No­var­tis CEO talks about drug costs and do­ing ‘what’s right.’

No­var­tis CEO sug­gests fo­cus­ing on medicine’s value, not just cost

The Washington Post Sunday - - BUSINESS - BY LIL­LIAN CUN­NING­HAM lil­lian.cun­ning­ham@wash­

As sto­ries of jacked-up drug costs make news and dis­cus­sions of health-care re­form pep­per the cam­paign trail, No­var­tis chief ex­ec­u­tive Joseph Jimenez sat down with The Washington Post to talk about how he views his re­spon­si­bil­ity as leader of one of the world’s largest phar­ma­ceu­ti­cal com­pa­nies.

Jimenez, 55, spent his early ca­reer work­ing in the con­sumer pack­aged goods in­dus­try at com­pa­nies in­clud­ing Clorox and H. J. Heinz. In 2010, he be­came chief ex­ec­u­tive of Swiss­based No­var­tis, which brought in about $58 bil­lion in rev­enue last year with $10.2 bil­lion in profit. This in­ter­view was edited for length and clar­ity.

What do you see as your re­spon­si­bil­ity, and No­var­tis’s, for help­ing drive down drug costs?

Drug pric­ing is a very com­pli­cated topic. This is very high-risk ac­tiv­ity when you’re dis­cov­er­ing and de­vel­op­ing new drugs. When you look at the cost of de­vel­op­ment, it con­tin­ues to go up and up and up. So we price a drug based on the value it will bring into that mar­ket­place and also how its price com­pares to the other ther­a­pies on the mar­ket.

There’s been a lot of dis­cus­sion about drug pric­ing. What we have to do is we have to shift that con­ver­sa­tion away from the price to­ward the value. Like, what ex­actly is the value of this drug that is go­ing to re­sult in a pos­i­tive out­come? And is so­ci­ety will­ing to pay for that drug?

At No­var­tis, we take a lit­tle dif­fer­ent ap­proach than our peers. Not only are we a large, in­no­va­tive drug man­u­fac­turer, but we also are the sec­ond-largest gener­ics man­u­fac­turer. Many peo­ple ask, “Isn’t that schiz­o­phrenic?” be­cause gener­ics try to break the patent of the in­no­va­tive drug. I say it’s not in­con­sis­tent. We are pro-patent, be­cause that’s how med­i­cal science ad­vances: You in­vest, and you need time to re­cover that in­vest­ment. I also be­lieve at No­var­tis that the day that patents ex­pire, it’s our obli­ga­tion to of­fer a low-cost ver­sion in a generic form.

On the whole, do you think drug prices are go­ing to go up or down over time, as drugs get bet­ter and more per­son­al­ized?

You have to think about drug pric­ing in two ways. One is: “What is the ab­so­lute price?” But then also: “What is the ef­fect on the over­all health-care bud­get?”

Tech­nol­ogy has im­proved so much in drug de­vel­op­ment that we now can find ge­netic mark­ers on pa­tients to en­sure that they will ben­e­fit from our drug, and we’ll know those pa­tients who won’t ben­e­fit from the drug. For ex­am­ple, we just launched a new lung can­cer drug that only works in about 3 per­cent of pa­tients, be­cause only 3 per­cent have this par­tic­u­lar ge­netic mu­ta­tion. So we’re able to go to the pay­ers and say, “Yes, this is an ex­pen­sive drug in ab­so­lute, when you think about one pa­tient tak­ing this drug, but you’re not go­ing to waste one dol­lar on this drug, be­cause we’re only giv­ing it to 3 per­cent of this pop­u­la­tion and the im­pact on the bud­get is quite small.”

So in very sim­ple terms, does that mean the av­er­age per­son 10 years from now will likely spend the same amount as some­one to­day, but will just have bet­ter-tar­geted drugs?

No, I would say if you take the to­tal health-care spend­ing in the U.S. and look at how much is wasted be­cause they’re not tar­geted ther­a­pies, we can take a tremen­dous amount of waste out of the sys­tem. So the ab­so­lute price of drugs might go up for an in­di­vid­ual pa­tient with per­son­al­ized medicine, be­cause these are new tech­nolo­gies.

But if you can do that and at the same time elim­i­nate 50 per­cent waste or 75 per­cent waste, the to­tal im­pact on the health-care bud­get might be zero — or it could be less be­cause we’re tak­ing waste out. So you might see ac­tual unit cost go up, but you could see to­tal bud­gets go down.

