Chief Executive Officer, Novartis
Novartis CEO: We're never done with M&A
Vas Narasimhan, CEO of pharmaceuticals company, Novartis, discusses the company's latest $12 billion acquisition of Avidity Biosciences, and ongoing negotiations with the U.S. administration over potential pharmaceutical tariffs.
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About Vasant Narasimhan
Vasant Narasimhan, CEO of Novartis, discussed the company's second-quarter 2024 performance in a July 21 interview, noting that the first half of the year involved navigating "the largest expertise in our history" while the second half is focused on investing in the pipeline and launches to sustain 5 to 6% growth. He stated that despite a "big beat" in the quarter, the company chose not to raise full-year guidance to maintain investment levels, with a reevaluation planned for the third quarter. Narasimhan also addressed patent expirations for drugs like Entresto and Cosentyx, expressing confidence that Novartis can grow through 2031 with assets such as Pluvicto and Kisqali. Narasimhan commented on the company's acquisition strategy, stating that larger deals are evaluated when they bring new capabilities and late-stage assets in core therapeutic areas, citing acquisitions like Avidity, The Medicines Company, and two radio ligand therapy companies. He described radio ligand therapy as a potential $25 to $30 billion segment and noted that Novartis has built manufacturing capacity, including eight facilities in the US and a network in Europe and Asia, to support over 900 sites in the US and 800 internationally. He also expressed concern about the European market, stating that only 60% of new medicines are launched in a timely manner there and predicting that percentage could decline further.
Transcript (21 segments)
I
Interviewer0:00
You've really been spoiling the markets over the last 10 quarters. You've always beat expectations and then subsequently you were able to raise your guidance. You beat this time around even though it was a very narrow beat, but you didn't quite manage to raise your guidance. Talk to us about what you saw this quarter and why you're a little more cautious than in previous quarters maybe.
V
Vasant Narasimhan0:18
Well, I think this is the first time in many quarters where we've had some generic expiries hit us. You know, when you actually look at the underlying performance of the business, I think what's really exciting is our growth drivers are beating quite significantly. So on the one hand, we had Entresto, our large heart failure drug, go off patent, so that I think made us a little more cautious on the outlook for the remainder of the year. But Kisqali, our breast cancer medicine, beat significantly; Pluvicto, our prostate cancer medicine, beat significantly; Kesimpta, our multiple sclerosis medicine, beats; our cancer medicine beat. So those beats are what matter. I think that will really drive our growth going into 2026 and beyond.
I
Interviewer0:53
A loss of exclusivity, something that your company, the pharma sector overall deals with all the time. This is a fact of life. However, where do we see the brunt of the erosion when it comes to the sales when it comes to Entresto, which has been one of your blockbuster drugs?
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Vasant Narasimhan1:09
Yeah, I think we'll see the first full effect of Entresto in quarter 4. I mean, that's been the full quarter without Entresto exclusivity in the US, and we'll see those impacts going into quarter 1 and quarter 2 of next year. But as those growth drivers continue to perform really strongly, we'll come out of that, I think, coming back to that strong growth profile that investors have gotten used to. And I think that's what we're really focused on. And Entresto is a fact of life in our industry. What really matters are those launches and also getting the next wave of pipeline assets into the registration and ultimately to launch.
I
Interviewer1:42
The pipeline. A lot of catalysts are not until 2026. What should investors at this point in time be most excited about?
V
Vasant Narasimhan1:48
Well, we just got an approval of Rapsido, which is a drug for chronic spontaneous urticaria, a dermatological condition, which we think will be the first of many approvals for this medicine that could be a multi-billion dollar asset that drives us into the next decade. Similarly, we're going to have the approval in prostate cancer of another indication for Pluvicto that will be really exciting. And I think those two will be big drivers. And then actually later this week we'll be announcing the full data set for the first medicine ever to show efficacy in Sjögren's disease, one of the most common conditions in rheumatology. That will be another important growth driver that we expect to get approval on next year. So three big approvals next year to then drive growth into the future.
