What is a guy who spent eight years selling food for Heinz doing at the top of the world's best research-based drug company? Preparing for the worst
When you ask around the drug industry who the best leader of the last two decades was, Daniel Vasella’s name always comes up. He built Basel-based Novartis from an also-ran into the most respected drug research laboratory in the pharmaceutical industry. His 14 years running the company are legendary, with a record of drug development successes unmatched by any other chief executive over the past decade. His string of hits included cancer treatments Gleevec, Zometa and Diovan, part of a stable of blockbusters that accounts for more than $16 billion a year in revenues and helps millions of patients a year fight illnesses like leukemia, diabetes and breast cancer.
So when he chose a successor in 2010, many were surprised that he picked the ketchup guy.
Joseph Jimenez Jr., 52, had been with Novartis a little more than three years and was arguably the least scientific executive in the company’s C-suite when Vasella named him CEO. Before joining the drugmaker in 2007 he’d spent eight years running the US, European and then Asian operations of HJ Heinz, the maker of the world’s most popular ketchup. Even Jimenez was surprised by his spectacular rise. But Vasella had no doubts. “We have a lot of great scientists and a lot of physicians,” Vasella once told him. “Look at the way the world is changing. We need someone who can understand that.”
Turns out, Jimenez says, Vasella, now chairman of the company and still a major force in setting strategy, was right. Selling ketchup, organic baby food and tuna was the right preparation for dealing with the chaos ripping through healthcare right now. From exploding costs to tougher FDA safety regulations to patent expirations to ObamaCare, perhaps no other industry is currently experiencing such tumult.
Novartis has its own problems, too. Prospects for multiple medicines have been dashed by bad clinical trial results. Manufacturing problems hurt its generic and over-the-counter divisions, which include brands like Excedrin, TheraFlu and Triaminic. This September the US patent expires on Novartis’ top seller, the blood pressure drug Diovan, worth $5 billion annually, the biggest expiration the company has faced since being formed by a merger in 1996. Jimenez is unfazed. “If you look at my background in understanding the consumer,” Jimenez says, “it’s not just about marketing.
Consumer goods companies have to be very externally focussed, looking at their environment and how it’s changing all the time. What I have learned is that this is an industry that is changing so fast and so significantly.”
Novartis, he says, has prepared for the turmoil by diversifying like a packaged-goods company. Now he has to prove the plan will work, delivering on promises that sales will stay at their current $58 billion level and then growth will return. Novartis’ labs are delivering new drugs. But other companies are betting on spinouts, not diversification. Pfizer is shedding its veterinary and baby formula divisions, and Abbott Laboratories plans to literally split itself in half. Novartis is going in the opposite direction.
So far the strategy is showing promise. The Alcon eye unit, for instance, purchased in a series of deals totaling $52 billion, is growing 10 percent a year thanks to a worldwide increase in cataract procedures. In emerging markets like China and Russia he’s beefed up sales efforts. Over-the-counter brands are now growing at 20 percent in those countries. Even Novartis’ intermittently profitable vaccines unit, focussed on manufacture of commodity flu shots, could stay in the black once a new inoculation for meningitis hits the market in Europe this year.
Wall Street remains unconvinced. Since hitting a five-year high last May shares have fallen 14 percent. Brian Lester, a buy-side analyst at Manning & Napier, likes Jimenez. “The consumer products companies went through a period that you could argue the drug companies now face over the next decade,” he says. “Growth slowed, they focussed on efficiency, and they deployed more of their resources into emerging markets. Isn’t that what the drug industry faces?” Still, he thinks the stock is overpriced.
Timothy Anderson of Sanford C. Bernstein says when Alcon is included Novartis has a better growth profile than any other drug giant, but warns of “headwinds” and says “the stock is in the dog house ... understandably.” Les Funtleyder, manager of the Miller Tabak Health Care Transformation Fund, owns Novartis but won’t buy more shares “unless the stock gets hurt more.”
So how did a baby-food-and-beans guy like Jimenez end up at Novartis? In 2002, after a career controlling household names from Clorox to Swiss Miss to Peter Pan peanut butter, Jimenez got on the board of healthcare giant AstraZeneca. There was talk of marketing but also developing cancer drugs and helping patients. “I loved what I heard,” says Jimenez. “I wanted to get into healthcare.”
(This story appears in the 16 March, 2012 issue of Forbes India. To visit our Archives, click here.)