tv Leaders with Lacqua Bloomberg June 17, 2018 8:30am-9:00am EDT
♪ david: fresh out of west point he led a platoon of 22 soldiers. now he leads 134,000 employees at a company worth over $350 billion, johnson & johnson. ceo alex gorsky took the helm when the name was a bit tarnished and made changes to get it back on track while making the biggest acquisition in the company history and managing it to obama care. after donald trump was elected president, he sat beside him on his manufacturing counsel hoping to represent a growing medical industry that is over 17% of the u.s. economy and he is the first
, to say his industry has to change. we sat down without alex gorsky for an extnded conversation. alex gorsky, chairman and c.e.o. of johnson and johnson. welcome to bloomberg's "big decisions." good to have you here. alex: it is great to have you here. david: i want to take you back. you run a big company. 134,000 employees. back to 1982 fresh out of west point you were a lieutenant with a platoon. 22 young men that were didn't just depending upon you and you were putting -- that were depending on you and you are putting them sometim in harm's way. how are you a different leader than 22? alex: hopefully i have grown and matured. what i would say is starting out in the military i think you have so much to learn like when you are a c.e.o. and a lesson i learned in the military early is you have to earn the right to lead and to be in command. while you may have a rank on your sleeve that doesn't bestow upon you the respect and
credibility of soldiers. early on and being able to listen to senior noncommissioned officers and be trained by them in many ways is very similar to what i had to do at johnson & johnson. when i was in the army it was about duty, honor, country. making sure that we were there for a higher calling, really trying to do our best to protect our country. and being able to work for johnson & johnson with our credo, where you have an explicit commitment the 75-year commitment around patients and consumers and communities and shareholders, there was a lot of alignment between the two organizations. david: you came up through the ranks at johnson & johnson, but you did leave for a time to go back to novartis and then you came back. why did you leave and come back? alex: i left for the same reason many people leave. i had a basic disconnect with the person i was working for at the time and there were things as i look back i probably would have done differently and i went
to work in another very good company. one where i learned a lot. very different from johnson & johnson. one that definitely helped make me a better leader but i always knew that i had a very strong attachment to johnson & johnson. after some conversations with people and realizing that there might be a path back, i took it. i couldn't be happier. david: when you walked in as ceo, did you have an agenda, had you figured it out? alex: it started with having been in the company as long as i was, there was no doubt i had some ideas about what we should be doing and what we could do better. and to be clear, the company had an incredible track record of performance and it was making very good progress. so in some ways the challenge is -- how do you take this iconic company with the reputation of my predecessors and performance they have had and how do you make that even better over time?
it started with what we talked about the credo and taking ideas and every leader when you come in you have to listen and make sure you are understanding and you are engaging. you are also there to have a view. david: did you get resistance? one challenge for a leader taking over a successful organization with a great reputation is -- why do we need changes? we are doing fine. one assumes it is easier to take over an institution perceived as failing because you can make changes more easily. alex: of course. one thing we did early is an evolution from completely centralization to one where we needed to standardize and in some cases centralize certain functions and practices. for example, our quality practices. things in our information technology group had too many systems. we were neither effective nor efficient. david: we talk about purpose and
values. that sounds great. that is wonderful when they are aligned on one side. as a practical matter when you are a leader, sometimes they don't align. there are tradeoffs that get trickier and that gets into the essence of how you make decisions as a leader. i want to give you an example. maybe a good example, maybe not, remicade, an important drug. it was very important for johnson & johnson. them anduld have people could get them. but there are similarities where they could pay less and yet johnson & johnson resists that. how do you go through the process deciding when should we the backing off and letting those go forward for the larger good? alex: i think that we always want to integrate values and principles into decision making. i can tell you it is a magic moment at johnson & johnson when we are making a decision and somebody makes the comment this is a credo decision because it hits the pause button and makes everyone push become from the
-- push back from the table and give it closer conversation. the other interesting and important aspect of the credo it is an and-and statement. it doesn't say take care of the parents or patien o employs or community and the shareholders, it says and. inherent to that is a conflict. but it makes you balance those different priorities as you go through that decision-making process. it makes you reach out and talk to other people, not feeling that you are going to make the decision on your own. when we do that, we have a much higher probability of getting it right. as it relates to remicade, today it is one of the most successful products of johnson & johnson. it was the first monoclonal antibody. it has had more than 42 clinical trials that were done and used around the world in a number of conditions and we know from clinical trials that over 70% of the time, the patients are getting a good result.