What is one of the big­gest lead­er­ship chal­lenges fac­ing CEOs in the pharma in­dus­try to­day?

A pretty sig­nif­i­cant change in the com­mer­cial model will oc­cur over the next few years. If you go back 10 years, we had a very trans­ac­tional ap­proach — dis­cov­er­ing and de­vel­op­ing drugs, and selling those medicines to physi­cians and to sys­tems around the world. But the pop­u­la­tion is in­creas­ing and get­ting older, so health sys­tems are go­ing to be un­der in­creas­ing pres­sure from a cost point. We have to shift from that trans­ac­tional ap­proach to what we call an out­comes-based ap­proach.

Let me give you an ex­am­ple of what “out­comes” means. We just launched a new drug called En­tresto, which re­duces car­dio­vas­cu­lar death by about 20 per­cent. But we know that many pa­tients with heart fail­ure don’t op­er­ate in a way that would keep them out of the hos­pi­tal. So in­stead of just selling the drugs, we’re look­ing at things we can do to help pa­tients stay out of the hos­pi­tal — for ex­am­ple, some sort of re­mote mon­i­tor­ing, be­yond the pill, that would help the pa­tient un­der­stand if they need to en­ter the hos­pi­tal or not. Our tra­di­tional as­so­ci­ates would not nec­es­sar­ily know how to op­er­ate in that kind of a model.

From a lead­er­ship chal­lenge stand­point, that’s a big deal. It means hir­ing dif­fer­ent skill sets, but it also means mak­ing sure that we have the right train­ing and de­vel­op­ment in our cur­rent as­so­ciate pool.

Does this shift have to do with U.S. health-care re­form, or do you see that as a sep­a­rate trend?

It is truly a global move­ment, but the shift in the United States from fee for ser­vice to an ac­count­able care or­ga­ni­za­tion model, which is be­ing ini­ti­ated by the Af­ford­able Care Act, is also driv­ing this shift to­ward out­comes.

From a man­age­ment per­spec­tive, what’s one of the hard­est parts of get­ting a drug through the ap­proval process?

Pre­vi­ously, the only thing that you had to do was prove that your drug was safe and ef­fec­tive. Now, there is much more onus on us to prove that the drug de­liv­ers more than that and has a pos­i­tive pa­tient out­come. So one of the hard­est things we had to do in the de­vel­op­ment of En­tresto was to agree with the FDA on the end points of the trial. How are we phys­i­cally go­ing to mea­sure things like re­duced hos­pi­tal­iza­tion?

Your back­ground is in con­sumer pack­aged goods. How did you go from that to be­ing CEO of a pharma com­pany, and how did you quickly scale up your knowl­edge of this in­dus­try?

I was asked to sit on the board of a ma­jor phar­ma­ceu­ti­cal com­pany in Europe, be­cause they wanted some­body with U.S. ex­pe­ri­ence. I fell in love with the health-care in­dus­try, and the op­por­tu­nity pre­sented it­self to join No­var­tis as head of their over-the-counter drug busi­ness. That was a very sim­i­lar busi­ness to my back­ground, be­cause it deals with prod­ucts you would find in the aisle, like Ex­cedrin.

Very shortly af­ter that, I was asked by the board to run the very large phar­ma­ceu­ti­cal di­vi­sion, and I about fell off of my chair be­cause I said: “Look, I’m not a physi­cian. I’m not a sci­en­tist.” The board said back: “We have a lot of physi­cians and a lot of sci­en­tists. What we need is some­body who can look at how the world is chang­ing and how we should po­si­tion our phar­ma­ceu­ti­cal di­vi­sion to be suc­cess­ful in that new world.”

It was a very steep learn­ing curve at first. In fact, I hired a tu­tor to come in the morn­ings, be­fore work, to help me un­der­stand each of our drugs — how they phys­i­cally worked, the un­der­ly­ing dis­ease state.

Ear­lier this sum­mer, a big ProPublica in­ves­tiga­tive re­port came out about hos­pi­tals and health care. One thing they looked at was drug com­pa­nies pay­ing doc­tors to pre­scribe par­tic­u­lar drugs. What’s your stance on that prac­tice?

