New skills, or in Latin, novae artes. More than a brand name, it’s a pledge to keep innovating by one of the global leaders in pharmaceuticals, Novartis, the Swiss giant born out of the 1996 merger of Ciba and Sandoz.
Headquartered in Basel, Switzerland, Novartis has steadily developed a reputation as a solid, well-performing company that continues to grow despite an up and down market. Its annual sales were over $20 bn last year and it has a current market capitalization of about $107 bn, placing it among the top five pharmaceuticals companies in the world. Moreover, Novartis is one of the fastest-growing pharmaceuticals companies in the critical US market.
Of course, the ongoing equity bear market has meant tough times for the pharmaceuticals industry as a whole – the World Pharmaceutical Index plunged by 20 percent last year alone. Novartis has also had to accommodate the crisis in confidence brought about by the high-profile problems at Swiss giants such as ABB, Zurich Financial and Swissair which have tarnished the once rosy reputation of Swiss firms. ‘For a while it seemed the Swiss clock wasn’t ticking the way that it once did,’ muses Dr Karen Huebscher, global head of investor relations at Novartis.
One of a kind
There are major differences in doing IR for a pharmaceuticals company compared to other sectors. Industry-savvy investors want to see not only the financial basics, but also the results of clinical trials on new products.
‘You have to present your pharmaceutical pipeline to investors,’ says IR manager Nafida Bendali. ‘You provide them with facts like clinical trial results, such as efficacy and safety. You have to prove from a scientific point of view that what you’re developing is a drug that will have an appreciable impact in the coming years.’
And because such trials ultimately determine whether or not health authorities approve drugs for public use, the Novartis IR team needs to be in constant touch with the development side of the company for every single product. Drugs that are swiftly approved by the authorities usually translate into share price upswings. Luckily for Novartis, for some time now it has enjoyed a high rate of fast approvals by the US Food and Drug Administration (FDA) compared to its European and US rivals, and this has certainly helped it stay ahead of the pack, says Huebscher.
More often than not, IROs in the pharmaceuticals sector find that investment analysts have backgrounds as pharmacists, medical doctors or biologists. They have a deep understanding of products and health issues in general, says Huebscher, and that’s something any good pharmaceuticals IR team needs to address.
‘The best IR setup is a mix of people – some with a financial background and others with a background in product development. This is because our analyst counterparts have the same mix of skills,’ says Huebscher, herself a scientist. ‘Most of the sell-side analysts I speak to have a background in the biomedical field, so if you really want to speak at an even level then you need to have a similar experience.’ Even so, she adds, there’s always a need for a few good number crunchers on any IR team.
Novartis style
The IR team at Novartis has evolved leaps and bounds since 1997 when it comprised just four people, Huebscher recounts. Now there are ten. ‘We’ve become far more proactive. Looking back, we were far more reactive when we were a much smaller team.’
With a PhD in molecular biology, Huebscher made the jump from the research side of the company back in 1997. ‘At a very early point in my career I knew that I wanted to first get the background in basic science to understand what it was all about, and then move on to the business side,’ she says. ‘To start from business and then move into an understanding of science is far more difficult.’
Huebscher fondly recalls her early days in Novartis IR: ‘Back then I was doing 50 percent research and 50 percent IR. I was almost walking around my office in my white lab coat!’ At that time Novartis had three IR Managers in Basel and one in New York, but Huebscher has been heading the company’s global IR efforts since late 2000, and the team now has five people based in Basel, four in New York and one support person in Tokyo.
Because Novartis has IR managers on three continents hankering after investors, the importance of delivering a single coherent message to the market is enormous, says Huebscher. ‘No-one who goes to our people in New York will get a different answer than if they went to Basel,’ she notes.
While the primary role of the IR department is to ensure that existing investors are well informed of company developments on a timely basis, a significant proportion of time is spent with sell-side analysts. Managing expectations through regular but regulated briefings is key to keeping the wider market informed, notes Huebscher. It is important to maintain a balance between direct contact with investors and contact with analysts who can help form opinion.
Novartis’s emphasis on a balanced approach, says Huebscher, has resulted in general recognition from the market. A recent Reuters survey ranked Novartis as the favorite among buy-side analysts in the pharmaceuticals sector in Europe, for example. Indeed Novartis has begun to reach the top ranks in terms of disclosure and transparency, and it prides itself on taking a leadership role. In both 2002 and 2003 it was shortlisted for best IR by a European company in the US market in the IR Magazine US Awards. It was also a finalist for best IR by a non-Eurozone company in the IR Magazine Eurozone Awards 2002.
Modernizing
In terms of corporate governance, Novartis undertook the modernization of its board of directors and introduced a new corporate governance committee back in November 2001. Indeed the company had already implemented many of the Sarbanes-Oxley Act’s recommendations before it became law. Huebscher believes corporate governance is the theme of the year, with issues of corporate social responsibility also beginning to gain momentum.
‘Companies ignore these matters at their own peril,’ says Huebscher. ‘The pension funds we speak to always ask us about health and safety and environment issues as well as corporate governance. If I compare the kind of questions that we used to get five years ago to what we’re getting now, I can see ethical investors are no longer such a small part of the investment community, especially in the UK.’