what is important is that a generic is different than a biosimilar. i will be the first to say generics are good for the industry. you might find that interesting for somebody in pharma to make that statement but without that release valve, there's no way we can continue to provide a reward for long-term innovation in the industry. in the case of remicade it is a biosimilar. it's not a generic. we have worked in this category for a long time, and we think relatively minor differences in the proteins can manifest clinically with patients and have important differences. in addition to the clinical profile we are competing with , customers as well. we think remicade remains a really important treatment option for patients. would they want to be treated if they are on stable therapy and challenged by switching from other therapies and we think it is an important option for patients and physicians.
david: one last thing on this, and that is opioids. there was a time you sold them. no longer. but as a societal issue at this point, at what point the -- do opioids with all the , benefits they offer for pain relief become solidified and say the damage is too great and we will have to find a different way to relieve pain? alex: it is an important issue and one where we will have to work together to solve. it is important to remember the treatment of pain is a very important component to overall care. so what is critical is that we put together new rules and regulations and guidelines to ensure ultimately patients get the treatment they need and also we are putting a construct in place to make sure we limit the kind of abuse that is taking place and leading to bad outcomes. david: president trump has been outspoken on this including the state of the union address saying we have to do something about drug prices?
david: let's talk about healthcare in the united states. it is 17% of g.d.p. it has been increasing its percentage, not going down. a lot of people think we have a problem and we have to bend that cost curve. are they right and what could be done? alex: let's start with how important healthcare is. almost 17% of the u.s. economy and by the way it is very personal as well. it will touch all of us at some point in our lives, or our parents, children, loved ones. so, it will impact everyone. that makes it very important. as i think about health care now, there are a few dynamics in particular that are challenging. one is aging population. here in the united states, about 15% of the population is 65 or older and that could go as high
as 25% over the next 20 to 30 years. and it is something we are not only seeing in the united states , but we are actually seeing it around the world. what happens as you age, you consume more healthcare. it is actually more than five times the amount before you are 65. on top of that we have an increasing middle class around the world in china, other developing markets. after they provide for the basics they want greater access , to healthcare and that puts pressure on the system. how do you keep high quality innovative health care that , really makes a difference at an affordable and sustainable price in that kind of a system? so i think in the united states the good news is we are taking action and i think whether it is the affordable care act we will see health care reform over the next 50 years because it is that important and complex and we need to continue to make changes to the system. that being said, i think the first step is we have gotten
improved access for people to insurance. frankly, it was unacceptable to have 40 million or 45 million people without access and now that we have about 25 covered through the a.c.a., that is a good step and we had things like additional cage fo young adults, preexisting conditions, some of those were taken care of. those were a lot of good first steps. now comes the hard work. how are we going to make sure we are addressing some of the underlying cost drivers? how do we make the system move more toward outcome or episode based approach and how do we improve other quality measures taking a more holistic approach. -- approach that doesn't lose the focus on the patient? david: but something has to give. you cannot have everything. one of the things of the affordable care act, and you said it accomplished a lot, we were told everyone we have health care and cost less and
that does not add up. you have to say no to somebody someplace along the line. --re should we be sanctioned where should we be saying no to people? alex: we need to keep people healthier and we have to work on the demand side. we know that so many things that effect us cardiovascular, diabetes and even certain cancers are significantly impacted by the way we live our lives. so if we don't smoke, make sure we drink responsibly, watch your diet and stay mobile and keep moving, that can have a big impact up front on a certain condition. number two, we need to make sure that unnecessary care is eliminated. how many diagnostics where there is not strong data and evidence to demonstrate it is needed and it could be defensive medicine, or frankly, we have a billing system that encourages overutilization. number three, how do we really focus on this? what are the big drivers of
