Alex Gorsky was named head of Pharma North America and CEO of Novartis Pharmaceuticals Corp., the U.S. affiliate of Swiss drug giant Novartis, in the fall of 2005. Since joining the company in 2004 as chief operating officer and head of general medicines, Gorsky has overseen the continued growth of Novartis’s industry-leading cardiovascular franchise, notably the blockbuster drugs Diovan and Lotrel. The company sells a variety of products, including those that treat endocrine and respiratory disease, gastrointestinal illnesses, cancer and blood disorders and bone and joint conditions, among others. Prior to joining Novartis, Gorsky was company group chairman for Johnson & Johnson’s pharmaceutical business in Europe, the Middle East and Africa. Before that, he spent 15 years in sales, marketing and management at Janssen Pharmaceutica. Gorsky was recently on campus to take part in a Wharton business roundtable on leadership and agreed to talk with Knowledge at Wharton about trends in the pharmaceutical industry.

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The following is an edited version of the Podcast:

Knowledge at Wharton: Alex, thanks for joining us. I would like to start out by asking you about two of the biggest blockbuster drugs in the U.S. which lost patent protection in June, Merck’s cholesterol cutting Zocor and Pfizer’s Zoloft, an antidepressant. The door is now open to a host of generic drug makers, including manufacturers in Israel and India. First, how big a hit are pharmaceuticals taking from the number of drugs coming off-patent and second, how big a threat are countries like India, Israel and China when it comes to producing generics that will undercut the profits of the big manufacturers that spent millions of research dollars developing these drugs in the first place?

Gorsky: That’s a good question. I think we at Novartis bring a unique perspective to the industry around the impact that generics are having on the marketplace. Generics are obviously a very important part of our industry. First of all, they make sure that very large, perhaps, underserved population segments can get access to important medications. Novartis is actually the second-largest generic company in the world with manufacturing facilities in most of the countries that you just mentioned.

Second, by having a specific period of time of patent protection after which generic companies can enter the market, it helps to ensure that innovation truly takes place in the marketplace. What do I mean by that? Well, if you never had the end of patent protection, frankly the economies of the world would not be able to sustain the cost of multiple, new, innovative medicines. However, if you are truly an innovative company that’s continually producing new and innovative products — the byproduct of generics entering the market — it does free up resources where countries, where healthcare systems, can invest in new breakthrough products. So I think what we are starting to see is more innovative approaches from many of the large pharmaceutical companies to the introduction of generics, as obviously you saw with Merck. I think you will continue to see various models but I think very importantly, we see the generic industry overall as an opportunity both to get access to medications but also as a business model. That’s why we have invested so aggressively in that segment at Novartis.

Knowledge at Wharton: You announced in July that you would invest $600 million to build the first plant in the U.S., in North Carolina, to develop flu vaccines using advanced cell culture techniques. I know that you have made a commitment to vaccine development with Chiron Corp, is that correct?

Gorsky: That’s [pronounced Kyron].

Knowledge at Wharton: Thank you for correcting me. Yet for some time, vaccines have been a low margin business with lots of regulatory oversight and patent lawsuits. Why are you interested in vaccines, and does the avian flu have anything to do with this?

Gorsky: I think it’s a combination of factors. First of all, we have seen the science around vaccines increase tremendously over the last few years, and we think that as emerging healthcare needs, such as avian flu, become more and more of a threat, it is important for Novartis, which has a vision of being truly an entire healthcare company, to be involved. Second, we thought Chiron offered us a very unique platform, a nice vaccine platform, which we are working hard on, but also they had some other products within their portfolio that we think will fit nicely into ours.

Last, but not least, we think that some of the expertise and skills that we can bring to Chiron, particularly around regulatory affairs and manufacturing, can really help ensure that those products ultimately get to the marketplace and serve the patients they were intended to serve.

Knowledge at Wharton: That leads to my next question. A number of pharmaceutical companies, including Pfizer and Merck and you with Chiron, have looked at, or are looking at, alliances with biotechs as a way to boost their new drug pipelines. Is this a viable strategy, especially given that the biotech industry has lost billions of dollars over the last three decades?

Gorsky: Well, you know it is always difficult to evaluate how successful a company is by what its particular value in the marketplace is because there are many factors that impact that. But we are absolutely convinced that the right partnerships with biotechnology companies, with other companies that are in complementary areas of research or science, are critical for our growth. We are very fortunate that we’ve had a number of great breakthrough molecules developed internally at Novartis but we are also constantly on the search externally for products that are complementary, for new technology platforms, like Chiron that we discussed earlier, to help ensure that we can develop new and advanced medicines and grow as an organization.

Knowledge at Wharton: Speaking of alliances, you probably saw the New York Times report on the latest developments at Bristol-Myers Squibb and I believe they listed you as a possible purchaser of Bristol-Myers. Is that something you can comment on or is it too soon?

Gorsky: Of course, you know it is difficult to comment on this, but both our chief executive officer as well as our head of pharmaceutical group have said just over the last couple of days that we are not pursuing it at this time.  

