Text: Eric Johnson | Images: Marc Wetli | Magazine: Life & Science – July 2017
The cornerstone to Novartis – one of the world’s largest pharmaceuticals makers and one of Switzerland’s largest companies – is technical excellence. CEO Joe Jimenez explains how he pursues that, why organic growth is a necessity and where the industry is moving from transactional pricing to success fees.
Our business is all about the science. The core of Novartis is research and development, which is why we look for the best scientists around the world, no matter where they are and where they want to live. We go to them, rather than having them come to us, so we have R&D sites in Europe, the USA and Asia. The organising principle at Novartis is to find the best scientists, then let them discover and work their magic. What I want out of our scientists is brilliant science – I care less about their management skills. Still, I expect them to be proficient at managing programmes, people and resources. As for our business people, I expect them to be world-class managers and proficient at science. So on both sides, science and management, we want a combination of brilliance and proficiency.
We’re in an industry where people come to work because they want to help others. So we’ve engaged our associates by showing them examples of how we accomplish our mission, which is to preserve and to extend life. Three years ago, when we began to go through a major patent expiration, I started a programme called “Long Live Life”, in which we asked our associates to share personal stories of family, friends and colleagues who had been struck by disease and helped by Novartis. The stories that rolled in were moving – they really helped the associates to see our company’s purpose at an emotional level. This increases their motivation and engagement, especially when the company is going through a difficult time.
“The way to create value in this industry is to discover it yourself.”
Our talent competition is not against other “big pharma” companies, but against biotechnology companies. Some scientists believe they can have a bigger, faster impact at these small start-ups, because there they believe they can have more freedom. So, we are careful to give scientists the freedom to discover. I believe they have as much freedom here as at a biotech. They are free, because we are not too prescriptive in research – in fact, we keep the marketers away from the researchers. The former shouldn’t discourage the latter with false negatives. We keep our scientists free to discover, because that’s where new opportunities come up.
Born, raised and educated in California, Joseph Jimenez, Jr., started his career and made a name for himself in fast-moving consumer goods, first at Clorox, next at ConAgra Foods and finally at H. J. Heinz, where he was CEO for North America and Europe, successively. In 2007, he joined Novartis as a Division Head, from whence he was promoted to CEO in 2010. Jimenez was a world-class swimmer in his university days at Stanford, and he still churns the water in his family’s home pool near Basel, but nowadays more for fitness than for competition.
It’s not easy to measure the progress of science annually, because we work on ten-year product cycles. So to evaluate scientists, we have developed quantitative markers that indicate advancement along the way to a marketable drug. An important one is “Proof of Concept”, i.e. evidence that a certain molecule can achieve a therapeutic effect in humans. We’re constantly looking for new drug targets and new drug candidates, so every year we set targets for our researchers to deliver a specific number of Proofs of Concepts.
“Novartis is trying to shift from a ‘pay-by-the-pill’ approach to one where we are paid for what the pill delivers.”
The way to create value in this industry is to discover it yourself. So we expect 75 per cent to 80 per cent of our drug “pipeline” to be developed in-house, and the rest to be acquired or in-licensed. An important reason for this is the pricing of the latter. Pharmaceutical companies have become so big that they are trying to grow from an already high base, and at the same time we’re always fighting the revenue losses of patent expiration. So, everybody is chasing the acquisition candidates that are out there, and that’s created an astronomical increase in prices.
Formed from the 1996 merger of two legendary Swiss companies, Ciba-Geigy and Sandoz, Novartis AG has become a legend in its own right. Turnover in 2016 hit nearly USD 50 billion, while the number of employees (or associates, as Jimenez calls them) totalled 120,000 worldwide and 13,000 in Switzerland. Early on, the company divested its considerable interests in chemicals (now mainly held by BASF and Clariant) and agrochemicals (now Syngenta) to focus on pharmaceuticals. Annual revenues of Novartis’ four largest-selling pharmaceuticals sum to a bit more than USD 10 billion.
The average intelligence of a Novartis associate is off the charts. Sometimes, however, clever people complicate things to a degree that isn’t necessary. In my early years here, I remember an Innovation Management meeting where we were trying to decide whether a drug candidate should move to phase III trials, based on phase II results. After a long, astute discussion, the group moved to reconvene and decide in the following month. I said no: we have enough data, let’s conclude what they are telling us and make the decision now. So what I’ve tried to do is to simplify an overly complex set of processes that were put in place by really smart people.
Yes, this is a mixed story. On one hand, pharma is a growth industry, because populations are growing and aging. By 2030, we’ll have a billion more people, and one in three will be over 50: demand for healthcare will rise. On the other hand, the world’s healthcare systems can’t afford even the costs they have today. So, Novartis is trying to shift from a transactional “pay-by-the-pill” approach to an outcomes approach, where we are paid for what the pill delivers. For instance, our current heart failure drug reduces hospital stays massively. So we are saying to those who pay for hospitalisations: base our payments on that outcome of reducing hospital costs. It’s like a success fee. We’re trying this in many countries, including Switzerland, and in the long run we think the outcomes approach can take 25 per cent out of the cost of health care.
“Our business is all about the science.”
A long time. Proving outcomes requires a lot of data that some healthcare systems don’t have. Many systems are not yet interested in outcomes payment, because it would cost them more to track the outcome data than they would save in fees. But this is going to change as big data takes over. The ability to understand what a drug is delivering is getting easier and easier. More and more systems, such as Britain’s National Health Service, are collecting and centralising the inputs and outputs to understand what outcomes are and how much they cost and save. This will be the future of pharma.
