Pigments, Polymers, and Mettler Toledo scales. The leading market positions of these businesses allowed them to function as “cash cows” for research and development in other areas. For example, Ciba’s textile dyes, additives, and Mettler Toledo units ranked number one worldwide in their respective categories.
Ciba’s reorganization included the divestment of its Flame Retardants and Water Treatments Chemicals businesses, valued at approximately $100 million. The units were sold to FMC Corp. in 1992. Ciba-Geigy’s sales and profits increased steadily in the late 1980s and early 1990s, exceeding SFr 22 billion in revenue and SFr 1.52 billion in profits in 1992. The majority of Ciba’s sales, 36 percent, were made in European Community countries. Overall European sales comprised 43 percent of the total, while North America contributed 32 percent, Asia constituted 13 percent, and Latin America made up seven percent.
In 1992, Ciba-Geigy was one of the five largest chemical companies in the world. While it was widely diversified within the industry, it maintained a steady emphasis on sophisticated chemicals—pharmaceuticals, plastics, pigments, or pesticides.
The Emergence of Sandoz Ltd
In 1886 two Swiss men, Dr. Alfred Kern and Mr. Edouard Sandoz, established a company in Basel in order to manufacture and sell synthetic dyes. Thirty years earlier the English chemist, William Henry Perkin, while trying to synthesize quinine from coal tar, came up with a purple dye instead. Two years later a Frenchman used a similar process to produce a magenta dye, and a new industry was born, ending the reliance upon purely animal, vegetable or mineral dyes. The new dyes were more brilliant than the old and lasted longer. They worked better on synthetic fabrics and they allowed for the development of new dye colors. It was an industry that many recognized as potentially very profitable.
Dr. Kern was 36 when the business was formed and was well known as a chemist specializing in dyestuffs trade. The two men purchased 11,000 square meters on the west bank of the Rhine River, built a manufacturing plant, and registered their business under the name of Kern & Sandoz, beginning work on the July 1, 1886. They had ten workmen and a 15-horsepower steam engine, and a certainty that they would succeed. There were some early setbacks: the dyes they originally had intended to produce, including Auramine, Victoria Blue, and Crystal Violet, required a process originated by Kern and an old partner, but that partner would not release his patent rights; another dye, Alizarine Blue, caused a reaction kettle to explode.
The company managed not only to survive but to expand. Kern developed new dyes and Sandoz traveled extensively, searching for more customers and markets for their products. In five years, from 1887 to 1892, their production increased from 13,000 kilograms of six different types of dyes to 380,000 kilograms of 28 dyes.
In 1893 the company began to change considerably. Dr. Kern collapsed and died of heart failure and, though Sandoz tried to run the company himself, two years later he was compelled to retire from active management for health reasons. In 1895 Sandoz and Company was converted into a limited company called Chemische Fabrik vormals Sandoz (Chemical Works formerly Sandoz) with a share capital of two million francs and with Edouard Sandoz as the first chairman of the board. At this point, the company was fortunate in its selection of managers and chemists to replace the founders; it was these people who, over the next 30 years, provided the company with direction and enabled it to expand. On the technical side, Arnold Steiner and Melchior Boniger developed and produced new products such as sulphur and azo dyes. Two talented sales managers, Werner Stauffacher and Georg Wagner, built a worldwide sales organization that expanded up to and even through World War I.
Although the company was fortunate in the appointment of its managers, it had many misfortunes, particularly from 1903 to 1909 (known among insiders as the “seven lean years”) when serious consideration was given by members of the board to the possibility of a merger or even liquidation. Prices for manufactured goods kept falling while those for raw materials increased. There were very expensive patent litigations with competitors as well. However, by 1910 profits began to increase again, reaching one half million francs in 1913, the year after the company’s shares first appeared on the Basel Stock Exchange.
World War I, and Switzerland’s isolation, resulted in some intriguing, and later profitable, opportunities for Sandoz. Germany prohibited all exports and, as a means to this end, blocked transit traffic so that everything from fuel to raw materials was in short supply. Wood, transported to Sandoz’s plant in horse drawn carts, was used instead of coal throughout the war. Intermediates, which had formerly been imported, were now blocked, but buyers somehow managed to get those purchased in England and the United States into Switzerland. The company’s own chemists were able to produce the others. After the war, the world chemical market that had formerly been dominated by the Germans was soon open to competition.
Sandoz profited under these circumstances. It purchased the Rothaus estate in Muttenz, just in case land was needed for expansion. In 1918, to circumvent the protectionist legislation in other countries which, in turn, inhibited Sandoz’s international expansion, Sandoz, Ciba, and Geigy formed the Association (Interessengemeinschaft) of Basel Dyestuff Manufacturers. They used this association primarily to establish jointly owned factories in many countries, although they also pooled profits to ensure that none of the members would be forced to declare bankruptcy. The original charter of the Association was for 50 years, but it was amicably dissolved after 33.
