Novartis, Trying Not to Burn the Hamburger, Increases its Bet on the Bay Area

4/19/11Follow @xconomy

One of the more memorable quotes I’ve picked up on the biotech beat came in a 2004 story about the company once known as Chiron. Speaking of Emeryville, CA-based Chiron’s $700 million acquisition of Pathogenesis in 2000, a Seattle researcher said the following:

“Chiron bought filet mignon, turned it into hamburger, and now it’s burning the hamburger.”

That comment from Arnold Smith, a researcher now at Seattle Children’s Hospital, was made after Chiron had sliced and diced up the Seattle operation, fired a lot of people, and generally drained the local site of its former verve. Rah-rah headlines about the deal had faded into distant memories, and most people had forgotten about the empty platitudes mouthed at the time. The comment taught me a lesson: Pay little attention to what is said when a big acquisition is announced. Pay close attention to what actually happens over the years.

That little quote popped to mind a few weeks ago when I visited the Emeryville offices that were once home to Chiron. It’s been almost exactly five years since Chiron itself agreed to be acquired by the Switzerland-based healthcare giant Novartis for $5.4 billion. So when Novartis invited me over to show me around and meet with the new local management team, I figured it was a good time to ask whether a place that was once considered filet mignon had been able to avoid the fate of becoming charred hamburger.

Chiron, as many remember quite well, was one of the pioneering companies of the biotech industry and the Bay Area life sciences hub. It suffered from a disastrous contamination at a flu vaccine factory in the U.K. in November 2004, and about nine months later, Novartis offered $4.5 billion to obtain full control of Chiron. Shareholders balked initially, but Novartis sweetened the deal and ended up taking over in April 2006. Within days, nine of the 12 senior Chiron executives walked out, and there were rumblings about the possibility of 1,000 layoffs, according to a San Francisco Business Times story at the time, although the final tally was more like 500 job cuts.

Like most acquisitions, people in the broader community, and those in the media, eventually lost track of who was doing what at the Emeryville company under its new corporate overlord.

Novartis' Daniel Parera (left) and Eric Whitters

Lots of things got switched around in various corporate re-organizations, which frankly made my head spin. As I gather, vaccines moved to Cambridge, MA, yet infectious disease headquarters is in Emeryville. Blood-based DNA screening diagnostics are in Emeryville, while molecular diagnostics and companion diagnostics for therapeutics are in Cambridge. Get all that?

Regardless of how dizzying the org chart may be, the Emeryville site has started to grow again under Peter Maag, who became president of Novartis Diagnostics and the head of the Emeryville site in 2009. The local operation now has about 850 employees, about 200 more than it had a couple years ago. Maag has a new management team working under him, many of whom I met on my tour—Daniel Parera, the VP and global head of development for Novartis Diagnostics; Eric Whitters, the global head of research for Novartis Diagnostics; and Emma Lees, the executive director of oncology and the Emeryville site head for the Novartis Institutes of Biomedical Research (NIBR). The operation is expected to get even bigger over the coming year, as about 150 new people are joining a consolidated infectious disease unit which Novartis has hired UCSF researcher Don Ganem to lead.

Whitters pointed to the recruitment of Ganem, a Howard Hughes Medical Institute researcher, as a sign of the new commitment to infectious disease research in particular in the Bay Area. Ganem, who has worked on understanding the basics of how viruses spread and cause all kinds of damage, will be setting up on the same campus where Novartis produces its bread-and-butter DNA-based diagnostics. These tests are used to screen about 80 percent of the U.S. blood supply for pathogens like HIV, Hepatitis B virus, Hepatitis C virus, and West Nile virus.

By strengthening its infectious disease research in Emeryville, Novartis hopes to support the blood screening business.

“We want to unify it under one banner, to make sure they work together in a productive environment,” Whitters says.

Novartis’ presence in the Bay Area isn’t just about one product line or what happens inside its walls on the Emeryville campus, Whitters says. The company wants to get better connected with the top academic groups at UC Berkeley, Stanford University, and UCSF. It sounds like there’s a lot of work to do on that front after years of letting relationships whither. Whitters, who has been at Novartis in Emeryville less than two years, says he has heard people at UCSF talk about how Chiron was once considered “UCSF East” because there were so many interactions between the company and the university. “We’re looking to extend that same kind of mentality today,” he says.

Doing that will take time. Whitters says the company wants to foster more connections by holding daylong innovation symposiums in Emeryville, where it will continue to invite top researchers from around the world to talk about big scientific challenges—the kind of thing that can invigorate the troops in-house. But to be productive, these informal exchanges have to flow in both directions, Whitters says. So Novartis also wants to contribute by sending company experts to the campuses, where they can teach basic business concepts like regulatory affairs, product management, and life-cycle planning that aren’t really covered that much (if at all) in graduate biology programs.

This sort of engagement isn’t new—Novartis and other pharma companies have set up shop in Cambridge, MA, specifically so they can rub elbows with top scientists at Harvard University and MIT. But that sort of activity hasn’t happened nearly as much in the Bay Area, from what I gather.

While there might be some PR value in being seen as a corporate citizen rather than a black box, getting engaged in the community is really about business. The pressure is on, as the future of Novartis, and its Big Pharma peers, depends on coming up with innovative new diagnostics and vaccines. Those advances come from people like Ganem and his friends in the world of infectious disease research. “We have to reinvent ourselves,” Whitters says.

Reinvention can go one of two ways, but at least there’s a coherent group of people at Novartis working together to avoid scorching the steak.

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