Drug Prices, AI, and the Race Against China Biotech | Vas Narasimhan | Novartis | Fortune

Thanks to be here. Great to be here.

Look, I think the president identified a very valid issue which is when you look at what underpins the R&D in our industry, it's been primarily the United States. The United States is the source of more than half the profits of the industry. And without the United States, you wouldn't have all of these innovations, all these incredible medicines. So, we need to find a way now to have a more balanced approach to actually funding R&D and creating those returns. And I think the mechanism that we've come up with now with the government, we're one of the 17 companies that have agreed with the government, I think, is a reasonable way to do that. We're really benchmarking against the eight largest economies in the world on a GDP adjusted basis and saying future medicine should be priced similarly in the US to those countries. Now what that's going to mean though is a complete policy shift in Europe, Japan and Canada. There has to be a complete rethink of how they value innovation and that's now the next chapter of the story that has to unfold.

Yeah, absolutely. Now, first I'd say that the reason the medicines cost what they do is because of the value they deliver. And I think if you look at the value of a human life and the longevity, the fact that we can tackle cancer and rare diseases like we never could in the past, that's why we want to create that value. Now AI I think has the opportunity in a 7 to 10 year horizon to transform R&D in our sector. We have completely new ways to research new medicines, develop new medicines. Uh we have partnerships with companies like Deep Mind and Isomorphic Labs with Palantir and these are already tangibly accelerating what our scientists can do. Things that would normally take our chemists or biologists 6 months can now be done in a day. Uh analyses that would be needed to be done in a clinical trial that would take four to six months can be done in a week. And as that starts to compound, I think we'll get drugs faster and hopefully cheaper. But the real thing we should be excited about is can AI help us find cures or treatments for diseases that have no treatment today, right? Problems we were never able to solve. And I think that's what's really exciting actually with Isomorphic Labs. What we do is we work on undruggable drug targets and we say, can we use AI to solve these problems that human approaches over the last decades were never able to solve.

Yeah, I think this is a 7 to 10 year time horizon simply because we still can't move away from studying these medicines in clinical trials and that's just how long it takes and so we're going to learn a lot in the meantime. I think we'll start to see things go faster but it will take time for this really to unfold. Now I would say more tangibly in the near term it's clear that AI will transform how we approach customers, how we run our operations. I'll give you one very concrete example. We're building nine facilities in the United States as part of our $23 billion investment. I mean, those facilities are filled with AI enabled robotics and really the ability to automate large parts of the production process. So, we need a fraction of the people. We get higher quality and also manages down our costs.

Yes, that's right. I mean, look, I think in the past, why did manufacturing often go out of the US? It was a cost of goods issue. Now with automation, AI and technology, we can actually produce in North Carolina or in California or in Texas or in Florida or in Indianapolis at prices that are very similar to where we have in the rest of the world.

Yeah, we've had an experience with this. I mean we brought forward one of the first gene therapies for a terrible condition called spinal muscular atrophy that can lead to children dying before their first birthday, sometimes their second birthday, and we can actually with a one-time therapy have these children almost grow up with a normal life. And that made us completely rethink our go to market model. In these cases, now you have to come up with new models where governments or states in the United States can fund a one-time therapy but also if the drug doesn't work we would return some of the value back. And I think these kinds of value-based agreements are going to be the future if we really move to these one-time therapies and precision based therapies. Now, I think that's taking a lot longer than we had expected. It's not easy to find these kinds of innovations. But I do expect as we continue to see technologies like RNA therapeutics and gene therapy mature, we're going to have portfolios of medicines that can tackle a whole range of rare diseases. I mean, it's worth remembering that we can only tackle about 10 to 20% of known human diseases and many of those diseases not as well as we hope. And so I think with technology constantly improving now especially with AI, we're going to bring more and more of these technologies forward but we will have to innovate on the payment models. I mean some of the things that have been talked about is can you come up with some sort of basket model where you pay a single amount of money for the whole basket of gene therapies as an example. So I think those payment models will need to be innovated.

