One of the worst flu seasons in decades is finally showing signs of abating. But health care companies and individuals are still absorbing higher costs as the president's health care legislation begins to take effect. Fees and taxes related to Obamacare take effect this year, while the rest will be implemented in the coming two years. For the latest, I caught up with Joe Jimenez, the CEO of Novartis, one of the largest pharma companies and maker of the leading flu vaccine. Our interview follows, edited for clarity and length.
Q: Why was this flu season worse than others?
A: It's a good reminder that with very little effort and very little cost, the broad population can protect themselves against the flu by getting a shot, probably the least expensive way that you can protect yourself. Even if you're paying out of pocket, it's probably $10 or less. I think it's a call to action for every American to get a flu shot next season or even this season, if you haven't already.
Q: Is there any reason behind how bad it was this season?
A: No. Some seasons are worse than others. The good news is that the flu that is circulating is from the virus that the CDC predicted, and it can be preventable with the flu shot.
Q: How are you on the vaccine? Some worry it's in short supply.
A: We have plenty of vaccine to ship into the U.S. Where we have pockets of excess, we're moving it to those regions where it's needed.
Q: How will the president's health care legislation affect the health care system?
A: One of the biggest elements of the Affordable Care Act was that over 30 million Americans will be insured. The U.S. is one of the only countries in the world where there's a significant portion of the population that is not covered by some kind of insurance. This is the big element of the Affordable Care Act in terms of how it will impact the health care system in the U.S. This will not take full effect until 2014 and '15, so it will take awhile for those people to have full health care coverage.
But as far as how it's impacted us, we were part of the industry program that helped pay for that additional coverage through higher Medicaid and Medicare rebates. What's happened is we're funding this, and the broader insurance for the over 30 million Americans is still to come.
Q: Has it gotten more expensive for the industry?
A: Yes, it has, for all of us. We agreed to an $80 billion package, which means that every company in the pharmaceutical industry contributes to that. The cost of doing business in the U.S. has gone up, but we said that we support the administration's objective of trying to get full insurance coverage for every American.
Q: Do we have the wherewithal to take on all these new people? Some people worry that there aren't enough doctors and health care professionals to absorb an additional 30 million people.
A: I spend a lot of time studying health systems around the world. Most countries have universal coverage and a health care system that costs significantly less than the U.S. A good example is Singapore, which spends about 3.5% of GDP on health care. They have universal coverage, they have better outcomes in terms of higher life expectancy, lower infant mortality. The U.S. spends 17% of GDP on health care and not the same level of outcome. It is possible to have universal coverage, but it's going to take fundamental reform.
Q: How is business today?
A: If you look at products we've launched since 2007, of those products, what percentage of our business does it account for? It's 29%. This is an amazing number, $16 billion worth of new products. Products like Gilenya for multiple sclerosis, or Tasigna for chronic myeloid leukemia. We were able to announce earnings in 2012, sales that were about in line with 2011, despite the fact that we had $2 billion of losses due to patent losses. Those launches more than offset the patent expiration we saw on Diovan, our biggest drug.
Q: How do you continue to offset those patent expirations?
A: We have to continue to focus on research and development. We study the disease mechanism in great detail and the molecular pathway that is implicated in a particular disease. We then develop a drug that will interrupt that disease pathway, and as we test it and bring it to market, we then move it into other indications. Afinitor started in renal-cell cancer, but its particular mechanism also works in advanced breast cancer.
Q: The emerging market is a very important part of the company's growth, is that right?
A: That is right. We're investing heavily. We invest in the long term. Countries like Russia, like China, like Brazil and India, and we're seeing good growth.
Q: Where are we in the fight against cancer?
A: I believe we are just at the beginning, even though we have made great progress. If you look at what's happening with the decoding of the human genome, this is opening up a new era of drug discovery and development, particularly in cancer, which is primarily a genetic disease. I believe that in the next five years, you're going to see many breakthroughs.
Q: You also have the first oral treatment for multiple sclerosis.
A: Before Gilenya, the only option was to get injections weekly or even daily, and these caused significant side effects like flu-like symptoms. We've had patients tell us that we've basically given them their lives back because this is an oral medication that they take once a day. They don't have the same effects that they have when they get the injections. The product became a blockbuster, which means it crossed $1 billion in sales in its second year.
Q: Everyone's talking about the fiscal cliff and sequestration. What's your take on this?
A: The government does have to get on sound financial footing. Health care is a very large percentage of total expenditure.
Most of the health care costs is hospitals, it's physicians, it's nursing costs. I think we have to think about innovation in a different way. How can we use innovative pharmaceuticals, generics and technology to help us lower total health care costs?
There are ways that we can use pharmaceuticals and technology to lower total health care costs, given that the vast majority is in hospitalization. That's really what we're trying to communicate as we talk to government and to health officials, not just in the U.S., but all over the world.
Bartiromo is anchor of CNBC's Closing Bell and anchor and managing editor of the nationally syndicated Wall Street Journal Report with Maria Bartiromo.
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