Novartis CEO Jimenez is stepping down; does successor Narasimhan have the right stuff to take the reins in 2018?

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The News:

Swiss pharmaceuticals titan Novartis AG (Basel) will get a new chief executive in 2018–Dr. Vasant Narasimhan (pdf)–after Joseph Jimenez proclaimed his upcoming retirement effective in February.

Jimenez has been CEO since 2010, although he has been with the company for a decade. He will step down at the end of January and remain available for advice until his official retirement at the end of August 2018. He will then return home to Silicon Valley, according to Fortune.

Narasimhan, who is currently Novartis’s global head of drug development and chief medical officer, has been with the company since 2005 and is already on its executive committee. Unlike Jimenez, who started his career in consumer goods, Narasimhan is a physician.

“During his tenure, Joe focused Novartis on leading global businesses, while divesting non-core divisions,” Novartis chairman Joerg Reinhardt said in a statement.

Reinhardt was referring to Jimenez’s decision to offload the company’s animal health business to Eli Lilly & Co. (Indianapolis IN) and its vaccines and over-the-counter drugs businesses (the latter through the formation of a joint venture) to GlaxoSmithKline PLC (London).

The news comes days after Novartis scored approval from the US Food and Drug Administration (FDA) for Kymriah, a form of gene therapy that treats leukemia by training the patient’s immune cells to target the blood cancer. A course of the treatment costs $475,000, although Novartis doesn’t get reimbursed unless the patient responds to the treatment within a month.

Along with the introduction of other new drugs such as psoriasis treatment Cosentyx, Novartis is hoping that Kymriah will help turn things around after the patent protections expired for its Gleevec cancer drug and Gilenya multiple sclerosis treatment, opening the door to cheaper generics.

Steve’s Take:

When I first learned of Novartis’s September 4, 2017 announcement of the impending retirement of CEO Joe Jimenez it first struck me as timed to the best news the company had received in his eight-year tenure, viz., the surprise early approval last week of Kymriah, its groundbreaking CAR-T treatment for pediatric acute lymphoblastic leukemia.

Jimenez said during a conference call with reporters after the announcement that the FDA go-ahead didn’t come into play in his decision to leave–but it does give his successor, Vas Narasimhan, the opportunity to turn CAR-T into a “big and important business for the company,” he said.

During the call, Narasimhan, who currently serves as Novartis’ head of drug development, said it’s too early to make any firm predictions about what the next phase of the Swiss company’s evolution will look like, saying only that his goal is to “continue to drive that innovation agenda.”

Perhaps, but FiercePharma says Narasimhan’s efforts to advance that agenda will be accompanied by the need to deal with the many challenges he’s inheriting from Jimenez.

Narasimhan’s ascent will likely bring about a completely new management style. Jimenez was a new arrival, joining Novartis from HJ Heinz. Narasimhan, by contrast, is both a doctor and a specialist in public health who worked at the Rockefeller Foundation bringing advanced medical treatments to developing countries.

Appointing him to the CEO post “suggests the company is going to really focus on the drug and innovation part of the business,” said Bartjan van Hulten, founder of London-based health investment firm Medex Capital, in an interview with Bloomberg.

Topping the list of Narasimhan’s hurdles is Novartis’s eye unit Alcon, which has struggled ever since the company shelled out over $39 billion to acquire it in 2010. Novartis is also facing pricing opposition in both its generics and branded businesses.

Years of stagnating sales led analysts to predict Novartis will sell Alcon or spin it off—the second of which became more realistic after the unit posted better-than-expected sales in the second quarter. Jimenez has promised to update investors on the results by the end of the year.

Even if Alcon is resolved before Narasimhan officially takes over, FiercePharma notes that the new CEO will still have to deal with price erosion in the generics business, which has taken a toll on its Sandoz unit.

Sandoz’s sales dropped 4% to $2.5 billion during the second quarter, largely because of pricing pressure in the US Sandoz did win approval in Europe for two potentially more lucrative biosimilar drugs earlier this year.

The big ques­tion now is how Narasimhan will change things in R&D now that he’s behind the wheel. John Carroll at Endpoints noted that every new CEO in the busi­ness this past year–at Glaxo, Eli LillyBio­gen and others–started by re­struc­tur­ing their pipelines and ini­ti­at­ing a new round of deals.

“Now it’s Narasimhan’s turn to put his stamp on No­var­tis after Jimenez has shunned big in­dus­try M&A–in a mar­ket where even mid-sized bolt-ons can look un­ap­peal­ing,” Carroll says.

Bottom Line:

Felix Barber and Julia Bistrova wrote a case study for Harvard Business Review wherein they noted that innovation is widely regarded as important to long-term business performance, no matter what industry you’re talking about.

However, CEOs often don’t have the career background and education that would equip them to personally lead the process of new product development. They found that CEOs of big pharmaceutical companies, for example, are more likely to have a background as company lawyers, salespeople, or finance managers, than one in medicine or pharmaceutical R&D.

So, to achieve higher performance, they asked whether a company’s boards and investors choose CEOs with the expertise that would better qualify them to lead innovation? Their research suggests that in certain industries—where breakthrough innovation is critical for growth—they should.

They found that, for pharmaceutical industry CEOs, there is a statistically significant relationship between a CEO’s specialist background and the firm’s performance. A specialist background to lead innovation is worth a 4% better shareholder return every year for 20 years, compared to other pharma CEOs.

In the pharmaceutical industry, short patent lives for prescription drugs mean companies must continually look for new drugs to fill their pipelines. And these often must be significantly better than what’s on the market (namely, “breakthroughs”) due to the high cost of R&D.

“Under [Jimenez’s] leadership the innovation pipeline was rejuvenated, and we successfully navigated the patent expirations of our two largest products,” Novartis chairman Joerg Reinhardt said. “We anticipate a smooth transition as Joe built a strong leadership team and mentored his successor.

Checking into his educational and business experience back ground I learned that after getting his bachelor’s degree in biology from the University of Chicago, Narasimhan proceeded to the Harvard Medical School.

He then earned a master’s degree in public policy from Harvard’s John F. Kennedy School of Government. Prior to joining Novartis, he worked at McKinsey & Co. and served as Global Head of the Sandoz biopharmaceuticals and oncology injectables business unit.

That’s all I needed to hear to assuage my skepticism about whether the youngish Dr. Narasimhan, at 41 (for such a prominent position as chief of big pharma’s No. 2 colossus by sales) can keep the good news arriving; like CAR-T breakthrough Kymriah’s green light from the FDA last week.

Steve's Take: I believe @Novartis shareholders won’t be disappointed by Narasimhan Click To Tweet

It all adds up to a big leadership task for Narasimhan, whose background as a Harvard-trained physician is entirely different from that of Jimenez, a consumer-products veteran. As a specialist, innovator and trusted, proven insider, he’s got all the right stuff for this challenging post.

I believe Novartis shareholders won’t be disappointed.