Knowledge at Wharton: Given the recent publicity over Merck’s Vioxx’s trials and a number of warnings about other drugs which are found to have serious side effects after they have been on the market for several years, is there a better way to protect consumers from drugs that initially perform very well but then later turn out to have these dangerous, sometimes deadly, effects on users?

Gorsky: Yes. We are absolutely committed to making sure that we bring effective as well as safe medications to the marketplace. Given the [huge] number of people who get exposed to medications in a very short period of time following their launch, it’s critical for us to do everything we can during the development process. We are quite pleased actually to be working very closely with the FDA on a number of important initiatives to see what can be done early on in the development cycle to make sure — whether it’s from an efficacy and even more importantly a safety standpoint — that the drug has been fully reviewed. I think that’s the first step. Second, it takes a very solid surveillance program once a drug has been approved and there, too, we think our monitoring system is strong. It’s something that we continue to put a lot of focus on. And finally, it’s about marketing it in an appropriate manner. We are committed to ensuring that physicians and other decision makers are getting the full prescribing information so that they have all the important facts and figures on hand to make the right decision for the patients.

Knowledge at Wharton: In addition to the news, about Bristol-Myers Squibb dismissing its CEO and chief counsel, there has been the news that GlaxoSmithKline is agreeing to pay the IRS $3.4 billion to settle charges of underpaying taxes. Are these incidents another blow to the public’s somewhat declining confidence in the pharmaceutical industry or are they really just aberrations? What’s your read?

Gorsky: It is difficult for me, in fact impossible for me, to comment on the specifics of that because I am obviously not aware of them. But what I think is more important than ever is for us as an industry to make sure people are aware of the tremendous good we do for people. And, I think any industry, not just the pharmaceutical industry, is in the spotlight today, whether it is Sarbanes-Oxley, OIG [Office of Inspector General] or other types of federal investigations. We have a significant onus, as leaders in these organizations, to make sure that we are doing things the right way. And it is difficult in any industry — frankly in any organization where you have thousands of employees — to be right 100% of the time, but that’s what we have to expect and that’s what we must insist [on]. So we have a number of policies and procedures within our organization around ethics, around compliance, to do our very best to ensure that everyone understands our commitment to doing things in the right way.

But it is a challenge. I also think it is important for us as an industry to get the word even out more about what we do for patients. Only 10 years ago, if you had chronic myeloid leukemia, your prospects were not good. You either had to undergo very significant treatments that would lead to significant side effects or you could die. Today, because of a tiny pill called Gleevec, one of our products, upwards of 85% of the patients, five years later, are still in remission. They are still alive…. I think it’s really important for us to get that word out.  

Knowledge at Wharton: A recent article in the business press noted that Novartis is awaiting regulatory approval in the U.S. and Europe for a new diabetes drug called “Galvus.” Am I pronouncing that correctly?

Gorsky: Yes, you are. Vildagliptin, Galvus.

Knowledge at Wharton: There’s also another big drug for high blood pressure that you are hoping to bring to market soon. Yet, one of the reasons that the pharmaceutical industry is perceived by some to be suffering from a slowdown is that they overemphasize blockbuster drugs. Is this true, and is there, in fact, too much emphasis on blockbusters?

Gorsky: One of the things that we try to do at Novartis is make sure that we’re always discovering and developing molecules for unmet medical needs. Regardless of this particular size of that market, we want to make sure that where there is need and where there are, so far, no treatments, that we’re bringing new, innovative compounds to the market. Vildagliptin is a great example. Right now, there are about 20 million people in this country who suffer from diabetes, a really troubling statistic. You mentioned earlier avian flu; frankly, I think the real health care crisis now is diabetes. It’s expected to grow to almost 50 million people by 2050. If you’re Hispanic, if you’re an African-American woman in this country over 50 years old, your chances of getting type-2 diabetes are over 50%.

So here’s an area where I think there are a lot of existing treatments. What we’ve tried to do is improve not only on the efficacy, but on the tolerability profile where it’s used in monotherapy, but also in combination therapy along with some of these other medications. We think with that kind of need and all the implications for our health care system, that it’s critical to get those kinds of new products to market.

Knowledge at Wharton: In what treatment area do you think consumers can expect to see the most progress in the next few years? Would it be Alzheimer’s disease treatment or cancer?

Gorsky: It’s an exciting time in our industry. So much of our research now is focused on these areas. Oncology is certainly an exciting area, one that we are really committed to at Novartis and that many companies are working on. I think in the area of neuroscience — you mentioned Alzheimer’s — there is a lot of very interesting research going on. It’s still very early in genomics and [we have yet to see] the exact impact that will have on our ability to come up with therapies in certain areas. But I think that they offer a lot of promise. Also, I’m very hopeful that we are going to continue to see great strides in infectious disease areas as well.

Again, I’m excited about the future. I think there are a lot of challenges facing the industry. But, as long as we continue to discover, develop and commercialize innovative compounds that make a difference in people’s lives, I think it will be exciting.

Knowledge at Wharton: What is the one initiative or advancement that you are most proud of that you have brought to this industry?