It's not easy. I mean it's even whether it's in the US or around the world. That's one of the things that has to get reformed just because the whole bureaucracy is designed behind chronic therapy. And so when you want to go to a one-time therapy where all the cost is upfront, there's no way to do that. But then when you say want to amortize that cost over years, there's also no mechanism to do that either. So it's been tough. And as one of the first companies to roll out, I mean our gene therapy is actually reimbursed in 50 countries around the world. And so that has been a learning process, but I think we can get there. It'll take time, but what it'll take is more of these innovations coming forward.

Yeah. So I don't support eroding IP. I mean IP is the lifeblood of our industry but I think all of the tech industries that also I know you cover, without that IP protection we would never make the return. And I think it's always worth remembering once we finish our IP protection, our medicines become very cheap. Think about this. In the United States, over 90% of the volume of all prescriptions are for generic drugs. And the United States pays the lowest price in all developed countries for generic drugs. Once our heart failure medicine Entresto went generic last year, it went down to pennies a pill. And then for the rest of the history of this medicine, it's available to the globe at those very low costs. So I think it's a short-term win politically to shorten these IP protections, but the long-term cost is you'll have less innovation. Venture capital-based biotech will not be able to fund, you know, their business model will be eroded. And so I think actually that's why you see China protecting intellectual property. You see India moving to protect intellectual property. And I think what will happen over time is many of those emerging markets will come to that model. Now that said, in low-income and low and middle income countries, we don't enforce our IP for those countries. We encourage authorized generics or sometimes just allow generics to go into the market because those poor countries need access to those medicines. And we're actually the global leader. We actually have 300 million patients on our medicines. We were ranked number one in the access to medicines index because we get innovations to the poorest countries in the world. So I think you can do both. But we have to keep reminding ourselves when you hear sometimes from the Democratic party in the US a desire to shorten IP, that will I think have disastrous impact on innovation.

Well first I think data is now becoming an absolutely critical asset. We actually of course keep our data proprietary. In fact with some of our agreements with tech companies they don't want payment in money. They want payment in access to our data. And it just shows you how valuable data is. Now I think for governments and public sector groups, I think it's very reasonable to monetize those data sets and we absolutely as a private enterprise should pay and we do pay the UK Biobank as an example, but there are other examples around the world, and we should pay for that and we should provide certain rights for that because that is in the public interest. But it's very important actually as we get that data, what I would encourage is we need governments to make sure that that data is clean and curated. I mean the amount of energy that's spent in actually making that data analyzable is immense and I think that would actually enable us to move much faster with those data sets.

I mean certainly look, I can tell you for Novartis we never moved away from a belief that you have to invest in internal research. So we invest 11 billion a year in R&D, about 3 billion a year consistently now for over a decade in basic science research and early clinical development because we believe that that's the core of the company. That said, about 35% to 40% of our medicines come from the external world. What I think will be interesting is how AI changes that. AI will certainly enable biotechs to move faster but also us to move faster. The one twist to the story though and I think for US competitiveness is China biotech can now use AI to actually hack patents and actually move extremely fast with fast follower medicines and that is completely reshaping our industry. Last year was the first year ever China biotech had more exits and deals than US biotech. And I think strengthening the patent regime in the US while also enabling biotech in the US to thrive is going to be very important to compete with the rise of China biotech.

Certainly I mean China has become I think the fastest place in the world right now to register a clinical trial for early clinical development, run clinical trials. So, it's definitely part of the ecosystem and I think it's a wakeup call for both the US FDA and the European Medicines Agency that they need to streamline processes to make clinical trials much easier to start and I think that's starting to happen. I know the FDA is working on it. I heard today the CHMP is working on it and that's going to be absolutely critical. But I also think what we have to remember even with all the trade wars and other things happening, we need data to be able to flow. We need the knowledge to be able to flow. We do global clinical programs. In order to find the innovations, we need to access global minds and global innovation. And so I wouldn't want to lose that amidst all of the other things that we're trying to work through in geopolitics.

Thank you all very much.