In 1911 Sandoz established its first subsidiary in England, and in 1919 established another in New York. In Switzerland the technical departments were restructured by Dr. Hermann Leeman (later president of the company from 1952 to 1963). The previous organization had been a system under which any chemist might be assigned to work simultaneously in research, manufacturing, and application. According to the restructuring, these three functions became separate departments, with the addition of a patent department.
A difficult period was again experienced during the early 1920s, when a crisis in the textile industry caused a recession in the dependent dyestuffs industry. The work force was at first put on part-time employment, but in 1921 nearly 30 percent of the employees had to be laid off. By 1929 business had been severely affected. However, partly due to the protection afforded by the Association, and partly to the company’s lead in research and development, Sandoz was able to set up numerous subsidiaries around the world providing a protective network against the failure of any one subsidiary. More significantly, the company embarked on a program of diversification into chemical agents for use by the textile, leather and paper industries, and later for the agricultural industry. Research in these areas produced industrial cleansers, soaps, softening agents, mercerizers, bleaches and, after World War II, fungicides, herbicides, insecticides, and rodenticides.
The most interesting part of the company’s diversification program began with the establishment, under Dr. Arthur Stoll, of a pharmaceuticals department. Already well-known for his work on chlorophylls, Dr. Stoll now became world famous for the development of a process for the isolation and for the discovery of the importance of ergotamine, an alkaloid of the rye fungus called ergot. The products developed from ergot-amine were numerous and sold steadily, so that the pharmaceuticals department gave stability to the company’s sales.
When World War II started, Sandoz Ltd., as it had been named in 1939, was financially secure with fully stocked warehouses, production sites and sales agencies throughout the world. Transportation of supplies would not be the problem it had been during the previous war, as supplies were now stocked near company plants. Fuel alone remained a problem. Mr. Leeman was credited with having advised the purchase of an old brown-coal mine. This purchase was finalized and, mining 18,000 tons of fuel for itself during the war, the company had solved its fuel problem. As soon as the war was over the Muttenz site was put to use, with a large plant for chemical and agrochemical production being built there. Little is known of Sandoz’s contribution, if any, to either side’s war effort, but from 1933 to 1948 company profits increased from SFr 48 million to SFr 253 million.
The international postwar expansion did not exclude Sandoz. The company’s only difficulty involved increasing production to keep pace with demand. In 1949 Professor Stoll was promoted to managing director. New headquarters were built which altered Basel’s skyline. In addition, automation was introduced in the production facilities. And in 1964 annual sales surpassed one billion francs for the first time. Each of the three divisions, including dyes, pharmaceuticals, and chemicals, prospered individually. The dyes division created dyes for the new plastics, paints and synthetic fibers now in demand, as well as the new foron dyes for polyester, and dyestuffs for mass dyeing.
The developments within the pharmaceuticals division caught the world’s attention. Sandoz concentrated heavily on its recently discovered synthetic compounds for the treatment of mental illness and migraine. Most of the products developed were based on ergotamine and included such drugs as Methergin, which stopped post partum hemorrhage, and Gynergen, which when injected early enough relieved the pain of migraine headaches. Certainly the most famous of these drugs was Delysid, also called LSD 25. In 1961 the company’s Jubilee Volume proudly reported the drug’s ability to cause “disturbances in the perception of space and time, depersonalization and color hallucinations” and that “it was destined to play a great role in experimental psychiatry.” Research in the hallucinogen called mescaline, derived from the Mexican peyote cactus, and in psilocybin, derived from certain mushrooms, was also aimed at producing drugs which might be used in conjunction with psychotherapy and, in particular, psychoanalysis.
Although the use of Delysid was strictly controlled, and issued only to authorized research centers, within 15 years of its discovery in 1942 it was being produced illegally all over America and Europe as a “recreational drug.” The consequences of a large number of people across the Western world experiencing what the Jubilee Volume referred to as “model psychosis” from LSD had yet to be fully understood. The company quickly curtailed its research into hallucinogens, but it would always be remembered as the company which “invented acid.”
The late 1960s and early 1970s continued to be a period of growth for the company; sales doubled from SFr 1.97 billion to SFr 3.61 billion. The massive size of the company required further organizational revisions. As a result, an executive committee took over management. In 1968 the dyes and chemicals divisions were amalgamated and a new agro-chemical division was created. The company’s diversification also continued during this time. In 1967 a merger with Wander Limited of Berne added a nutrition department. Two years later, the takeover of Durand & Huguenin eliminated a neighboring competitor in dyes manufacturing. A hospital supply business was acquired and its activities combined, during 1976, with those of Rhone-Poulenc in a joint venture. These acquisitions and mergers were engineered by one of the few nonchemist presidents of the company, Carl Maurice Jacotett, a lawyer’s son from Neuchatel who had studied theology and philosophy before going into business. During his short presidency, from 1968 to 1976, the work force increased from 6,345 to over 33,000 people, making Sandoz one of the world’s largest pharmaceutical companies.
