Novartis CEO on the Future of Medicine | a16z Full Interview

We unlocked almost $180 billion of value. Took this company that was a conglomerate and we turned it into four companies. We had these other businesses, but it was never really the core of kind of who we are. We were misallocating capital. Spinning off companies sounds easy in retrospect. Actually spinning off three public companies is a massive, massive undertaking. You can rewind a disease or completely in some cases almost create a functional cure for patients. One of our sentinel patients was an individual in bed all the time receives our cell therapy. 6 months later, no sign of disease. I mean, this is extraordinary. Cell therapies and immunology alongside immune reset, bispecifics, trispecifics. That is going to be a whole renaissance for cell therapy.

It's great to be back. Thank you.

Yeah, absolutely. So Novartis is a 250-year-old company that's been a conglomerate for most of its history, but I think we'll talk about it over the last 10 years. We really focused it down as a pure play medicines company. We reach about 300 million patients around the world. We operate in over 100 countries, over roughly $55 billion in sales, nearing a $300 billion market cap. And we really focus on four core therapeutic areas: oncology, immunology, neuroscience, and cardio-renal. And we're really into platform technologies. I've really tried to pivot the company into leading platform technologies. Myself, I'm a physician scientist by training. I grew up mostly doing R&D work and public health work at the company, and with some business roles became CEO in 2018. And in that period of time, we've spun off a lot of businesses, focused down. I think that'll be a lot of what we talked about today.

Yeah, absolutely. So Novartis formed out of the merger of Sandoz and Ciba-Geigy in 1996, and the focus at the time was becoming broadly diversified in healthcare, which was common I think for many of the main players. So Novartis at the time we were in consumer health, animal health, vaccines, Gerber baby food and nutritionals, pharmaceuticals, and so we had this pretty broad range of businesses. Then we acquired Alcon in 2009 to get even further diversified. But I think there was a realization, at least as I started to oversee R&D at the company and then eventually became CEO. I really took the view that we would be better served to focus down as a pure play company, focus only on biopharmaceuticals, and even within biopharmaceuticals try to focus on therapeutic areas we think would really matter. And so what we did over the last years is we did a really pretty radical rethink of the company. We exited our consumer health business in a joint venture with GSK. Now it's a standalone public company. We spun off Alcon, now standalone public company. We spun off Sandoz, standalone public company. We sold our Roche stake. And so we took this company that was a conglomerate and we turned it into four companies. And it's not, of course, perfect math, but when you look at it, we unlocked almost $180 billion of value by doing that.

Yeah. And you know the underlying logic to being diversified as a pharmaceutical company is you have these patent expiries and you say if I can get into more stable businesses, those businesses can kind of create a base of growth that will help you stem those ups and downs. That's the thesis, right? And I think that was one reason why Novartis did this, but in actual fact what I observed was we were misallocating capital. When you look at it, the return on capital varies tremendously between a consumer health business, a generics business, a device business, and a pharmaceuticals business, and we were often forced to say we have to suboptimize the pharmaceutical business to invest in the other businesses, or I'd have to say no to very good decisions for this Sandoz business to support the pharmaceuticals business. So I think there was this kind of strategic misallocation of capital. But then the second thing is you ask what is a company fundamentally great at? I mean Novartis is really good at discovering and developing novel medicines. We had these other businesses. We were investing to build them, but it was never really the core of who we are. When you go to Basel, you'll see we have chemists and technologists, and that's really where I think we're most successful. So it kind of felt like the right cultural fit right from a capital allocation standpoint. Of course investors, as you know, prefer that they get to decide how to diversify. They don't want us to diversify. And so for all those reasons it felt like the right thing to do. Now it took six years. Spinning off companies sounds easy in retrospect. Actually spinning off three public companies is a massive, massive undertaking. I can say from experience.

My instinct is to say this is where we need to focus. I think we can look at consumer platforms to provide access to our innovation, but the way I think about it is there's already, and you know this well from all your investments, already so much that you need to undertake to be diversified within the world of biomedicine. So many new technologies, and anytime you take on a new whole business area, you're going to distract the energy of the management team, the capital that you have to deploy, and also you have to learn a whole new space that you may not actually be very good at to really manage. So I think of it as how can we maybe use these consumer platforms or direct to patient channels to augment the core, but I don't see a reason at the moment at least to really diversify too far away from that core biomedical effort.

Yeah, the way I think about it is obviously small molecules and biologics are the core of every large company of our scale. You have to have that, and of course we've had those technologies for either 100 years, 100 plus years, or in the case of biologics 50 years. But we focus on three core technologies. We focused on cell and gene therapies first. We were the first company to have a licensed cell therapy, the first company to have in effect a widely used gene therapy with Zolgensma. Second, we made a relatively significant investment in RNA therapeutics. We've actually now acquired multiple companies, and we can definitely get to that. And then radioligand therapies. These are the three core technology platforms that we try to apply across those core therapeutic areas, hopefully to find better solutions for patients. And we're always asking ourselves, are those the right ones? Of course, you could get into DNA editing. You could be much bigger on antibody drug conjugates, but at least for now, those are the focus areas.

