♪ david: fresh out of west point, he led a platoon of 22 young soldiers. now he has 134,000 employees at a company worth $350 billion, johnson & johnson. ceo alex gorsky took the helm when the iconic image of johnson & johnson was tarnished and made changes to get the company on track while making the biggest acquisition in the company's history and managing the transition to obamacare. after donald trump was elected president, he helped to represent a growing health care industry that already accounts for over 17% of the u.s. economy, and he is the first to

say his industry has to change. we sat down with alex gorsky for an extended conversation. >> alex gorsky, chairman and ceo of johnson & johnson, welcome to "bloomberg big decisions." good to have you. alex: it is great to be here. david: i want to take you back. right now you run a big company, 134,000 employees. the quebec tidjane thiam 82, fresh out of west point, a platoon, 22 young men dependent upon you, and frankly you were putting them sometimes in harm's way. how are you a different leader today than you were at 22? alex: hopefully i have grown and matured a lot. what i would say is starting in , the military, you have so much to learn, much like you do as a ceo. a lesson i learned is you have to earn the right to lead and to be in command. while you may have a rank on your sleeve, that does not immediately bestow upon you the respect and credibility of your soldiers. so going in very early on in my career, being able to listen to

noncommissioned officers, being able to be trained by them in many ways is very similar to what i had to do at johnson & johnson. when i was at the academy, army, it was about country, duty, honor, being there for a higher calling into trying to protect our country. being able to work for johnson & johnson with the credo with such an explicit commitment, a 75-year commitment around patients, consumers, employees, communities and shareholders, there was a lot of alignment between those two organizations. david: you came up trhough the ranks i think it is fair to say at johnson & johnson, but did leave to go to novartis, then came back. what was the experience of coming 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. look, as i look back, i probably would have done differently. i ended up going to work at another very good company, one

where i learned a lot from a very different company from johnson & johnson, but one that would definitely help make me a better leader. i always knew i had a strong attachment to johnson & johnson. after some conversations with people and realizing there might be a path back, i took it. i tell you what, i cannot be happier. david: when you walked in first day as ceo, did you have an agenda? alex: for me, 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, what we could do better, and to be clear, look, the company had an incredible track record of performance, and it in fact was making very good progress so in some ways the challenge was how do you take this iconic company with the reputation of my predecessors, the kind of performance they had, and how do you make that better over time? what we started with was taking

some ideas. like every leader, you have to listen and make sure you are understanding and engaging. i think you also have a point of view. david: did you get resistance? because one of the challenges for a leader in taking over a successful organization is, why do we need change? sometimes it is easier to take over one that is failing because you can make changes easily. alex: of course. there were people that came in -- one of the things we spent a lot of time early on, in talking about my transition, was an evolution from complete decentralization, to one where we frankly needed to standardize, and in some cases centralize, certain functions and practices. for example, quality practices, things like in information technology where we had too many systems. we were not effective or efficient. david: when we talk about values, it sounds great and it is wonderful when all those are aligned on one side.

as a practical matter, when you are a leader like a ceo, sometimes they don't align and there are trade-offs that have to be made. they get trickier. that gets into the essence of how to make decisions as a leader. i want to give you a good example. remicade was profitable for johnson & johnson, a little long in the tooth. maybe it is coming down a little bit. but there are similar's -- similars out there where you can pay less money and get them, and yet johnson & johnson resists that. i'm not saying that is wrong but how do you go to the process of deciding at what point should we be backing off something and letting it go forth for the larger good? alex: yeah, well, look, we always want to integrate values and principles into our decision-making. it is a magic moment at johnson & johnson and we are making a decision and someone makes a comment, this is a credo decision. it does have a pause button and make everyone pushed back from the table and get a closer

consideration. the other interesting and important aspect of a credo is it is an and-and statement. it does not say take care of parents or patients or the employees or the community and the shareholders, it says and. inherent to that is a conflict, but what it makes you do is balance those different priorities as you are going to the decision-making progress and makes you reach out and talk to other people, not feeling you will make that decision on your own. when we do that, we have a much higher probability of getting it right. when it relates to remicade, when i can tell you is that today, it has been one of the most successful products for johnson & johnson. used in millions of patients. it was the first antibody. used in millions of patients. i think we did more than 42 clinical trials. it has been used around the world and in a number of different conditions, and we know from our clinical trials that over 70% of the time patients are getting a good result. what is important is a generic

is different from a bio-similar. i will be the first one to say generics are good for our , industry. you might find that interesting for somebody in pharma to be making that statement, but without that release valve, there is no way to provide a reward for long-term innovation in our industry. in the case of remicade, it is a bio-similar. it is not a generic. it is not the exact same product. we worked in this category for a long time and think relatively minor differences in these proteins can manifest themselves clinically with patients and have important differences. we also know that in addition to the clinical profile, that we are competing with customers as well, so we think remicade remains an important treatment option for patients. will they want to be treated if they are on stable therapy, perhaps challenged if they were switching therapies before? again, we think it is an important option for patients and physicians.