The oil crisis of 1973, and the consequent rise in prices for raw materials and energy, dramatically affected Sandoz and other manufacturers who could not possible raise the prices of products high enough to cover costs. In 1975 a five year recession began, which led to another review of company structure, this time to reduce overhead and streamline organization. A steady reduction in the number of personnel and a firm control of wage increases helped to decrease losses. Continued diversification and acquisitions soon increased both equity and profit. Sandoz entered the seed business with the acquisition of Rogers Brothers and Northrup King Company (U.S.A.) and Zaadunie B.V. (Netherlands). In 1982 Wasa (Sweden) was acquired, Sodyeco and Zoecon (U.S.A.) in 1983, and Master Builders (U.S.A.) in 1985, the last introducing the company into yet another market, that of chemicals for the construction industry.
By 1975 a department of ecology and safety had been set up in Basel to establish and supervise guidelines throughout the company and its holdings. An effort to develop products with low environmental impacts was also initiated. However, Sandoz received bad publicity for an environmental disaster at one of its Basel plants. Near the end of 1986, when the company was celebrating its centennial, a large amount of toxic chemicals spilled into the Rhine River killing fish and shore life from Switzerland through West Germany to The Netherlands. Sandoz entered 1987 with sales over SFr 8 billion, profits over SFr 500 million, and an equity of more than SFr 4.5 billion.
The 1996 Merger of Ciba-Geigy and Sandoz
As international drug markets continued to expand rapidly in the 1990s, pharmaceutical companies realized that multi-national conglomerates, with diverse operations and worldwide resources, would dominate the future of the industry. Ciba-Geigy and Sandoz were not blind to this trend, and in early 1996 the two companies announced their intention to form a new corporation, Novartis AG. At the time it was the largest merger in history, with the combined value of the two companies exceeding $70 billion. The goal of Novartis—the name was derived from the Latin novae artes, or “new skills”—was to become a world leader in the field of “life sciences.” With the merger, Ciba and Sandoz were creating the world’s largest supplier of crop-protection products, and the second largest pharmaceutical company.
The size and scope of the deal, however, raised concern among regulatory agencies, both in Europe and the United States. Because many of the two companies’ principal operations overlapped, particularly in the pharmaceutical, crop protection, and animal health sectors, the European Union (EU) launched an in-depth probe into the merger in May 1996. In July the EU approved the deal, on the condition that the companies divest a number of their animal health and agricultural chemicals interests, in addition to using the new company’s considerable influence to insure competition in the field of gene therapy. To gain Federal Trade Commission (FTC) approval in the United States, the company shed a large portion of Ciba’s dominant share of the U.S. crop protection market, while providing further reassurances of competitiveness in the future gene therapy business. To this latter end, the company reached a licensing agreement with rival Rhone-Poulenc Rorer for certain gene therapy patents, and in December 1996 Novartis AG was officially incorporated.
The new company’s focus was on biotechnology, and the wide range of applications for genetic research. The FTC projected that the market for gene therapy, while still insubstantial in the late 1990s, had the potential to reach $45 billion by 2010, and Novartis was intent on becoming a dominant player in this burgeoning industry. The future growth of the industry, however, was far more promising in the United States. Patent procedures for biotechnology inventions were complicated and expensive in the European Union, with costs approaching $120,000 per patent, compared to $13,000 in the United States. Fearing that this discrepancy would inevitably drive the majority of biotech research to the United States, the European Chemical Industry Council (Cefic) issued a directive in May 1997 that called for the simplification of patenting procedures. While the EU eventually adopted many of the industry’s recommendations, the effort encountered strong resistance from the public, which remained wary of genetic research in the wake of the scare over “mad cow disease” in the early part of the decade. To help assuage these fears, the EU passed a law in September 1997 requiring that all seed and food products carry labels stating whether or not they contained genetically-modified materials.
In the midst of this controversy, Novartis was searching for ways to establish a stronger research presence in the United States. In April 1998 the company announced plans to build a research institute in San Diego dedicated to the study of human genes; a second lab, devoted to plant genetics, was announced in July. At the core of the company’s human gene research was the imminent completion of the Human Genome Project; the company wanted to move beyond the mapping of genes, to devote itself to the study of how genetic material functioned. At the same time, the company’s plant research remained focused on the development of genetically-modified, herbicide-resistant crops. Novartis remained a worldwide leader in this field, becoming the first company to sell genetically-modified white corn seeds in the United States in May 1998. In June, its Bt-11 modified corn was approved for sale by the European Union.
