Sowing the Seeds of Success

Joseph Jimenez was first exposed to the pharmaceutical industry in 2002. At AstraZeneca, he saw trends that would require a new business model to adapt to the changing environment of the industry. Today, he ensures that Novartis’ Pharmaceuticals Division is set to succeed amid tighter regulations, generic competition and other challenges.

Born in California, Joseph Jimenez grew up on the West Coast and went to Stanford University, where he was an NCAA All-American swimmer . The competitive spirit is still alive today, with swimming his hobby and pharmaceuticals his job .

The 48-year-old was appointed to his present position as CEO of Novartis’ Pharmaceuticals Division in October 2007. Before, he was running the consumer health business, where he was in charge of Novartis’ over-the-counter, animal health, and CIBA Vision’s lens and lens care business.

Located in Switzerland, Jimenez’ office overlooks the city of Basel, where he and his family have grown accustomed to the European way of life – and they love it. But what brought him across the ocean?

Jimenez began his career at the Clorox Company and later served as president of two operating divisions at ConAgra. In 1998, he joined the H.J. Heinz Company and was named President and Chief Executive Officer of the North America business. Then, in 2002 , he moved to London, UK, where he served as President and Chief Executive of Heinz in Europe , looking after brand development and consumer marketing both in the US and Europe. From London, it was only a short flight across the channel to Basel.

The experience at Heinz has been of great benefit for his career in the pharmaceutical industry. “In the consumer packaged goods world, innovation is very important, because it’s a fast moving market ,” Jimenez says. “You can come up with an idea and launch a product generally within 12 months. So things are constantly changing, and that changing mentality has helped me to look at things and think about innovation in a different way.

“Additionally, in the CPG world, cost savings and doing things more efficiently is very important because margins are not as high as they are in the pharmaceutical industry. And you’re always trying to become more and more efficient. T hat ha s helped me here at Novartis Pharma as we look at ways to increase productivity.”

A changing environment
Jimenez was first exposed to the pharmaceutical industry in 2002, w hen AstraZeneca asked him to join its board. “I t was at that time that I grew aware of many of the issues that the industry was facing, and I found it intellectually stimulating to see the pharmaceutical industry changing . It was clear to me that a new business model would be required to win in this changing environment. And I have continued this at Novartis.”

How has the pharmaceutical industry changed? T he regulatory environment , Jimenez explains, has become tougher . In 2007, he points out, only 19 drugs were approved by the FDA – the lowest number in 24 years. S afety has becom e more important than efficacy, with implications for the entire pharmaceutical industry. “T hat was the first trend ,” Jimenez says, adding: “ Another is more aggressive generic competition. Ge neric competitors have started to take higher risks by launching at risk, and that has also ha d big implications. ”

A third trend , he continues to say, is the downward pricing pressure around the world. Governments are looking for ways to reduce total reimbursement costs . Finally , Jimenez concludes, there i s a changing customer base . “The old pharmaceutical model , from a sales executive standpoint , was focused on the physician , with a strategy to deliver the message multiple times to that physician . The physicians, however, at least in some parts of the world , hav e less and less say in what is actually dispensed as payers and providers and more restrictive markets shift that balance of power. And yet, we were still addressing the physician as kind of the sole decision maker s.”

Project Forward
Faced with these challenges, Jimenez brought his executive team together at Novartis in October 2007 and built a strategy , in line with the corporate program termed Project Forward, to ensure Novartis Pharma will not only survive in a tougher environment but built a competitive advantage. He is currently focusing on several areas, including development .

“W e are restructuring development to be able to operate in a tougher regulatory environment. We are moving from what has been functional decision making to cross-functional teams that are empowered and really focused around moving our molecule from early development all the way through commercialization. It's quite a bit different, but it's going to increase the speed and the effectiveness of our development organization.”

A second focus is on Novartis Pharma’s commercial models. “With physicians becoming les s influential in what is dispensed in some markets, we’ve had to ‘ geo-tailor ’ our sales force. We are organizing around payers and providers and put less emphasis on physicians in those markets that are more restrictive.”

A third area of focus i s around productivity . W he re there is price pressure, Jimenez says, productivity becomes much more important. He aims to save just over $600 million this year, growing to $ 1.2 billion by 2010 . “If we can leverage our scale, we can lower our expenses significantly. We ar e streamlining the organization to be able to take layers out and speed up decision-making. ”

Finally, Jimenez is also attempting to shift the culture at Novartis from an internally focused culture to one that is f ocused externally on the patients , customers , payers and providers.

