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Novartis CEO talks about digitized medicine

BASEL, Switzerland -- Sit down with the chief of the world's biggest pharmaceutical company, and pretty soon the conversation will turn to the coming together of technology and biology. Call it digitized medicine. There will be an app for that.

     Novartis CEO Joseph Jimenez also touched on his industry's rapid pace of consolidation and how Novartis is preparing for the future.

Q: Last year, merger and acquisitions seemed to transform the pharmaceutical industry. What was behind all of the activity?

A: For us, it was all about focusing our company on three big businesses -- Pharma, eye-care Alcon and generics Sandoz. Those are three leading businesses, and our view of the future is that ... health care is going to be difficult, because you've got an aging population. Many of the health systems around the world are going to be under cost-containment pressure. To win, you better be big in those sectors you compete, and have innovation power. If you can innovate, then you have global scale and are successful. For us, I talked to every CEO in the industry and said, "What are you trying to do with your portfolio? I'm trying to take my smaller divisions and make them bigger or find homes for them." That led to our transaction with GlaxoSmithKline (GSK), because by Novartis acquiring the oncology business of GSK, we take our No. 2 position and make it even stronger and GSK takes our vaccines business and they become No. 1 in vaccines. That's what behind [all of the activity]. It's [a matter of] trying to get bigger where we choose to compete.

Joseph Jimenez

Q: With the GSK transaction behind you, are you considering further M&As?

A: We are. We are considering M&A to build our three big divisions. Not very large M&A but what we call "bold on acquisitions," somewhere between $2-5 billion purchases, where we would just pluck them right into Pharma or Alcon to strengthen the portfolio. We will do more M&A.

Q: Novartis' business in emerging countries was quite good compared to other competitors. How do you forecast business in emerging markets?

A: Right now, I think we are growing faster in emerging markets than our peers for a couple of reasons. First, we have a very large generics business. That means that we not just offer innovative pharmaceuticals, but low-cost generics that are very important in China and Brazil. Our competitors don't have this. This gives us a benefit and enables us to grow. The second thing is ... on the innovator's side, many of the new products that we have launched have done very well. Lucentis is now selling very nicely in China. So we have two elements to help us, innovative pharma and generic. That's the reason why we are growing.

     How do we forecast? I think we have good momentum, we should see growth continue. I don't know whether it will be higher than 11%, or lower, but I don't think the economy slowing down is hurting us. Take Brazil for example, where there is very little economic growth. Our business was in the midteens, which was significantly above the economic growth rate. That's because health care continues to grow. All I know is that we think it will continue to grow at a faster rate than in developed countries.

Q: Some reports say that if companies are hungry, they will always eat others. Their strategy is to keep acquiring.

A: That's not our strategy. Our strategy is definitely to focus on organic growth, partly because we have a very good pipeline. If you look at our pipeline, it's among the best in the industry. So we have the luxury of being able to focus on innovation and organic growth.

Q: Roche, your competitor and like Novartis based in Basel, Switzerland, has shown relatively good financial results, excluding foreign exchange effects. Roche CEO Severin Schwan is always expanding the business. From your point of view, what is Roche's strength? Does it hold any lessons for you?

A: I think Switzerland is very fortunate to have two of the biggest health care companies in the world, right here in Basel. Think about Basel having Roche and Novartis [headquartered] in this small town. But we do like the healthy competition. I don't know if Roche learns from us, or we learn from Roche. But what we like to do is being competitors to each other, because it makes both companies better. When we see Roche take some action, we think about what we could do. When Roche sees us take some action, they also think about how they can improve their business. So I think it's good for the country.

Q: Is that the main reason why you stay in Switzerland, despite the strong Swiss Franc?

A: As long[as] conditions remain positive in Switzerland, this will be our base. Switzerland has a lot to offer -- very strong protection of intellectual property, good tax system and good labor laws. It's very attractive. We just have to find a way to get through this currency dislocation, because Switzerland is still attractive.

Q: The Internet of Things is quite a hot topic across industries. How will it affect the pharmaceutical or health care industries?

A: I think it will have a huge effect. The reason for that is, you are already starting to see the digitization of medicine. And I believe very strongly that there will be a time when technology comes together with biology to solve some of the biggest areas of medical need. That was the whole genesis behind our collaboration with Google. Google knows a lot about the miniaturization of batteries, about sensors, about microprocessors. We don't know anything about that, but we know a lot about biology, and a lot about the eye and ophthalmology. So together you bring technology and biology together.

