Novartis Invests Wisely in Hi Tech Smart Pill

Novartis (NVS) is ramping up its commitment to personalized medicine with a $24 million investment in Proteus Biomedical, a pioneer of high-tech pills featuring embedded ingestible sensors. Smart pills are a hot technology in the never-ending quest to improve drug delivery in novel, profitable ways.

Tiny but sophisticated, Proteus’ design can both monitor a patient’s vital signs and track compliance with prescription drug regimens. The pills transmit information to a microelectronic receiver worn either as a skin patch or implanted under the skin.

For Novartis, the benefits of such a technology are clear. As much as $290 billion, 13 percent of total health care expenditures, is added to the cost of healthcare annually by patients deviating from their prescribed course of meds according to a study by the New England Healthcare Institute. Giving doctors and insurers a mass-market tool for keeping patients on track while lowering overall treatment costs could allow Novartis a strong justification for charging premium prices. It should also help boost the company’s bottom line, since it and other pharmaceutical companies lose significant revenue from patients skipping out on their prescribed pills.

Placing a bet on a drug delivery technology with potential to be applied to a wide variety of products also fits with Novartis’ bigger picture diversification strategy, as illustrated by its recent bid for Alcon (ACL). Developing sources of non-drug revenue may take on critical importance as patents on the company’s drugs expire in future years.

Novartis says it plans to apply Proteus’ pharmaceutical technology to its organ transplantation drug business initially and has rights to apply it later in cancer and cardiovascular applications. The technology is currently in clinical trials with heart failure patients. The $24 million investment is in the form of cash and equity up front and forms an exclusive worldwide licensing and collaboration bond between the two companies.

Proteus, based in Redwood City, California, has some strong competitors, including Philips’ intelligent pill, or iPill. The iPill will target intestinal diseases such as Crohn’s disease, colitis and colon cancer. MicroCHIPS, based in Bedford, Massachusetts, has also developed a competing platform incorporating wireless biosensors and an experimental drug delivery system.