“The transformation plan was developed in October, November and December 2007 . We started executing in January 2008 . All of the development reorganization is complete, but we are now in the phase of executing the new programs up against that restructured development progress. We are making good progress. We have saved about 30 percent of our target for the year already after the first three months on the productivity initiative, and we have started up pilot test markets for the new commercial models where we are geo-tailoring.

“We ha ve three test markets in the US , s o the process is underway. But t his is not going to be a six or 12-month transformation. We are looking at 24-36 months to really transform Novartis Pharma to win in this changed environment.”

Collaboration
In December 2007, Novartis Pharma entered into an agreement with the UK’s Medicines Advisory Agency to jointly design a clinical trial to measure cost effectiveness as well as the efficacy of an experimental new drug. “ When you are dealing in a tougher regulatory environment, we need to do things that will help us ensure that our new medicines are brought to market swiftly and efficiently ,” explains Jimenez.

“One of the ideas was to engage health technology agencies, like the UK’s NICE (the National Institute for Health and Clinical Excellence ), early on in p hase II of a development of a particular new molecule to talk about the benefit of the molecule and what they would need to see in terms of outcomes or evidence in the phase III trial to be able to support reimbursement and approval of the drug. ”

Consequently, the Swiss pharma company asked NICE for an assessment of one of Novartis’ new molecular entities that was in phase II. “W e were able to modify our phase III trial to ensure that we deliver that. So it will be a win-win for the UK’s National Health Service (NHS) and for Novartis in that we will get quick access and the NHS will get the evidence that they need to know that the medicine is delivering a unique and important benefit to patients in the UK. ”

Novartis is looking at expanding the program to many other countries. The UK, Jimenez says, was a pilot project , which turned out to be very successful. “W e will be looking for ways to expand that concept virtually everywhere around the world , which will be an exciting project . ”

Novartis’ pipeline
There are other projects Jimenez is excited about, especially in regards to Novartis ’ pipeline . One of them is FTY720, which is the company’s S1P receptor agonist for multiple sclerosis. This , Jimenez says, is going to be a best in class medicine. “ It ’s an oral therapy, and it has shown very effective rates to prevent relapse in multiple sclerosis. ”

Another compound is RAD001, which is Novartis’ mTOR inhibitor for renal cell cancer. “ This will be an exciting new drug,” comments Jimenez. “T he data monitoring committee terminated it early in p hase III because the progression free survival rates were so good for the drug. This is going to enable an early filing for RAD001.

“And I ’m also excited about one of our respiratory drugs called QAB. This is the first once daily long-acting beta agonist for COPD and for asthma. I t’s a novel new medicine that we ’ ll be able to bring to asthma sufferers. ”

Although many compounds in Novartis’ pipeline are showing great potential , it ’ s not all good news for the company . In November 2007 , UK regulators suspended Novartis ’ new painkiller Prexige unilaterally, followed by Germany, Belgium and Cyprus. Many believe that this has likely killed the drug’s prospects. What is Jimenez hoping for Prexige?

“The drug is on the market in Latin America. We continue to believe that it is a very important COX-2, and it is also one of the most thoroughly tested. O bviously , the drug will not be reintroduced in Europe, but it is doing well where it is on the market. And we ’ ll continue to promote it. We stand behind it because we believe that it is a very important drug for patients, particularly with osteoarthritis. ”

While Novartis’ Type 2 diabetes drug Galvus won marketing approval in Europe in October 2007, it f aces a d elay here in the US, where the FDA has asked for more data concerning the drug. For the time being, Novartis will not resubmit Galvus to the FDA. Instead, the company is focusing on a European launch of Galvus and Eucreas ( Galvus plus metformin ) together. “We have launch ed them both in Europe at the beginning of May of this year. It ’s a leading drug in Brazil and Mexico, and we are very excited about the prospects in Europe over the next 12 months.

“In the US, the FDA has requested a very extensive additional trial. We don’t have confidence that even if we completed that trial , the FDA would approve the drug just because of our experience there, and so what we’re going to do is step back. We are going to launch the drug where it has been approved and go back to the US at a later time – but it won’t be any time soon.

Another difficulty in the US has been that although Novartis showed strong performance in 2007, sales over here were weak , causing a drop of 45 percent in fourth quarter net profits. Responsible for the weak sales were two issues that occurred in 2007. The first was that the FDA requested the withdrawal of Zelnorm , Novartis’ medicine for irritable bowel syndrome , which cost the company a significant amount of sales.