david: opioids, there was a time that johnson & johnson -- no longer, you don't do opioids -- as a societal issue at this at point, what point do opioids, with all the benefits they offer for pain relief, become -- and the damage to society overall is too great and we are going to have to find a different way to relieve pain? alex: it is an important issue and one we will have to work together to solve. it is also to remember the treatment of pain is a very, very important to overall care. i think what is critical here is that we put together new rules, new regulations, new guidelines to ensure ultimately the patients are getting the treatment they need, but also that we are putting a construct in place to make sure that we limit the kind of abuse that is taking place and unfortunately 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. is he wrong? ♪

♪ david: let's talk about health care in the united states, 17% of gdp, increasing as a percentage, not going down. a lot of people think we have a problem and have to bend the cost curve. are they right and what can be done? alex: absolutely. let start with how important health care is. you mentioned 17% of the u.s. economy, up by the way, it is personal as well and will touch all of us at some point in our lives, children, loved ones and so it will impact every one. that makes it very, very important. i think about health care now. there are a few dynamics that are challenging. one is the aging population. in the united states, 15% is 65 and older. that number could go as high as 25% over the next 20-30 years in

-- and it is something that we are not only seeing in the united states, but around the world. what happens as you age is that you consume or health care. actually, more than five times the amount you do before the age of 65. on top of that, and increasing middle-class around the world, china, other developing markets. they are demanding greater access to health care, so all of that is putting a lot of pressure on the system. how do you keep high-quality, innovative health care that makes a difference at an affordable and sustainable price and in that kind of system? here in the united states, the good news is that we are taking action, and whether it is the affordable care act, we will likely see health care reform for the next 50 years, because it is that important, that complex, and we need to continue to make changes to the system. that being said, i think the first step is we have got to an improved access for people to insurance.

frankly it was unacceptable to have 45 million people in this country without access. now that we got 25 million of those covered through the aca, i think that is good. we had additional coverage for young adults, pre-existing conditions, some of those things were taken care of, so those were good first steps. but now comes the hard work. how are we going to make sure we are addressing the underlying cost drivers and make the system move towards an outcome or an episode of care based approach or reimbursement? how do we improve quality measures, taking a holistic approach that does not lose focus on the patient? david: as a ceo, something has to give. you can't have everything. one of the things with the aca, and it accomplished a lot, when we were told more people were going to have it and it was going to cost less money, that does not add up. he will have to say no to

somebody someplace along the line. where should we be saying no to more people? david: number one, we need to try to keep people healthier. we have to work on the demand side. and so, we know that so many things that affect us, cardiovascular disease, diabetes, even certain cancers, are significantly impacted by the way we live our lives. if we don't smoke, if we make sure we drink responsibly, watch your diet, stay mobile, keep moving that can have a big impact right upfront on a certain condition. number two, make sure that unnecessary care is eliminated. how many diagnostics we do where there is not strong data and evidence to demonstrate it is really needed, but can be defensive medicine, or we have a billing system that encourages overutilization? number three, what other drivers of costs? what about end-of-life care, the disease stages that are

particularly demanding on the system, and had reform specialized care units around those to do a better job? those the things we need to do. david: what about pharmaceuticals? it is not a big portion of health care costs, but it has been driving it up and grows faster than 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 had a added 30-40 years onto lifespans, whether it is cardiovascular disease, oncology, we are living longer and dying later and finding more and more cures every day. and the greatest majority of those improvements can be attributed to pharmaceuticals, so when you look at overall health care expenditures, pharmaceuticals make up 14%, and that has been consistent over the last 20 years. 10 years, five years. you look at the rate of increases, it is also consistent. in fact, going forward it is an

incredibly exciting time because we are moving from just treatments and palliative care to actual cures, things like hepatitis c, the promise of curing something like hiv, and so keeping that in mind, and not -- 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 more that expense, but it is important to put it into perspective relative to the overall benefit being provided and the overall health care service as well. 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 in a way that ultimately does not restrict new innovation, does not restrict appropriate treatments being provided to patients, and also does not restrict innovation, because if we don't innovate and find the

next breakthrough for alzheimer's disease, if we don't find better treatments and cures for things like type 2 diabetes, the cost of caring and frankly the impact on our country productivity, let alone families, is going to be dramatic. david: what if anything can come should the government do about this? let's put aside regulation. alex: we have to simplify the system. we have a complex system with multiple layers of distributors and other intermediaries, and simplifying that system is important, and frankly some of that is in place based on the regulation that exist. number two, we need greater transparency. the more transparency, at johnson & johnson we issued a transparency report that talked about pricing policies, about our commitment going forward, and making sure, that is one of the wonderful things in the web-based world we live in today, you can see what are the different prices available, making sure we are taking the kind of approach is very

important. david: what is your approach to johnson & johnson and the federal government? early on after president trump was elected, he brought ceos in, it felt like every morning, meeting in the west wing. in fact, you were one. there was a lot of hope on the part of the business community that this will be a different president who would work closely with the business community. the that work in retrospect? alex: it is important for industry to be talking to the government. having a relationship and understanding how important they are as a customer and stakeholder, it is critical. i've had the opportunity to work with many presidents in different administrations, and it is only by sharing those ideas, developing an understanding, developing appropriate partnerships in other areas, that we can work collaboratively and solve some of these big issues we have been talking about during the interview here today.