The late 1990s witnessed a dramatic shift from Europe to the United States in the pharmaceutical industry. Part of the problem again involved more stringent regulatory policies in Europe, where pricing standards were strictly governed, and there were few incentives for innovation. The States were also quicker to realize the massive growth potential of so-called “lifestyle drugs” like Viagra and Prozac, an area where the European firms were lagging behind. In the hopes of seizing a sizable piece of the booming U.S. market, Novartis Pharmaceuticals devoted itself in the latter half of the 1990s to the development of a number of potential “blockbuster” drugs, including Zelmac, an irritable bowel medicine, and Visudyne, a treatment for macular degeneration, the most common cause of blindness in people over 50.
Unfortunately, a series of setbacks struck the Novartis agribusiness sector in the late 1990s. The company’s initial success with its genetically modified crops was hit hard by a report released in the United States in May 1999, which claimed that pollen from genetically-modified corn was responsible for wiping out large populations of Monarch butterflies. The EU quickly suspended approval processes for genetically-modified seeds pending further investigation, and agribusiness stocks plummeted. With public skepticism over genetically-modified food still a powerful force at the turn of the century, Novartis decided to divest its agribusiness holdings in order to focus on the pharmacological and therapeutic applications of biotechnology, and in late 1999, the company’s seed and crop protection operations merged with a British-Swedish company to form Syngenta.
A restructuring of the company’s pharmaceutical operations followed in July 2000, and by the early part of the new century the company was poised to launch eight new drugs, including Starlix, which treated Type-2 diabetes, and Femara, a breast-cancer treatment. With the merger of pharmaceutical giants Glaxo-Wellcome and SmithKline Beecham in December 2000, the success of Novartis’s potential blockbuster drugs, in particular Starlix and Zelmac, seemed even more critical to its future as an international leader in the pharmaceutical industry.
Syngenta AG (Switzerland; 61%); Wesley Jessen VisionCare, Inc. (U.S.); SyStemix, Inc. (U.S.); Gerber Products Company (U.S.); Genetic Therapy, Inc. (U.S.); Novartis Pharmaceuticals Corporation (U.S.).
Principal Operating Units
Novartis Pharma AG; Novartis Generics; Novartis Consumer Health; Ciba-Vision; Novartis Animal Health.
Merck & Co., Inc.; Aventis; AstraZeneca plc; Pfizer Inc.
Buckley, Neil, “More on Gene-Modified Food,” Financial Times (London), July 25, 1997.
Capell, Kerry, with Heidi Dawley, “Healing Novartis,” Business Week, November 8, 1999.
Enri, Paul, The Basel Marriage: History of the Ciba-Geigy Merger, Zurich, Switzerland: Neue Zurcher Zeitung, 1979.
Fisher, Lawrence M., “Two Deals Extend the Financial Frontiers of Gene Therapy,” New York Times, January 14, 1997.
Ford, Peter, “Wary Europe Enters Biotech Age,” Christian Science Monitor, June 10, 1998.
Gebhart, Fred, “Skin Patch Makers Fight to Be No. 1 in War on Nicotine,” Drug Topics, January 20, 1992, p. 26.
Graham, David E., “Plant Genetics to Grow Here: Swiss Company Announces $600 Million Biotech Lab,” San Diego Union-Tribune, July 22, 1998.
Hall, William, “Sandoz and Ciba to Sell Part of U.S. Business,” Financial Times (London), August 29, 1996.
Hunter, David, “Ciba-Geigy: Back to the Roots for Renewed Growth,” Chemical Week, June 21, 1989, p. 21.
Kirschner, Elisabeth, “Ciba-Geigy and New Jersey Settle Toms River Battle,” Chemical Week, March 11, 1992, p. 14.
Lichtenstein, William, “The Toms River Experience,” Chemical Engineering, April 1991, p. 45.
McCarthy, Joseph L., “Alex Kraurer: Ciba-Geigy,” Chief Executive, July/August 1992, p. 20.
Michaels, Adrian, “Novartis Hopes New Drugs Will Boost US Sales,” Financial Times (London), February 15, 2001.
Morris, Gregory D., “Ciba-Geigy Enters the $1.5 Billion/Year Corn Biotech Race,” Chemical Week, September 12, 1990, p. 12.
Shon, Melissa, “Nicotine Patch Market Takes a Fall, But Why?,” Chemical Marketing Reporter, September 14, 1992, p. 5.
Wilsher, Peter, “The Feeling Grows That Going Green Is Good for Business,” Management Today, October 1991, p. 27.
—updates: April S. Dougil; Stephen Meyer