Yeah, this has been a tough one. I think I would say right now punching below their potential, but I think it's going to change and I'll explain why. First, when we talk about cell therapies, of course the focus after our initial discoveries and then other companies Kite, Juno, then later BMS and Gilead, Bluebird also was in there successfully bringing forward cell therapies were primarily focused on B cell cancers, right? And I think very successful, but the business was not hugely successful mostly because complexity, cost of goods, profitability challenges. Now I think what's really interesting is, and we could have never predicted it, but because of the work of Georg Schett in Erlangen, Germany, we've suddenly learned that you can actually use these therapies to reset the immune system. And I think this is going to be a huge opportunity. Just remarkable. And when you look at this data sets, as you know, very rare that you see data like this. Very rare that you can rewind a disease or completely in some cases almost create a functional cure for patients with end-stage immunological disease. These are the autoimmune diseases that have been very life-impacting chronic conditions, chronic debilitating with very bad options. I mean, the story I like to tell is one of our sentinel patients was an individual in bed all the time, not able to walk his children to school. He receives our cell therapy, strong results, two months, six months later no sign of disease. He has gone from almost a near-death situation to normal life. I mean, this is extraordinary, this is like Lazarus-like things. So we've now taken that forward into four pivotal studies. We have, I think, six more programs in early stage clinical, other companies as well. And I think cell therapies and immunology is going to be a huge, huge area alongside immune reset, bispecifics, trispecifics. That is going to be a whole renaissance for cell therapy. And alongside that, what also happened is we figured out how to make the manufacturing factors less costly. I think that's the other part of that story. If we were just doing immunology but with the same cost structure, super expensive bespoke manufacturing, but now that we're all working on rapid platforms that take two days in the factory, 8 days vein-to-vein time, this is changing the game. So I think there now, as has often happened, there was the hype, then we went through the valley, and now we're coming back out the other end. I'm not sure any of us would have predicted that would have been in immunology and not cancer, but hey, so be it. I think gene therapies is a tough one at the moment, as you know, with the safety. Zolgensma has been hugely successful. We think a remarkable drug, amazing. The story for your listeners: this is for a terrible pediatric disease called spinal muscular atrophy. These children would face a certain death at two years of age, or if they have a less severe form, they live a life in wheelchairs and really debilitated. And Zolgensma, one-time gene therapy, if given early enough, can almost let children lead a normal life. So it's been a success story. Now, we had hoped we would have a whole series of those behind it, and as you know, it's one success story but it's an end of one story. This is not platformized yet. I think because a combination of factors: one, the trafficking of these gene therapies to the right cell type, getting the expression as you hope, safety profile, all of these things turned out to be much more of a puzzle, and there wasn't as plug-and-play as I think we initially expected. That said, I still think that for certain diseases, if you could get a one-time therapy, it would be hugely beneficial, particularly in children. And I still think there's more to do, there are more opportunities here. We acquired some companies around this, so let's see. But that one is still to be proven, whereas I think cell therapy is really maturing now.

No, I think that is my view, and I think it's an extraordinary story when you look at it. The idea here is that you can use small sequences of RNA, a smaller chain of RNA, to silence the mRNA inside the cells to prevent the protein from expressing. That sounds like a simple thing, but actually the work goes back to the early 80s, decades of work. Alnylam and Ionis and other companies worked on these technologies for a long time, struggled, and then there was an unlock around 2015, 2016 where they figured out how to traffic that RNA fragment in a relatively efficient way into the cell, have relatively high specificity, and that led to really impressive data. So we went in primarily for cardiovascular disease at first. Our first medicine is a PCSK9 siRNA that allows you to take down PCSK9 for high cholesterol with a drug that you give every six months, and it works amazing. Right now it's doing extremely well, particularly in China. But it's really amazing. Now the opportunity is with that kind of technology you can get to once yearly dosing. People are working on more and more targets in cardiovascular disease. I personally think we're going to be at a place within the next 5 to 7 years where you could get a single injection that covers HMG-CoA reductase, which is the statin pathway, PCSK9 to knock down that other pathway for cholesterol, and probably if it works, Lp(a), another major cardiovascular factor. So one once yearly injection. Think about that from a public health standpoint, it's unbelievable. But the siRNA story was all about liver-directed targets. Everything we were doing was targeting everything to the liver, and we were seeing these impressive results. And then I think what's happened now more recently is we figured out how, at least starting to see, we'll see how the data plays out, can you traffic these siRNAs into other parts of the body, into the muscle, into the brain, into the heart. We recently made a proposed acquisition around this to try to see if we can actually get those siRNAs into the muscle. But this is opening up the field even more broadly. Can you traffic them to the kidney? So you can have all of these opportunities to have less frequently administered, high efficacy drugs. So I think this is a mature platform.