cost? what about end of life and disease states that are particularly demanding on the system and how do we form specialized care units around those to do a better job? those are some things we need to do. david: what about pharmaceuticals? it is not a really big portion but it is driving it. it grows faster than all of the other costs. why do drugs cost so much? alex: it is complex but overall pharmaceutical products have been a major contributor to the fact that people have added 30 to 40 years on life span and whether cardiovascular disease, oncology, living longer and dying later and finding more cures. the greatest majority of those improvements can be attributed to pharmaceuticals. what is important to keep in mind is that if you look at overall cost pharmaceuticals make up about 14%. that has been very consistent over the last 20, 10, 5 years. you look at the rate of increase of that, it has also been pretty
consistent. in fact, going forward it is an , incredibly exciting time because we are moving from just treatment and palliative care, to actual peers. cures. the promise of even curing something like hiv. keeping that in mind and unfortunately because of our system today sometimes the out of pocket portion of the payment is born more and more by the patient. they feel that expense, but it is important to put it in perspective relative to the overall benefit that is being provided and overall health care service. david: president trump has been outspoken on this including the state of the union address, saying we have to do something about drug prices. is he wrong? alex: i can understand the frustration and we need to do something about drug prices but do it in a way that doesn't restrict new innovation or appropriate treatment provided to patients and that also does not restrict innovation.
because if we don't continue to innovate and find the next breakthrough for alzheimer's or cures for type two diabetes the cost of caring and impact on the country and productivity let alone on families is going to be dramatic. david: what, if anythig can and should the government do? let's put aside regulation for just a moment. alex: the first thing, we have to simplify the system. we have a very complex system with multiple layers of distributors and other intermediaries and simplifying that is very important. frankly, some of that is in place based upon the regulations that exist. number two, we need greater transparency. the more transparency, in fact at johnson & johnson we issued a transparency report around pricing last year that talks about the pricing policy and commitment going forward and making sure that that is one of
the wonderful things in the web-based world that we live in, where you can see what are the different prices that are available making sure that we are taking that approach as well is very important. david: what is your approach to the relation of johnson & johnson and federal government. early on, after president trump was elected he brought c.e.o.'s in it felt like every morning in "the west wing" and you were one of them. there was a lot of hope on the part of the business community that this would be a different president to work closely with the business community. did that work in retrospect? alex: it is important for industry to be talking to the government and i think that having a relationship, understanding how important they are as a customer and stakeholder is critical. i had the opportunity to work with many presidents in my role in different administrations and it is only by sharing those ideas of developing an understanding and appropriate partnerships in other areas that i think we can work
collaboratively to solve some of these big issues that we have been talking about during the interview today. i would expect that to continue. with this administration there's a lot of outreach early on and there have been issues we had to manage along the way, but in the end i think it will be incumbent , on all business leaders to try to engage in a positive way to bring about positive change. david: what happened with the council? i was on the air when it sort of dissolved. we had ken frazier from merck sort of pull out and one or two others pull out then i think the white house issued an announcement saying it had gone away, and we heard from you and two or three others that it unravelled what happened in retrospect? alex: there was a lot going on in a short period of time and it starts with the fact there was a realization that events transpired at the time that frankly were unacceptable. at that point, there was broad alignment. there were several councils that were actually taking place.