     Now think about a contact lens that can measure glucose levels in the body. If that's true, you could connect that lens to your phone [to] give you an instantaneous read-out of your blood sugar levels. That's very important for a diabetic, and it could be the beginning of an artificial pancreas that could actually serve as a pancreas for that patient. So we are quite excited. I think it's going to have a huge impact, the Internet of Things.

Q: Google is currently your business partner, but it might become a competitor in the future.

A: Right now, they are a business partner, and I can't speculate on what their future intent is, but this is also an industry where there are a lot of collaborations among competitors. It's not uncommon to see Novartis jointly promoting a drug with AstraZeneca in certain parts of the world, or other competitors coming together for certain types of benefits. I think that will be true of tech companies also as they enter the space.

     We also recently set up an investment company with Qualcomm [the California-based maker of telecommunications equipment and semiconductors]. We will contribute $100 million, and together we will look for digital medicine, early start-up technology. They could benefit both companies. That's another example of how we are working with tech.

Q: How else might the consumer benefit from digitized medicine?

A: Take heart failure, chronic heart failure. One of the biggest inconveniences of having chronic heart failure is the constant trips and visits to the hospital. Whereas if you, as a patient, had some kind of a remote-monitoring device, you could stay home and your physician would know what your blood pressure is, what your vital signs are. You would not have to come to the hospital as much when you felt ... additional symptoms [coming on]. You could have a phone call from your physician saying, "I don't like the readout that I'm getting on blood pressure over the last week. I'd like to come and visit."

     That could be a much better way for the patient. I think there are numerous examples of how patients themselves will benefit from the digitization of medicine.

Q: Will patients pay less for treatments?

A: I do believe that, because if you just take, again, that chronic heart failure analogy, heart failure costs the health care systems in the U.S. and Europe about $100 billion a year. Most of that is hospitalization. Now, if you could do remote patient monitoring, that together with our therapy, our new [anti-]heart-failure drug, could reduce hospitalizations. We could simplify the patient's life but it will also reduce the total cost to the health care system, because you won't have the expense you have now. So I think the Internet of Things and digitization are going to lead to better results, but it's also going to result in lower costs.

Q: Will the Internet of Things lead to higher profitability for pharmaceutical companies?

A: I don't know if it will lead to higher profitability because, remember, we are still going to invest a lot in R&D. Novartis invested at the very high end of the industry; about 20% of sales in pharma is invested in R&D. That's not going to change. We are not looking at it really as a profit improvement; we are looking at it more like an outcomes improvement -- how to improve the patient outcome for the same cost or same profit.

Q: Regarding your business in Japan, Novartis had a big scandal two years ago, and a former employee was arrested. Even today, Novartis' reputation in Japan is not so good. How are you dealing with this? How do you plan to improve your business in Japan?

A: We did take a reputational hit in Japan, because of the investigator-initiated trial, and there was a former employee that had a conflict of interest, as announced. But what we are trying to do now is put that behind us. The way that we are going to build our reputation in Japan is through our science. If you think about the Japanese population, it still has a high level of medical need. If we focus on bringing new and innovative medicines to Japan, that will improve our reputation. One example is our new drug called Cosentyx. This is for psoriasis. We actually had approval for Japan before the U.S. and Europe, which just occurred in Q4. Japan approved the drug because it's got best-in-class efficacy, and there are many patients in Japan that need it. If we can just focus on the science, I think the reputation of Novartis will be built to a very strong level.

Q: The Novartis brand has been tarnished in Japan. Do you intend to keep using the brand name in Japan?

A: We will definitely keep using the Novartis brand, partly because Novartis enjoyed a very high reputation before this incident. We believe by focusing on the science, we can return to that same high level of reputation with the Novartis name, because it stands for science-based innovation.

Q: Are you thinking about reducing human resources or sites in Japan because of the company's declining sales in the country?

A: What's happening in Japan is the whole industry is going through a big change. Generics used to be taboo: physicians said they didn't want to use generics. Now they [account for] about 30% of drugs sold and they continue to grow. What's happening is every pharma company in Japan has to reduce its workforce when [it gets] impacted by generics. Novartis is no exception. We recently had Diovan lose patent protection in Japan. [Sales are] down significantly, and that was to be expected.

Interviewed by Nikkei staff writer Takayuki Kato

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