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.