Last month Jimenez talked to Senior Writer Julie Segal about Novartiss plans to weather global changes in health care and how a consumer products veteran learned the science of drug discovery.Institutional Investor: You started out as a swimmer. Its amazing how many corporate executives were competitive athletes.Jimenez: When youre a competitive swimmer, you need to set a goal for yourself at the beginning of the year, and usually that means either placing in the top five or making it to the Olympic trials. And then you work incredibly hard the whole year keeping that objective in focus. So when I think about how we run the company today, its ensuring that we have a vision for the future and clarity around what were trying to achieve, and then working very hard to achieve it. You have a long history in the consumer products world. A skeptic would say, What does that give you in health care? I sat on the board of another health care company when I was in the consumer packaged goods industry, and I was fascinated with what was happening in health care. But I knew I had to bridge that CPG background into health care. I joined Novartis as head of their consumer health business, which is over-the-counter drugs and businesses that were more branded than the innovative pharmaceuticals business. I found that to be a very good bridge. But shortly after I joined the company, the board asked me to run the pharmaceuticals division, and I just about fell out of my chair. I said, Im not a scientist, and Im not a physician.And thats actually why they gave it to me. The analogy is that in CPG youre always looking at the external environment because things are moving very quickly and your competition is changing, the environment is changing, and you have to change. And they went after that profile to run the pharmaceuticals division. Tell us how you learned the science.I brought specialists in to help me early in the morning, before the day started. For example, we would spend an hour to two hours between 6:00 a.m. and 8:00 a.m. and go disease area by disease area for me to really understand the disease that we were operating in, our drug candidates and their mechanism of action, and the biology behind the mechanism. That helped me get up to speed on our portfolio, on the disease areas that we were working in and the whole drug discovery and development process. Talk about how youve changed the divisions positioning to an external focus.When I first went into the pharma division, I found that it had had great success for ten years and double-digit sales growth, so people in the organization knew the model they were working with was very successful. But it was a model for an external environment that was the past and not necessarily the future. Then, pharma represented 70 percent of our business, whereas it now represents 50 percent. The business would target broad therapy areas that had very large patient pools, and then it would develop one particular drug, like Diovan, one of our antihypertensives. Then, with large field forces, it would create demand for and knowledge of this drug among physicians. That model worked at a time when the FDA was willing to approve drugs that were only incrementally better and when payers were willing to reimburse for drugs that were incrementally better. Then the world changed. The FDA, after [arthritis drug] Vioxx [was pulled from the market by Merck & Co. in 2004] and a number of other events, became much more concerned about safety, and the balance between safety and efficacy shifted slightly. You had payers that were not willing to reimburse incrementally better therapies anymore and physicians that didnt want to see seven sales reps from Novartis. Talk more about changes in the health care industry. The first thing that I did when I became CEO was to step back and ask, Are we still in a growth industry? If you look at the basic trends, we are absolutely in a growth industry you just look at the aging population and the increase in chronic illness. By 2020 there will be 3 billion people on earth who are clinically obese, and we know that there is a high correlation between obesity and diseases that lead to increased demand for health care. But the big question is who is going to pay for this. Many governments, particularly in Europe, are incredibly debt-strapped, and theyre trying to reduce their spending on health care at a time when the trends would say that demand is going to increase. How do you balance being part of the cost solution and making money on this opportunity of an aging population?If you have an innovative therapy that can potentially change the practice of medicine, it will be reimbursed by every major reimbursement agency. A good example is Gilenya, our multiple sclerosis drug that we launched just a year ago. Even in Greece, where the debt crisis is the most acute, we have received approval for reimbursement on Gilenya, and this is a fairly expensive therapy. Its because its creating medical advancement. The other thing that we have to do is help the reimbursement agencies cap their total spending on a particular therapy. You have a unique approach to R&D. Talk about your commitment as well as the risks of high R&D spending. Many of our peers are backing away from heavy internal investment in R&D, partly because they have not gotten the return on that investment, so probably rightly so. But we are making the commitment to keep our research and development spending at about 20 percent of pharmaceuticals division sales, which would put us at the very high end of the industry. The reason for that is that our track record is better than most. For example, at the preclinical stage it takes us about six new compounds to come up with one that will eventually launch, whereas the average in the industry is about 23. Because we have that greater productivity, were willing to invest and find the right people to keep it strong. You cant be a pharmaceuticals company with patents and not have a huge rejuvenation of your pipeline. If you dont do that, youre going to see patent cliffs that you cant overcome, and were seeing that now in the industry. But weve made the commitment to invest. We have one of the best pipelines in the industry. And our newly launched products account for about 25 percent of our total sales, which have a run rate of between $55 billion and $60 billion a year, so its significant productivity. Novartis has an aggressive plan to push into emerging markets. What are the lessons learned so far?That every one of those markets is very different. You cant have one emerging-markets strategy. For example, in China were investing heavily in research and development and building a commercial capability that is different from the commercial capability in India. Were not investing very heavily in R&D in India because the country has yet to show an enforcement of intellectual property that we would require. You have big plans for China.
Were building one of the largest research and development institutes in China in Shanghai, and were spending about a billion dollars. Our 14-building complex there will house scientists who study epigenetics and some diseases that are endemic to China. Were using this research and development base to build Novartiss presence in China as if it were a local company. In the old days Chinese scientists would go to the U.S. to be educated and work there for ten years and come back to China. Were finding now that some of the best Chinese scientists are not even leaving the country. Theyre being educated at universities in China, and then they want to go to work there.