♪ >> 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. he took the helm when it 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 obamacare. after donald trump was elected president he sat beside him on

president he sat beside him on the manufacturing counsel to represent a growing medical industry that is over 17% of the economy and he is the first to say his industry has to change. we sat down with him for an extended conversation. >> chairman and c.e.o. of johnson and johnson. 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 upon you and you were putting them sometimes in harm's way. how are you a different leader today than at 22? >> 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 the respect and credibility of soldiers. early on 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 here. 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 creed 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. >> you came up through the ranks

and did leave for a team to go to novartis. why did you leave and come back? >> 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. one that definitely helped make me a better leader but i always knew that i had a very strong attachment to johnson & johnson. when i realized there could be a path back i took it. >> when you walked in as c.e.o. had you figured it out? >> it started with having been in the company as long as i was i had ideas about what we should be doing and can 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 had and make it better.

it started with what we talked about the creed and taking ideas and every leader when you come in you have to listen and make sure you are understanding and you are engaging. >> did you get resistance? one challenge for a leader taking over a successful organization with a great reputation why do we need calculation? we are doing fine. one assumes it is easier to take over an institution perceived as failing because you can make changes more easily. >> of course. one thing we did early is an evolution of centralization to one where we needed to standardize and in some cases centralize certain functions and practices. for example, our quality practices. things our information

technology group had too many systems. >> we talk about purpose and values. that is wonderful when they are technology group had too many aligned on one side. as a practical matter when you are a leader sometimes they don't align that neatly and there are tradeoffs that get trickier and that gets into the essence of how you make decisions as a leader. maybe a good example is remicade, an important drug. it is a little old in the tooth 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 away back off and let those go forward for the large are good? >> i think that we always want to integrate values and principles into decision making. i can tell you it is a magic moment 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 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 patients or employees or community and the shareholders, it says and. and inherent 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 others not feeling you are going to make the decision on your own. when we do that, we have a much higher probability of getting it right. today it is one of the most successful products of johnson & johnson. it is 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 parts get 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 i will be the first to say release valve there's no way we can continue to provide a reward can continue to provide a reward for long-term innovation in the industry. in the case of remicade it is a biosimilar. we have worked in this category a long time and relatively minor differences in the proteins can manifest clinically in patients with important differences. in addition to the clinical profile we are competing with customers as well so we think it 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. >> opioids. there was a time you sold them. no longer. but as a societal issue at this point at what point do opioids with all the benefits they offer for pain relief say the damage is too great and we will have to find a different way to relieve pain? >> it is an important issue and 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 care. 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. >> president trump has been outspoken on this saying we have to do something about drug prices? is he wrong? ♪

>> let's talk about healthcare in the united states. it is 17% of g.d.p. and increasing, not going down. a lot of people think we have a problem and we have to bends that. are they right and what could be done? >> 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 with parents, children, loved ones. so, it will impact everyone. that makes it very important. as i think in healthcare there are a few dynamics in particular that are challenging. one is aging population. in the united states about 15%

of the population is 65 or older and that could go as high as 25% the next 20 to 30 years. and it is something we are not only seeing in the united states but seeing around the world. what happens as you age you consume more healthcare. 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 care that makes a difference at an affordable and sustainable price. 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 reform 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 or 45 million 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 coverage for young adults, preexisting conditions, some of those were taken care of. now comes the hard work. how are we going to make sure we address some of the underlaying cost drivers. how do you make it move more toward outcome or episode based approach and how do we improve other quality measures taking a more holistic approach. >> but something has it give. you cannot have everything. one thing we did before the act it accomplished a lot we were told everyone we have health care and cost less and that do not add up. you have to say no to somebody someplace. where should we say no? >> we need to keep people healthier and we have to work on

the demand side. so many things that effect us cardiovascular, diabetes and cancer are significantly impacted by the way we live our lives so if we don't smoke,ake sure we drink responsibly, watch your diet and stay mobile and that can have a big impact up front on a certain condition. number two we need it make sure unnecessary care is eliminated. how many diagnostics where there is not strange data to demonstrate it is needed and it could be defensive or a billing system that encourages that. 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 what about end of life and do. >> what about pharmaceuticals. it is not a really big portion but it is driving it. it gross fast are and a lot of other costs. why do drugs cost so much? >> it is complex but overall those products are major contributor to the fact that people 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 are contributed to pharmaceuticals. but if you look at overall cost they make up about 14%. that is consistent the last 20, 10, five years ago. you look at the rate of increase they make up about 14%. it is pretty consistent.