We’re a highly reg­u­lated in­dus­try, and there’s a clear line as to what you can do and can’t do. We have many, many field sales reps. We’ve spent a lot of time train­ing them on com­pli­ance. If you think about so­ci­ety’s ex­pec­ta­tions about com­pa­nies like No­var­tis, though, it’s changed over time. And what I tell my peo­ple is, do­ing what’s le­gal is not al­ways enough. We have to do what’s right.

A per­fect ex­am­ple: When we launch a new drug, one of the ways we com­mu­ni­cate that drug’s ben­e­fits is we would have a physi­cian talk to other physi­cians about the ben­e­fit of our drug. And we would ei­ther pay that physi­cian or we would cre­ate a sit­u­a­tion where it was a din­ner where the speaker came in and talked to his peers about the new drug. That’s per­fectly le­gal from a reg­u­la­tory stand­point. But think about if you’re a pa­tient and you see that ac­tiv­ity. You think, “Ismy physi­cian pre­scrib­ing this new­drug to me be­cause they re­ally be­lieve in the drug, or be­cause they just did a speaker pro­gram for some fee?”

It’s un­for­tu­nate, be­cause that’s a sit­u­a­tion where so­ci­ety’s ex­pec­ta­tions have changed to the point where even do­ing what’s le­gal is not do­ing what’s right. What we have to do is, we have to find new ways to ed­u­cate physi­cians about our new drugs. Those speaker pro­grams def­i­nitely served a pur­pose. Physi­cians would not know how to use En­tresto if we didn’t have peer-to-peer com­mu­ni­ca­tion of when the drug works, what kinds of pa­tients you treat.

There seems to be a rise in part­ner­ships be­tween pharma com­pa­nies and aca­demic labs. How do you think through the ben­e­fits and po­ten­tial down­sides — one of which, I imag­ine, is whether such part­ner­ships com­pro­mise over­all sci­en­tific in­de­pen­dence?

Aca­demic col­lab­o­ra­tions are very im­por­tant for the phar­ma­ceu­ti­cal in­dus­try be­cause we do not spend money on ba­sic re­search, we spend money on ap­plied re­search. When there’s ba­sic bi­ol­ogy that has to be un­der­stood, an aca­demic in­sti­tu­tion is go­ing to be much bet­ter at do­ing that than No­var­tis. If we part­ner with them, we can take that learn­ing and we can turn it into a drug.

We have many aca­demic col­lab­o­ra­tions. For ex­am­ple, our head­quar­ters for re­search is in Cam­bridge, Mass. It’s right across from MIT and very close to Har­vard. There’s a lot of col­lab­o­ra­tion that goes on. Prob­a­bly 70 per­cent of our new drugs that are launched are in­ter­nally de­vel­oped, and about 30 per­cent would come from ei­ther out­side aca­demic in­sti­tu­tions or out­side biotechs. So I think it’s crit­i­cally im­por­tant, and I don’t think it com­pro­mises ei­ther of us in terms of work­ing to­gether if we all have as our ob­jec­tive de­liv­er­ing against un­met med­i­cal need.

What’s one of the big­gest lead­er­ship lessons you learned the hard way in your own ca­reer?

I learned early on that it’s very im­por­tant not to be afraid of fail­ure, be­cause you’re go­ing to have a lot of it through­out your ca­reer. A good ex­am­ple was when I had worked my way up in a con­sumer pack­aged goods com­pany, and the gen­eral man­ager came in and asked me to work on new prod­ucts. The very first prod­uct I put into a test mar­ket failed. I thought my ca­reer was over.

I walked into his of­fice and I said, “Are you go­ing to fire me?” And he said, “Only if you don’t learn from this fail­ure. What did you learn from the test mar­ket? What did it tell you about the prod­uct and the way we mar­keted it? Now, go back and fix it.”

That was re­ally a huge les­son for me, be­cause at No­var­tis, we’re talk­ing about med­i­cal ad­vance­ment — so we fail ev­ery day. And in fact, our best peo­ple fail the most.

“Pre­vi­ously, the only thing that you had to do was prove that your drug was safe and ef­fec­tive. Now, there is much more onus on us to prove that the drug de­liv­ers more than that and has a pos­i­tive pa­tient out­come.”

Joseph Jimenez, chief ex­ec­u­tive of drug man­u­fac­turer No­var­tis

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