look, i would expect that to continue. with this administration, there was a lot of outreach early on. there has been issues we have had to manage along the way, but in the end it is incumbent on all business leaders to engage in a positive way to bring about positive change. david: what happened with the council? i was on the air when it dissolved. we had ken frazier from merck pull out, and one or two others, and then i think the white house issued an announcement that it has gone away, and we heard from you and 2-3 other ceos that it unraveled. what happened in retrospect? alex: there was a lot going on, and it starts with the fact that there was a realization that transpired at the time there -- that were unacceptable. there was broad alignment and in fact there were several councils, manufacturing, strategy --

david: this is in the wake of charlottesville. alex: there was a sense that the best thing doing was to -- and move forward independently. david: does that mean you continue to talk with the president and senior people? as you said, it is important to have some communication back and forth. alex: yes, we continue to have conversations with them. whether it is the fda or other regulatory agencies, of course. for a company like johnson & johnson, we are the largest health-care company representing so many different interests. we think it is vital that we stay engaged in an appropriate way. david: does the white house listen to advice? let's talk about trade. very much in the news these days. are trade wars good for johnson & johnson? alex: we want a trade environment that is collaborative. we operate on a global stage and making sure we have reasonable trade guidelines in place. it does not mean we should not be revising and updating, but let's make sure we don't throw the baby out with the bathwater.

that we build on some of the constructs, recognizing that these are important partners for us as part of an overall global economy. ♪ david: you have a very big company here. do ever think about whether it should be broken up? ♪

♪ david: we talked earlier about president trump and drug prices. let's talk about the government in a different way. some specific government policies that have no doubt affected johnson & johnson, tax cuts. how good were they for johnson & johnson? alex: we think revision of the tax policy is critical, critical for us to remain competitive. we think where our tax rate was at 35% versus which are seeing around the globe. number two bank, create an artificial artifact about how you deploy capital lead to things like inversions and other behavior that i don't think was strategically or in the long-term financially smart. so to address it, get on it, level the playing field, to make it so we can be agnostic about where we deploy will encourage investment and make us more competitive. david: as ceo of johnson & johnson, how do you decide to deploy that increase cash? alex: we will see a couple point move in our favor and we are redeploying that in research and development. at the end of the day, the most

important thing we can do is innovate, to come up with that next treatment that will help patients, and we do that through research and development. last year, we invested $10.5 billion in research and development and applied another $35 billion through m&a, which has to do with innovation and bringing things alive. having better flexibility, better ability to move that capital around now, not only good for johnson & johnson, but good for the united states. david: does that include acquisitions? you have a chinese one involving biotech that you made. are you looking for other deals like that to expand your scope? alex: we are constantly looking. in fact, 50% of the time we source our innovation externally. look, we think that is healthy. there are a lot of great ideas. science and technology is happening at a fast pace and there is no way you can do 100% at that in-house.

by building connections and by having the expertise, by constantly partnering with academic institutions and the venture community, companies, startups, being able to source that early, and access clinical development, regulatory and commercial capabilities of something like johnson & johnson, that's how you take a neutrogena, a remicade, a contact lens that literally may be a few million dollars and create billion dollar platforms. david: johnson & johnson has a great balance sheet. you have a lot of cash. at what point do you need to deploy that cash, and can you constructively? alex: it is great having that kind of fortress balance sheet we have. to think we have 55 consecutive years of dividend increases, 34 consecutive years of operational eps increases and still have a triple-a credit rating is an important story and frankly something that we think is evidence of the discipline and the thoughtful way we run the business. as we look forward fundamentally, we don't think

our strategy will change. we are always looking for innovation and technology and we are disciplined about the way we do it. we look at the other trade-offs we might have had a particular time. we think that will stay consistent, but we no longer have the artificial constraints we had before. david: at what point you feel like it has to go back to the shareholders? alex: the beauty about johnson & johnson and the way we run our business is we think -- first of all, we want to invest for the long term. that means research and development at a healthy rate that exceeds our competition, making sure we are competitive. number two, it is about our dividend to shareholders depend on, and we benchmark that and know that pensioners and other funds, they look at that very carefully as indicative of their confidence in the business long-term. number three, we look at how we

deploy it through business development and mergers and acquisitions, but we do that in a very disciplined way. and last but not least among we have gone through all those, then we take a look at things like why backs, and the beauty about johnson & johnson is we can do those thing simultaneously for the reasons i mentioned earlier. david: you have a very big company here. do ever think about whether it should be broken up? alex: we challenge ourselves every day, we challenge our business models, our fundamental strategy. we believe being a large, diverse health care company is in the best interest 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. [laughter] i think the worst thing a ceo can do early on is to try to say what your legacy will be. it is important to roll up your sleeves, get in, and try to make a difference, but in the long run i know my legacy will be determined by how did i do in living up to the value set forth

in the credo. david: thank you so much. alex: yeah, yeah, terrific. great having you guys. ♪ ♪ retail.

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