Dr Dan Vasella’s speech – AIM Chennai 2010
Ladies and Gentlemen,
It is a great pleasure to be here today to celebrate with you.
There is nothing more important for a patient than getting the right treatment, be it a surgery or an effective and safe drug and there is nothing more important and motivating for a pharmaceutical company than to discover and develop innovative drugs which change the way medicine is being practiced for the benefit of thousands of patients.
Only a few of our researchers will ever have the luck and opportunity to discover a medicine and even less so a breakthrough medicine as successes are rare. Only one out of 10’000 compounds makes it from the lab into clinical practice and the process is very long as it takes 10-15 years.
As CEO your chances are greater if your discovery and development teams do a good job, but unfortunately the tenure of CEO’s has become shorter and shorter. So many will never see the consequences of their decisions.
With 14 years of being in the job I was not only the CEO with the longest tenure in a large global pharmaceutical but I also had the chance to be involved in the development of several great therapies, some of them just for a few patients, some others for larger populations, some which generated profits and some which did not.
In February of this year I stepped down as CEO and of course people asked me what I was most proud of.
Thinking about it, I mentally went through the big strategic initiatives we had taken, divesting our agribusiness division, selling our food product range, buying in to the vaccine and diagnostics business and more recently into the eye care business, and then I thought about the 14 years of profitable growth and the launch of successful products.
But no, I was not particularly proud of these achievements; this was just part of my job, it was just to be expected from me, this was for what I was being paid for.
But then, there were some decisions I made, decisions which were not obvious to others, who probably would have taken a different path: The development of Gleevec, and even more so the corporate Leprosy program under which we provide all leprosy medications for free, worldwide, without limitations, our malaria program which provides the gold standard treatment for malaria, Coartem, at cost. During last year alone we distributed over 80 million treatments through WHO, UNICEF and other organizations. And of course, there is the Gleevec donation program provided through the Max Foundation. These were all initiatives, which could not necessarily be expected, decisions I took which did stress the company performance and at best did not change my performance rating or my income.
Last year we committed over $ 1.5 billion to our various CSR initiatives. How is it possible to commit so much money for initiatives which at best just help the corporate reputation marginally and impact the bottom line negatively?
• The first undisputable condition in a capitalistic system is that you have to be economically successful, generate profitable sales and a return on investment which is higher than the cost of capital.
• The second is that management has to clarify its convictions and live by them. This implies the awareness of the role the company plays in society, often called its mission, the long term aspirations or vision, the values and behaviors it wants to stand by and promote, but also the core capabilities it must master to be successful in the marketplace.
• Thirdly, the leadership team has to be aware that they are dealing with an array of stakeholders, patients, customers, employees, politicians, government, media, unions, NGO’s, shareholders, their agents and shareholder, and the communities in which a company operates. They all have their own agenda, and these agendas don’t overlap, no, they are often mutually exclusive. So, leaders must be clear thinkers with a heart, with self-awareness and a social conscience, but they can’t be blind to the realities of the market and the role they are asked to play.
Leaders must be able to live with dilemmas.
Leaders must have the courage to engage in new paths in which they believe in even if it goes against the current mainstream thinking. Mainstream changes all too often anyway. They must equally be optimistic as to the possibility to serve and build the company as they have to be realistic.
Ladies and gentlemen,
Altruism is not a predominant pattern in business and while empathy clearly plays a relevant role in our decision making, the public often believes that companies primarily are pursuing the goal of improving their public image when they engage in CSR programs rather than genuinely doing something positive for society.
Here I must interject that the most important we do for society is our primary mission as a company, namely to discover, develop and market useful medicines and to make a profit. But this does not mean that we may or should ignore our corporate social responsibility. In fact, in our view CSR plays not such an important role in creating a positive public image of the company – which of course is a welcome effect, but rather acts as lever in creating an opportunity for employees to positively identify themselves with the company and its behavior. But even the best CSR programs will not gain the hearts of our customers if our products don’t satisfy their needs.
Positive public recognition of course reinforces patterns and is therefore an important feed-back mechanism. Let me immediately add that companies can never make up for the short fallings of a government or other important players in society.
There is another development I have to mention as it worries me.
Today, we see very active shareholder agents, analysts, pension fund managers or simply governance activists, I call them “governistas”, who fight for more power by taking it from the Board of Directors, by arguing that they are the owners of the company, who want to protection from greedy boards and management and therefore need more power. I doubt that this is their true motivation.
This power shift unleashes substantial risks as shareholders and their agents have no obligations nor accountability as to their decisions related to the company. They are primarily pursuing their own individual economic benefits, which is the only purpose reuniting them. Furthermore, one has to keep in mind that the periods during which shareholders keep their stocks has continuously shortened over the past years and in average is only a few months. Nobody, can argue that these shareholders have the long-term success of the company in mind. No, these shareholders only pursue short-term profit maximization. So, we will see that the current changes in corporate law which are occurring in Europe and in the US will result in more damaging than beneficial effects.
Ladies and gentlemen,
I would not do my job if I would not address the status of pharmaceutical innovation.
As the world’s second largest generic manufacturer I am all too aware that only the innovative pharmaceutical industry can bring true innovation and medical break-troughs to patients and that this industry will only continue to invest in R&D if they have the belief that they can be technically and financially successful. To achieve this we need an effective protection of intellectual property as it is the foundation of our current incentive system to conduct research and in which we share ever more information about our discoveries early in the process. The costs for one single drug reaching the market amounts now to USD 2-3 billion. So, it takes generally years after approval to market the drug until a medicine becomes profitable for its producer.
Over the past 10 years Novartis received more new drug approvals by the US FDA, which is still the regulatory gold standard, than any other major pharmaceutical firm. Over the past few years we have also seen an improvement of the quality of our pipeline and the number of discoveries.
I attribute this to the excellent R&D leadership and the scientific quality of our researchers. Our approach to identify new targets by focusing on a better understanding of cellular signaling pathways has opened many new avenues.
What is a signaling pathway?
It is the way cells communicate internally and with each other. It is a very complex and sophisticated regulatory and adaptive network, a kind of an internal body language. When we are able to uncover its vocabulary and grammar we can delete a word or add a new one, enhance or lower their importance by blocking them with antibodies or enhancing them directly by stimulation or by blocking their inhibitors.
Let me give you the example of RAD signaling pathway:
So, thanks to innovative technologies, like bioinformatics, robotics, combinatorial chemistry, siRNA, and regenerative medicine just to mention some of the new tools and innovative research like the pathway approach, we will be able to discover again and again better medicines to help physicians to serve patients better than ever before.
In other words there is justified hope!
As long as we can be commercially successful we can also continue to do our part in ensuring that needy patients get access to essential drugs like Gleevec. Let me thank each and everyone who supports us in these endeavors, first and foremost the members of the Max Foundation who have dedicated themselves to create an effective link between Novartis and the patient.
With the right policies I believe that India has a great future with a dynamic economic growth and a substantial improvement of the disposable income of its citizen. The high number of skilled people, the cultural importance of education and the English language will support India’s success in a globalized world.
If we as a company can play a small role in facilitating the transition to a country where the middle class really becomes the middle – the epicenter – of society, I am grateful.
And now let me hand over to Pat Garcia Gonzalez, Founder and Executive Director of The Max Foundation.