Yeah, and you know this is a topic not just for RNA, it's also in gene therapy as you know as well. It's a global comment. I think a couple of areas for us are interesting. One is synthetic capsid design. This has been around, but I think we're getting better at can you synthetically create a capsule, like a synthetic virus, instead of using the AAV virus which is often used, and use that to traffic. Of course, there's been a lot of work done on certain receptors in the nervous system that can basically draw into the central nervous system. I think that's obviously the transferrin receptor in particular, but there have been others as well. Antibodies conjugated to the siRNA, or antibodies conjugated to an ASO, so then the antibody takes it to the target cell. So I think these are all in play. I think it's all maturing quickly. There's also more, all kinds of other technologies. You would probably know better. We can lipid conjugate. We actually acquired a company that also can lipid conjugate to get into certain cell types. So I think a lot of activity happening, and the key is can you find the right address and can you hit that address with high specificity and not have the RNA go to all kinds of other places? Because depending on what you're delivering, if you don't want to hit the heart and you only want to hit the kidney, but you still hit the heart at even small levels, you'll get the side effect profile that you don't want.

Yeah, absolutely. So I think the listeners likely know radiation in cancer care has been around for decades, but the idea that a company we first acquired in 2019 called Advanced Accelerator Applications was actually a spin out from CERN, the particle accelerator outside of Geneva. The idea was could you actually bring a small radioactive particle right next to the cancer cells to basically have the cancer cells killed. Very elegant idea. Took many years again for them to actually mature. Kind of a fringe idea when Novartis first acquired it, but it turns out to be very effective. So the idea is you link a drug that is very specific to either the cancer cells you're trying to target or the area around the cancer cells. You link it to a radioactive particle, and then the drug brings the radioactive particle near the cancer. Relatively small doses, reasonably effective. And we have two drugs now. One of our drugs for prostate cancer for a target called PSMA, over $2 billion in sales. The other for neuroendocrine tumors, approaching a billion dollars in sales, launched globally. Very challenging technology in that after you activate the drug, you have between 4 and 5 days from the factory to the patient. So the supply chain here is very, very complex.

It's got a half-life and dedicated supply chain. We've had to figure this out. It's taken us I think seven years, but we've now done it at scale. We have launched these products globally and are 99.9% on time on every dose, which has taken a huge effort.

So validated. So for the given isotope, in the case of the one we've scaled, lutetium, which is a beta emitter, now I think it is platformized. We just have to find, of course, and that turns out as always not as easy as it sounds, but finding another target, the next target after PSMA is what we're looking for, but within our manufacturing network. Yes. Now it gets much more complicated if you want to switch to another isotope. So if you want to switch to actinium, an alpha emitter, there's terbium, there's kind of alpha-beta mixed emitters, and so those are much more complex because you would have to build a slightly or radically different supply chain. So those are not plug-and-play, but within lutetium, and that's what we do now. We have eight or nine projects now in the clinic all with lutetium tied to another targeting different cancer types to try to see if we can be successful.

Yeah. So I think we do a lot more thinking now at Novartis, I'm sure at other companies as well, on not just the target product profile, which is kind of what a clinician would say who's maybe a science-based clinician. We think about the patient profile. I'll come back to that. We even think about the kind of physician adoption profile because it's not always straightforward. What seems obvious to us when we're sitting in our company is when it actually goes into practice, is that something that a physician actually wants to deal with? And these practical considerations are really important. I think the first lesson is there's no one-size-fits-all. What we find is that there are segments of patients, let's say in the case of siRNA, who prefer a less frequently administered medicine. Others are okay with a daily oral because they don't like an injection. These siRNAs are injected. We even see geographical differences. I mentioned in Asia there's huge interest in siRNA-based technologies for cardiovascular disease. In the US it's still building and we're still working through it. I think the other thing I'd say on cancer is that we've moved away from an era where it was all about efficacy at all costs. One of the interesting things about radioligand therapy, and to juxtapose it to another technology, antibody drug conjugates, which we also are in but not as big as radioligand therapy, is that the safety profile is often very attractive to patients. When they can have relatively high efficacy but a short course of radioligand therapies, four to six doses usually, and then you stop, with a reasonable safety profile, that's more attractive than chronically feeling sick over time. That's a shift. We used to just go as a hammer, go as hard as we can, try to knock down the cancer, and not worry about the safety profile. That's another shift. So I think you have to think through that there are going to be different patient segments with different needs. And then I think you have to be comfortable. But it's interesting with our radioligand therapy portfolio. I'm often asked, but there are all these orals coming. For us to be successful, if we just get 20% market share of every one of those cardiovascular categories, we have huge medicines, and because these medicines are in the US context under the medical benefit, not the pharmacy benefit, it's quite economically attractive. So I think you have to be comfortable with those ambiguities.

Yeah. And there were several deals announced where a large pharma company is partnering with an AI-first startup, which I think in and of itself is fascinating. The other thing I thought was fascinating is that the sort of flavor of deals is pretty varied. In some cases it's a partnership, in some cases it's a license, in some cases they want to get access to a specific model. So we're actually seeing not only technology innovation, but a little bit of business model innovation where pharma is willing to transact on AI in a number of different ways. So that to me was just a fascinating thing to see, and in a lot of ways an exciting one given where we sit and where we spend our time.

Yeah. So we actually have the full gamut. We have the full spectrum in our portfolio. We just recently announced an investment in a company called Boltz. Boltz bio came out of an open source project at MIT.