Gorsky: I think the things I am most proud of are the efforts that I have made around ensuring patients can get access to our products. In both my previous career at Johnson & Johnson and, more recently, in my career at Novartis, I have really made a determined effort to make sure that underserved patient populations can get access to our products through things like samples and ensuring that they are in physicians’ offices. Number two are patient access programs — making sure that they are generous and well managed so that patients who cannot pay, who are not covered, can get access to them. And most recently, we have been working very closely with our customers, but also with CMS [Centers for Medicare and Medicaid Services] on the Medicare Part D Plan — which I think, by the way, is a success. There are a lot of varying accounts out there, depending on who you listen to. But, what you see today is that 40 million people — 22 million new, but 40 million in total — don’t have to make the Faustian choice between medication and their rent.

It’s not a perfect system, but this is probably the largest undertaking that our government has made around a large program like this in more than 20 or 30 years, maybe the largest ever. The fact that only eight months after its introduction, even the Kaiser Foundation study shows that generally patients feel they are better cared for today, regarding their pharmaceuticals, than they were prior to this benefit. I think this is a real testament to the work that Mark McClelland and his team have done. I think the industry has also managed it very well with our customers.

Knowledge at Wharton: Some people have suggested, along these lines, that the pricing system for drugs in the U.S. doesn’t work, and that perhaps the industry should consider adopting a one-price policy when selling drugs in different countries. That would neutralize, for example, the current debate over drug imports from Canada. How difficult would it be to achieve a one-price policy?

Gorsky: I think it would be extremely difficult. In fact, I think Patricia Danzon here at Wharton has done some interesting studies in this area looking at differential pricing. First, let me say pricing is an extremely complex issue because you’re looking not only at the price of the product but who sets the price; what is the currency impact; what is the overall pricing that you’re looking at on a product: Is it by volume? Is it by dose? So it’s very complex. Unfortunately, some of the sound bites that get caught by the press don’t describe the real situation.

I think, at the end of the day, it’s going to be important that healthcare systems, that governments, do find a way to achieve a level of reimbursement that continues to foster an innovative environment in our industry. If we don’t do that, then we won’t be producing the medicines for the future that we need to. At the same time, we’ve got to ensure that all patients who are truly in need can get access to today’s medications that they really deserve.  

Knowledge at Wharton: A growing trend in the industry is the outsourcing of work at various stages of drug development, such as entering data and even running clinical trials, in places like South Africa, Eastern Europe and, of course, India and China. Is this a positive trend, or do you foresee problems with this?

Gorsky: What’s really unique about Novartis is we’re truly a global organization. Swiss-American, some might say, but I think it’s truly a global organization. So, I don’t think of it, necessarily, in terms of outsourcing. I look at it in terms of being part of our global network. In fact, we have exciting research facilities in development organizations in almost all of the places you mentioned.

Certainly, we are always looking for ways to be more productive and more efficient [in terms of] how we are conducting our business. At the same time, we want to make sure that they also follow the same very high standards that we would expect, perhaps, in the more well-developed countries. We spend a lot of time, a lot of energy and resources to ensure that [that those high standards] are maintained.

But we also think that without a global approach to our business in discovery, in development and even in the way we manufacture commercialized products, you just can’t be competitive in today’s world.

Knowledge at Wharton: There was a lot of excitement about the potential of personalized medicine, especially around the time of the human genome mapping. Since then, there seems to have been some disappointment in this area, and I’m wondering if you see any future for personalized medicine?

Gorsky: Yes, I do. I think it’s going to take us a lot more work to get there. But I think as we learn more and more about biomarkers, as we learn more and more how to translate the breakthroughs in genomics alone into the clinic and how they apply to specific patients and medications, I think that’s when the breakthroughs will really occur.  

Knowledge at Wharton: I’ll finish up with one question for you. Since you’ve just been to a session on leadership and innovation, and you have talked about leadership in our remarks here, I’m wondering if you could just focus on one or two crucial aspects of leadership in the pharmaceutical industry. Based on your own personal experience in what you see around you, what’s good about the leadership in the industry and what’s, maybe, not working so well?

Gorsky: I think what is more important than anything is that we as an industry need to continue to focus on leadership and developing new and innovative therapies. The science is getting tougher and tougher…. What you find now are that many of the unmet challenges — such as HIV or oncology — are, in fact, complex mechanisms or they are cascades of disease that require a therapeutic option that may operate on several different mechanisms or domains at one time. So the science is more complicated. Making sure that we stay focused on producing breakthrough medications, I think, is critical for us to demonstrate leadership and to ensure our reputation is what it should be. I think that’s absolutely critical.

The other piece for me is really all about access. We’ve got to be leaders in working with governments, in working with advocacy groups and in working with health care providers to make sure patients can get access to our medications. Frequently, there are a number of reasons why that can’t and doesn’t always occur, and we at Novartis are trying hard, again, because of the breadth of our business across biotechnology, pharmaceutical, but also generics, to make sure the people in need are getting the medicines they need.