These days providing drugs to developing countries is a hot topic, and Novartis’s recent response highlights the degree to which the group takes such issues to heart.
The weight of both issues is reflected in Novartis’s 2002 annual report, which has a lot more corporate governance information in a section of its own. ‘It’s extremely detailed,’ Huebscher points out. For example, the salaries of our top executives are in there, and they’re not just a lump sum. We have base salaries, options, shares, etc.’
When it comes to swiftly closing the books at the end of each year and producing the annual report, few companies can match Novartis. With a December year-end, the 2002 report was published on January 23. ‘In the last two years, we’ve tried to release our report as fast as possible. Last year it came out in February and this year it was earlier. Next year it will probably be out even earlier,’ Huebscher says.
Novartis, like all US-listed companies, reports on a quarterly basis, but Huebscher believes that a continuous communication flow between the IR team and investors is a growing imperative. ‘Investors are now far more short-term than they were five years ago. You used to be able to have investors meet with management twice a year, but now you need an ongoing dialogue and to visit them on an ongoing basis.’
Global efforts
With a significant proportion of its shares in the hands of Swiss nationals, Novartis needs to pay extra care to service them properly. ‘You should never underestimate your home investors, nor take them for granted,’ says Huebscher.
But with Novartis’s May 2000 listing on the NYSE, the IR team immediately understood it would have to step up its US efforts and benchmark the company against some of the most successful local and foreign companies there. Because the US generates 42 percent of Novartis’s commercial turnover, it has made sense to extend its investor base there as well.
‘We looked at Nokia, which has the majority of it shareholders in the US not Finland, and how it was able to position itself in the US market,’ Huebscher describes, adding that US investors now hold approximately 12 percent of Novartis shares.
Raising brand awareness among the US investment community has been a fundamental part of Novartis’s US strategy, says Kamran Tavangar, head of IR in the US and Canada. Indeed, Novartis realizes its brand recognition is still lower than US companies such as Merck, Pfizer and Johnson & Johnson. ‘For example, the Gerber baby product name is extremely well established in the US,’ says Tavangar. ‘If we tell investors Gerber is a Novartis company, then that’s a starting point. People say, I know those brands, I trust them and I can relate to them. What else do you have?‘
The IR web site has a ‘shareholders’ corner’ for retail investors, as Bendali describes: ‘We have innovative tools like the Virtual Body, which allows people visiting the site to better understand our key products and therapeutic areas in a user-friendly way. Our IR web site is not only a source of financial information but also a knowledge portal for those interested in the pharmaceuticals industry.’
One notable focus of Novartis’s global IR program is Japan, where efforts have substantially grown over the last two years. The initial idea behind going to Tokyo was that with so many Japanese companies in trouble, Novartis correctly assumed investors – mainly large Japanese banks – would be looking for more global opportunities to broaden their investment portfolios.
‘What’s been really good is that rather than this just increasing Japanese investment in Novartis, it seems to have had a positive impact on Novartis’s business interaction in Japan,’ says Huebscher.Novartis has since begun translating all its major presentations into Japanese, a process that obviously presents logistical challenges as well as significant time delays. ‘There’s always a time lag between us having the presentation ready and the Japanese version going up,’ Huebscher admits.
Besides Japan and the US, Novartis has traditionally had a strong standing in Europe’s major financial centers – London, Frankfurt, Paris and Zurich. But Huebscher stresses the rising importance of others such as Dublin and Edinburgh. ‘For example, institutions in Edinburgh led the way in investment outside of the UK and are well represented on our shareholder register,’ she notes. ‘And in the financial market, Dublin has taken exactly the same stance as it’s taken with other industries – it has given tax breaks to big institutions.’
In London, Novartis has sometimes found itself at a disadvantage next to locals GlaxoSmithKline and AstraZeneca, which have been long-time favorites. ‘The sell side feels very close to them. They’ve basically been brought up with their products!’ Huebscher laughs.
Looking back at the difficult times and the challenges ahead, Huebscher feels confident Novartis has made the most of the market downturn to improve its IR and position itself for the eventual upswing. ‘We’re going to remain one of the strongest performing pharmaceuticals companies,’ she says. ‘What we have to do now is get the message across for when we get back into the market again.’
What the analysts say
Novartis has always had one of the strongest investor relations teams. The level of financial disclosure Novartis has and the way it’s presented is exemplary. They’re knowledgeable and forthcoming and put you in contact with people in senior management if they don’t know the answers to things.
Duncan Moore, managing director for European healthcare and research, Morgan Stanley Dean Witter
Novartis certainly has some of the best disclosure that I’ve seen from any company within the pharmaceuticals sector. I’d say they’re the best out of all the drug companies in terms of disclosure of financial information, management, investor conferences and giving institutions access to the management.
Jane Henderson, analyst at MFS Investment Management
UK companies’ investor relations departments have usually been very strong and continental Europeans have been getting up to their standards slowly but surely. That’s the case with Novartis. Karen has built a good team, and they’ve become a lot more forthcoming, a lot more helpful in providing us the information we need
Anonymous UK sell-side analyst
