Novartis on digitizing medicine in an aging world
CEO Joseph Jimenez explains where the company is placing its bets
and how it’s seeking to bridge biology with technology.
The global population is aging as life expectancy increases.
That means not only is demand for healthcare rising, but the very nature of
that care is changing. In this interview, the CEO of Swiss pharmaceutical
company Novartis, Joseph Jimenez, discusses with McKinsey’s Rik Kirkland issues
including the emerging need for regenerative medicine, how digitization is
driving innovation, and why Novartis is shifting to an outcomes-based approach
for patient treatments. An extended and edited transcript of Jimenez’s remarks
follows.
Interview transcript
Serving an aging population
Part of our view of what’s going to happen
over the next ten years is, first, the global population is going to increase
by about a billion people, from seven billion to eight billion. Second, 50
percent of that increase is going to be people over the age of 50. So you have
not only an expanding population but an aging population.
We’re thinking about two big areas. The first
is regenerative medicine—hearing, sight, muscle—and also the digitization of
medicine, where biology and technology comes together. There is a geographic
lens as well, particularly in the fast-growing markets. Emerging markets
account for about 25 percent of our sales, and we project that over the next
ten years that number is going to increase substantially as a percent of the
total sales of the company.
What we have to do to seize those growth
opportunities is to make sure that our innovation is strong. That means finding
the right scientists, the right physicians, and then giving them the budget it
takes to discover. We have to build a data-analytics capability that we don’t
have today. We’re also going to have to create partnerships and think about
different types of people that we need to bring into our company so that we can
take full advantage of that part of healthcare. A good example is what we did
when we partnered with Google. We took their smart-lens technology, and we’re
using it for contact lenses. This is a lens that will actually have a miniature
sensor and miniature batteries in it, which will allow your eye to autofocus
like a camera. It’s a great example of biology and technology coming together.
So where Novartis is placing its bets from a
portfolio standpoint is in three areas: innovative pharmaceuticals, because
that changes the practice of medicine and that’s what we’re all about; eye
care, because with an aging population, there’s going to be tremendous need for
vision correction; and generic drugs, because it is especially difficult to
make generics, like biosimilars. And the need for biosimilars comes from the
pressure that health systems are going to be under over the next ten years.
Pharmaceutical discovery and innovation
Digitization is going to change our industry
in a couple of ways. The first is around drug discovery. Because we built a
bioinformatics capability with deep sequencing of the human genome, we’re now
able to map tumor types like we have never been able to before. And we’re then
able to develop new targets based on seeing multiple genetic mutations.
The next area is around the shifting from a
transactional approach to an outcomes-based approach. Transactional means, for
example, just selling a pill. An outcome approach focuses on delivering a
positive patient outcome, of which that pill is one piece. A perfect example is
what we would potentially do with our new heart-failure drug. By partnering
with companies that could monitor some patients remotely, we look for vital
signs that would tell us whether they should go to the hospital. This is
something that is starting already.
Investing in health outcomes
We have to be very fast moving to be able to
capitalize on these trends. But we also can’t get into this cycle of
disinvestment that many of our peers have, where they’re trying to make
short-term earnings targets, and that ends up leading to a reduction in
research-and-development spending.
At Novartis, we’re trying to take costs out of
procurement areas that are not leading to innovation, and we’re investing in
research and development. Last year we spent almost $10 billion in R&D, and
that number is going to continue to go up, because that really is the driver of
our business: innovation, new medicines.
We spend a lot of time measuring the
productivity of R&D, but we take a very different approach than some of our
peers. We resource-allocate in R&D based on the unmet medical need in a
particular area, not necessarily based on how big the market size will be,
because we believe that if we follow the science and we deliver on that unmet
medical need, that the financial returns will happen.
When you think about the challenges in the
healthcare system over the next ten years, spending is going to have to double
because we’re coming out with even more expensive new therapies. But if you
forget about the transaction and think about the cost of managing a disease
through the entire chain, you find a lot of waste in the system. We project
that probably 25 percent of all healthcare spending is wasted. Shifting to an
outcomes-based approach, where you just focus on what delivers the outcome, you
get rid of everything else, and the physical medicine is going to be part of
that. Those medicines are only about 10 percent of the total healthcare cost.
So it’s not that much of a contradiction when you think about the fact that
these new technologies are more expensive, but at the same time you’re going to
have downward pressure. There’s a lot of efficiency that we can get out of the
system.
We’re going to have to partner with tech
companies. We’re going to have to partner with data-management companies. We’re
going to have to partner with providers in ways that can deliver a positive
outcome so that we can improve the efficiency of that system. That’s the only
way that we’re going to be able to deal with this aging population and
constrained budgets.
Leadership priorities
My role in the company is to make sure that we
have the best physicians and the best scientists. I spend a lot of time with
our research organization, ensuring that we recruit the right people. I also
ensure that they have the money that they need to do their magic.
The second thing that I spend a lot of my time
around is execution. Many companies that get into trouble in our space are
maybe great at discovery and development, but then they don’t execute. This is
where the CEO of the company must not just preside over execution but
participate in it.
And then the third area’s around talent. How
can I personally help develop talent around the world? I spend a lot of time
building emerging-market talent, because if you look around Novartis, we don’t
have enough senior leaders that are from Asia or Brazil, for example.
There’s an initiative called the Lead Program,
where we pick 30 to 40 high-potential emerging-market leaders and we give them
a 12-month assignment, during which they work on a real problem that Novartis
is facing. We’re in our third year, and a number of these leaders have already
been promoted into areas of greater responsibility within the company.
Novartis is also elevating some values that reflect
the way society is changing. For example, being more collaborative with other
types of companies, other types of institutions. Having the courage to try and
to fail. Because in our business, when you innovate, nine times out of ten,
you’re going to fail.
And the final one is integrity, because society’s expectations
about healthcare companies have shifted over time. Doing what’s legal is not
enough. We have to do what’s right. And so that means making some hard choices.
It’s perfectly legal to pay a physician to speak about your drug to other
physicians. So when you have a new-product launch, that’s the way that we
educate physicians, by paying some physicians to speak. But if you think about
this as a person who’s going to that physician and thinking, “Well, Novartis
paid this physician to speak about their new drug. Is that doctor prescribing
it because they paid him? Or is that doctor prescribing it because that’s
really what’s necessary for me?” So we’re looking for other ways to educate
physicians and other ways to ensure that the benefits of our drug are known
among the physician community.
http://www.mckinsey.com/insights/leading_in_the_21st_century/Novartis_on_digitizing_medicine_in_an_aging_world?cid=ceointerview-eml-alt-mip-mck-oth-1506
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