“Secondly, ” Jimenez adds, “Teva, the generic competitor, launched at risk against our antihypertensive Lotrel. And so between the two of those actions that occurred in 2007, we lost over $2 billion in total sales, and in fact, that impact continues in the first half of 2008 in the US. We have given Novartis Pharma the guidance to deliver 2008 sales growth versus one year ago, but because we are coming out from under those two issues in the US, that growth will be limited to low single digit. We will have operating income growing faster than sales, and our operating income margin will increase. ”

Looking ahead
Jimenez’ plan for 2008 also includes mak ing progress on Project Forward. In addition, he aims to driv e the company’s core large brands, like Diovan, which is over $5 billion in sales and still growing double digit ; and Gleevec, which is Novartis’ oncology drug for CML leukemia . “We’ll be working on enabl ing that growth at the continued double-digit rates that it has shown over the last three years. That will, I think, constitute a successful year. ”

The transformation plan , Jimenez is convinced, will help Novartis succeed in the long term, no matter what challenges are in store. “The pharmaceutical industry is a good industry, ” he points out, “but it is going through some tough times. The long-term prospects of the industry are very positive. With an aging population and with the cost of chronic illness accelerating with that aging population, the capability that has been created in Novartis in terms of discovering and developing new and innovative medicines that meet unmet medical needs is going to position us very well for the future.”

Jimenez think s that the jury is still out on whether there could still be further consolidation among the big players in the pharmaceuticals industry, because it is hard to see how the consolidation that occurred a few years ago is creating incremental value.

“I don’t think it has increased the efficiency or the effectiveness of development, and it has not enabled companies to better meet the needs of patients or other stakeholders. So while I do believe that there will be some additional consolidation, the question is whether the large pharma combinations really create additional value. ”

With these final thoughts, the interview in Basel comes to an end as the clock strikes five on a Friday afternoon. Asked whether he would be go ing home to enjoy the weekend , Jimenez laughs. “No, I have plenty more work to do . But I do take time to enjoy the weekend also. ” What that involves? In all likelihood, going for a swim.

About Joseph Jimenez
Joseph Jimenez graduated with a BA degree from Stanford University in 1982 and earned an MBA from the University of California, Berkley in 1984. He began his career at The Clorox Company and later served as president of two operating divisions at ConAgra. In 1998, he joined the H.J. Heinz Company and served from 2002 to 2006 as President and Chief Executive of Heinz in Europe.

Before joining Novartis , he served as a non-executive director of AstraZeneca plc from 2002 to 2007. In April 2007, he became CEO of the Consumer Health Division of Novartis, and was appointed to his present position as CEO of the Pharmaceuticals Division in October 2007.

The four pillars of Novartis’ restructuring plan:

• Development to speed access of new medicines
• Innovating the commercial model to adapt to a changing customer base
• Driving productivity to reduce total cost
• Shifting the culture from one that is internally focused to one that is externally focused

In his own words…

NGP. Some of the problems the pharma industry is facing – you mentioned pricing pressure, high research costs, tighter regulations and more generic competition – have set off a wave of restructuring in the industry. At Novartis , how has this affect ed the pharmaceuticals business?
JJ. Project Forward, our redesign of our organization, is more than just a cost-cutting exercise, although it does have cost -cutting elements in it. For example, in pharma, we are reducing our total headcount by almost five percent over about a 12-month period, and have reduced our global headquarters by over 25 percent. As we think through how we are going to create a more nimble and flexible organization, it is important to de -layer and streamline the organization and create clear accountability as well as create more challenging and interesting jobs for our associates .

Part of Project Forward is also to increas e the speed at which we bring our drugs to market, as well as our innovative commercial model, th e geo-tailoring approach. While many other pharmaceutical companies think about restructuring as just cost -cutting, we create competitive advantage as we change our mindset to think and act differently and build capability that will make us a more nimble, fast moving and an important competitor.

NGP. How are you set ting yourself apart from your main competitors?
JJ. We can differentiate ourselves both on the development side – we have one of the strongest pipelines in the industry – and with the new development organization and processes , which are part of our ongoing activities , as well as Project Forward. We will be able to reduce timelines to increase the speed with which we bring our medicines to market, and that will help us to better differentiate us versus our competito rs.

We will also differentiate versus the competition on the sales side. Many large pharmaceutical companies continue to focus on the share-of -voice model in all markets, and we are moving pretty rapidly to a geo-tailored approach where we’re modifying our sales force depend ing on the restrictive nature of the market.

We are building new capabilities with cross functional teams that surround the payers and the providers with health economics, marketing, sales, logistics, and then , in the open markets where the physician still has much latitude to prescribe and dispense, we are sticking with the more traditional model. With this we ’ll be able to differentiate ourselves versus other pharmaceutical companies.