going forward it is an incredibly exciting time because we are moving from just treatments and palliative care. the promise of curing something like h.i.v. and keeping that in mind and unfortunately because of our system today sometimes the out of pocket portion of the payment is borne more about the patient but it is important to put it in perspective relative to the benefit that is being provided and overall health care service. >> president trump has been outspoken on this including the state of union address saying we have to do something about drug prices. is he wrong? >> i can understand the frustration and we need to do something about drug prices but in a way that doesn't restricts new innovation or appropriate treatment provided to patients and that also do 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. >> what can the government do? >> simplify the system. we have a very complex system with multiple layers of distributors and other intermediaries and simplifying that is very important. 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 at johnson & johnson we issued a transparency report around pricing that talks about the policy and commitment and making sure that that is one of wonderful things in the web based word 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. >> what is your approach to the relation of johnson & johnson and federal government. were 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 it would be a different president to work closely with the business community. did it work? >> 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 presidented in my role in different administrations and it is only by sharing those ideas of developing an understanding and appropriate partnerships that i think we can work to solve big issues that we have been talking about during the interview today. with this administration there's a lot of outreach early on and there have been issues we had to manage along the way but i think it will be incumbent on all business leaders to try to engage in a positive way to bring about positive change. >> what happens with the council? i was on the air when it sort of dissolved and we had ken frazier from merck and one or two others pull out then i think the white house issued an announcement saying it has again away and we heard from you and two or three others that it unravelled. >> 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 that were unacceptable and there were several councils that were taking place. there was manufacturing and

strategy. >> this was in the wake of charlottesville. >> it was. so, with those events there was a sense that the best thing doing was to dissolve both of them and move forward independently. >> does that mean you continue to talk with the president with senior people? it is important for the government and large business to have some communication path. >> we continue to have conversations. many different what f.d.a., 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. >> are trade wars good for johnson johnson? >> we want a trade environment that is collaborative. we have to make sure to have

room guidelines in place and it does not mean we should not up date given the time with nafta and other things. but don't throw the back out with the bath water and build on constructs recognizing that these are important partners for us as part of a global economy. >> you have a very b cpany here. do you ever think about with it should be broken up? ♪

>> we talked about president trump and drug pces. some policies that have affected johnson & johnson tax cut. how good were they for johnson & good were they for johnson & johnson? >> we think revision of the tags policy is critical for us to remain competitive. you think where it was 35% versus what you are seeing now at 21%. trump and drug prices. 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. >> as c.e.o. johnson & johnson how do you decide how to deploy that increased cash? >> we are redeploying it in research and development and the

most important thing something to innovate and have the next treatment that will help patients and we do that through r&d. we invested $10.5 billion in research and $35 million in m. and 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. >> is that including possible acquisitions. we have a chinese one involving biotech. are you looking for other deals to expand your scope? >> about 50% of the time we source innovation externally. there is a lot of great ideas, science and technology hang very fast and there is no you can do 100% of that in-house.

by building connections and having the expertise and partnering with academic institutions and other communities, start-ups and source it and access great clinical development regulatory capabilities of is condition like johnson & johnson you take a product and contact lens that may be a few million dollars and create billion dollars platforms and touch billions of patients. >> johnson & johnson has a great balance sheet. when do you need to deflow and can you constructively? >> to think we have 35 consecutive years of dividend increase and 34 years of increases and triple a credit rating i think is a very important story and something that we think is evidence of a discipline and thoughtful way we

run the business. as we look forward fundamentally we don't think the strategy will change. we are disciplined about the way we do it and we use 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 the constraints. >> when do you have to go to shareholders? >> the way we run our business we think that first of all we 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 they we look at how to 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 we look at things like buy-backs. the beauty of johnson & johnson is book do those simultaneously. is book do those simultaneously. >> you have a very big company here. do you ever think about whether it should be broken up? >> we challenge ourselves every day. we challenge the business model and fundamental strategy. we believe being a large diverse company is in the best interests of our shareholders and stakeholders. >> 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? >> 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 to the values of the credo. ♪

♪ nejra: revising the rule the s.e.c. reforms the law bringing regulators closing to rolling it back. cracking the whip. the architect of gdr tells us how to look at countries and how they aren't acting to the new regime. we look at how countries are adapting to avoid falling foul of u.s. sanctions. welcome to "bloomberg markets: rules & returns". i am nejra cehic. it is the show where we delve into the regulatory challenges