Following are excerpts from a CNBC interview with Joseph Jimenez, CEO of Novartis, from the World Economic Forum 2017 with Carolin Roth.
CR: Well, it's certainly a big worry, one healthcare official told me yesterday, 'Yes, drug prices need to come down. At the same time, though, we do need to ensure that pharma companies do keep the incentive to innovate.' And I've got the boss of one of the biggest healthcare companies in the world sitting right next to me, that's Joe Jimenez the CEO of Novartis. Joe, always a pleasure speaking with you.
JJ: Thank you.
CR: Thank you so much for coming on the show. Let's talk about Donald Trump's comments. We thought Hillary Clinton was going to be tough on drug prices, she talked extensively about gouging in the market. We're hearing similar comments from Donald Trump. How much of a worry is that for you?
JJ: Well, look, I think the first thing you have to remember is that pharmaceutical prices are only about 10, to maximum 15% of total healthcare expense. So when you're talking about healthcare, remember that pharmaceuticals are a small piece of that total pie. At the same time, there is going to be downward pressure on prices, and I think one of the things that Novartis did early on is we started thinking about new pricing models. For example, we believe strongly that we have to shift from what has been a transactional approach, where we're selling pills, to an outcomes based approach where the system is paying us for the outcome that we deliver on some of our pills.
CR: Do you worry, though, that through the lowering of the prices, the incentives to innovate for the pharma companies like you are going to be taken away?
JJ: Well, I think that's something to watch, but I also hear from the President Elect, and the new administration, that they value innovation. You know, when you think about the healthcare sector, and specifically pharma, we spend $70 billion in research and development in the US, and we account for about 4.5 million jobs, as an industry. So this President Elect is all about creating jobs in the US, and I think this is a place where we can build and grow. You know, some of the policies that could reignite the economy in the US would be good for this industry, and it would be good for American jobs.
CR: What about the repeal of the ACA, the Affordable Care Act? How does that matter to you?
JJ: Well, what's important to us is that all Americans have access to important medicines. You know, the discoveries that are happening right now are amazing, so we want to make sure that if the ACA is repealed, that it's replaced with something that will ensure that these Americans still have access to the innovative medicines that we're able to launch.
CR: But Joe, right now there's a lot of uncertainty about what happens to drug prices, about what happens to innovation, and the repeal and the replace of ACA. What do you do in the meantime? How do you deal with that uncertainty when it comes to making investments into your business and talking to your clients?
JJ: Look, in terms of times of uncertainty, what's important is that the companies that are going to win stay focused on their strategy, and they execute against that strategy, while building scenarios for a variety of different actions that are going to be taken. So you can imagine that at Novartis, we have a clear strategy around innovation, R&D is the core of the company, we're going to continue to invest. We're going to watch how developments occur in the US with the new administration, and then we're going to act accordingly, based on those actions. So we're looking forward to a more robust US economy.
CR: And Joe, you talked about the creation of new jobs under Donald Trump before. Are you under pressure, too, to create new jobs in the US, which is your biggest market in the world, because otherwise you're going to be called out on Twitter?
JJ: Well, it's a big and important market for us, and we will continue to invest. You know, one of the things that's very positive around what the administration is saying is, we're a global company, so we look around the world at where we want to invest. Previously, with the US the highest corporate tax rates among any country in the world, the US doesn't rank high in terms of where companies have historically wanted to invest new, for example, new manufacturing sites. But if the President Elect is able to take corporate taxes down, I think you're going to see a new wave in the US.
CR: What about share buy backs? What about dividends? Because some people tell me all the money that's going to come through, that's going to be freed up through tax cuts and tax repatriation is really just going to end up in SBBs and in dividends. Is that a fair point?
JJ: I'm not sure about that. You know, I think that there will be investment. Everybody's looking at where to invest, and I think with a lower corporate tax rate, you're going to be able to see more investment the US.
CR: Finally, I want to talk to you about the future of healthcare, and that is technology. It's about big data, it's about precision medicine. That's a field that you're very active in, you're currently working on 20 trials when it comes to sensors. Tell me more about this opportunity.
JJ: Well, technology is really revolutionizing pharmaceutical drug development. So we have a global drug development organization that is looking at new ways to execute clinical trials. One of those ways is data capture around sensors with patients, so we're testing new and innovative ways to lower the total cost of drug development while we're increasing the quality.
CR: Is that where M&A is going to happen in the future?
JJ: Well, there could be some M&A. We're looking at internal development, but when you think about our-, the whole pharmaceutical industry, digital is definitely a place that everybody is looking, and it could be a place of action.
CR: For you as well?
JJ: Well, I'm not saying whether-, or M&A strategy is very focused on building our pipeline, so anything that will enhance the pipelines of our pharmaceutical, or our other divisions, is where we're going to spend our money.
CR: Joe, thank you so much for the time, really appreciate it. Joe Jimenez, the CEO of Novartis.