there was manufacturing and strategy counsel at the time. david: this was in the wake of charlottesville. alex: this was in the wake of charlottesville. so, with those events there was a sense that the best thing doing was to dissolve both of them and move forward independently. david: does that mean you continue to talk with the president and with senior people? as you said, it is important for the government and large business to have some communication path. alex: we continue to have conversations. many different agencies like the fda, other regulatory agencies. of course. for a company like johnson & johnson we are the largest , health care company representing so many different interests it is vital we stay engaged in an appropriate way. david: let's talk about trade. are trade wars good for johnson & johnson? alex: we want a trade environment that is collaborative. we operate on a global stage. we have to make sure to have reasonable guidelines in place and it does not mean we should not be revising and updated,
particularly given the amount of time with nafta and other things. but we need to make sure we don't throw the baby out with the bath water and build on constructs, recognizing that these are important partners for us as part of a global economy. david: you have a very big company here. do you ever think about with it should be broken up? ♪
david: we talked about president trump and drug prices. let's talk about the government in a different way. some policies that have affected no doubt affected johnson & johnson, tax cuts. how good were they for johnson & johnson? alex: we think revision of the tax policy is critical for us to remain competitive. you think where it was 35% versus what you are seeing now at 21%. number two, creating artificial artifact of how to deploy capital that led to inversions and other behavior that i don't think was strategically or financially smart. so, to address it, to get on it and level the playing field and make it so we could be agnostic about where we deploy will encourage investment and make us more competitive. david: as ceo of johnson & johnson, how do you decide how to deploy that increased cash? alex: we will see a couple point
to move. we are redeploying it in research and development and the most important thing we can do is to innovate and have the next treatment that will help patients and we do that through r&d. last year, for example, we invested $10.5 billion in research and $35 million in mna. m&a. having better flexibility, better ability to move that capital around now i think is not only good for johnson & johnson but good for the united states. david: is that include possible acquisitions? you have a chinese one involving biotech. are you looking for other deals like that to expand your scope? alex: we are constantly on that. about 50% of the time we source innovation externally. we think that is healthy. we think that there are a lot of great ideas. science and technology are happening at a very fast pace and there is no way you can do 100% of that in-house. by building connections and
having the expertise and partnering with academic institutions and ventures and other communities, start-ups and source it and access great inialdevelopment regulatory capabilities of is condition like johnson & johnson. that is how you take a neutrogena or remicade or a contact lens that literally may be billion dollar that forms and touch billions of more patients and consumers. david: johnson & johnson has a great balance sheet. at what point do you need to deploy that cash and can you constructively? alex: it is great having the kind of balance sheet we have. to think we have 35 consecutive years of dividend increase and 34 years of operational increases and still have a , i think is aing
very important story and something that we think is evidence of the discipline and thoughtful way we run the business. as we look forward fundamentally we don't think the strategy will change. we are always looking for new strategy and technology. we are disciplined about the way we do it emily is a dcf analysis and look at other tradeoffs that we might have at a particular time. we think that will stay consistent but we no longer have some of the artificial constraints we had before. david: at what point do think you have to go back to the shareholders? alex: nothing about johnson & johnson and the way we run our we think that first of all we business want to invest in our , business for the long term and that means research and development i mentioned at a healthy rate and making sure we are competitive. number two, it is the dividends that the shareholders depend on. we benchmark that and know that pensioners and other funds look at that carefully as indicative of their confidence in the business over the long term. number three, we look at how do
we deploy it through business development and mergers and acquisitions? but we do that in a disciplined way and last but not least we have gone through all of those and we look at things like buy-backs. the beauty of johnson & johnson is we can do those things simultaneously. david v a very big company here. do you ever think about whether it should be broken up? alex: we challenge ourselves every day. we challenge the business model and fundamental strategy. we believe being a large diverse health care company is in the best interests of our shareholders and stakeholders for the long run. david: is it too early to have some sense of what you would like to leave behind when i'm sure many years from now you move on? alex: i think it is way too early. i think that the worse thing you can do is say what your legacy will be. it is important to roll up your sleeves and make a difference. in the long run, i know my scorecard is how i do living up
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