I
Interviewer2:30
Mhm. So, it seems as though you're pretty excited about what's to come, about what has been launched and your ability to offset the generics competition, but still you felt the need to do a massive M&A deal over the weekend. $12 billion is something that you shelled out for Aidity in the US. That is your biggest deal in more than a decade. Talk to us about the rationale here.
V
Vasant Narasimhan2:53
Look, when I saw Aidity, I saw the opportunity. I think we saw the opportunity to bolster our neuromuscular pipeline. I mean, we really believe these are diseases that don't have approved medicines. They are debilitating conditions and they affect 50,000, 80,000, 100,000 patients depending on the geography plus. And so the opportunity here to bring first-in-class breakthrough medicines for three different diseases, two of which have multi-billion dollar potential. This has really nothing to do with our near-term patent expiries. What I think this does is bolsters our growth profile 2030 to 2040. These are medicines that have patent protection to 2042, 2043. They're not susceptible to the US IRA, which gives us a big advantage there. And we have a huge footprint already in neuromuscular disease. So it's a great strategic fit, three late-stage assets, and so we're quite excited about the opportunity.
I
Interviewer3:45
You've been super active when it comes to M&A. You've done, I believe, more than 35 deals over the last 12 months or so. Many of them though bolt-on, smaller than $5 billion a piece. Now this one obviously was the big one. Do you feel like you're done now?
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Vasant Narasimhan4:00
Look, I think in our sector we can never be done. We always have to look for great assets. But I think for us it's all driven by the science and the technology. If it's a fit with our strategic areas of focus, if it's a fit with our technology areas, and in this case neuroscience, RNA therapeutics, this was a perfect fit for us, then we'll of course keep doing the right deals. When you look at our free cash flow, I mean it's approaching $20 billion a year. So we have adequate firepower to do deals like this to bolster the growth profile of the company.
I
Interviewer4:28
When I last spoke to you, I believe end of January this year, you were pretty optimistic about a more permissive FTC. Was this one of the driving forces behind that continued deal making flow?
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Vasant Narasimhan4:40
Look, I think we of course are watching that, but in this case, this really wasn't a consideration, and there's really no overlaps here of note. I mean, I think this is really one where we felt like the strategic fit is what drove the deal. Let's talk about the US and let's talk about the tariff situation. To be honest, to be completely frank, I'm a little confused because everything is...
I
Interviewer4:57
You're not the only one.
V
Vasant Narasimhan5:00
You're not. Okay, good. Um, it's such a fluid situation. Now, recently some of your competitors, Pfizer, AstraZeneca, struck a most favored nation deal with the White House. The analyst community is expecting for you to do the same. Can you tell us something?
We've been in conversations with the White House really since the beginning of this year and we continue those conversations regularly. We're in touch on a weekly basis. We're of course looking to find a good solution to the challenges they've put forward. I think also importantly we're also trying to tackle some of the bigger structural issues here. Pharmacy benefit managers, 340B, the fact that outside of the United States innovation is not appropriately rewarded. So we're confident we'll come to an appropriate solution before the end of the year. But I think that's really right now something that's ongoing and we'll hopefully be able to provide more updates soon.
I
Interviewer5:49
But if you do strike a deal with the White House, that means the drug prices that you can charge in the US are going to fall and in some cases they might fall by 70, 80%. What is that going to do to profits even if that means that you're shielded from tariffs?
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Vasant Narasimhan6:03
I think really what's going to happen here is you're going to have fewer launches in public markets in the target countries outside of the United States. So I think prices in the US will adjust, but they'll adjust modestly. I think really what you're going to have is a situation that unless overseas countries, particularly as the administration is focused on the G7 plus Switzerland and Denmark, if they don't raise their prices up to reward innovation on par with the US, companies won't launch in the public market in those countries. So really that's I think the administration's core goal is how do you get countries overseas to reward innovation and pay their fair share of the innovation ecosystem that the US has historically been supporting, and that's how I think this will ultimately play out.
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Interviewer6:48
Do you think these G7 nations plus Switzerland, are they happy to raise prices? Not necessarily.
V
Vasant Narasimhan6:53
I think this is going to be a challenge. It's going to take years to unfold. I think there's multiple elements to that. Of course we want better rewarding of innovation. There's also a number of mechanisms like clawback mechanisms that claw back excess revenues. There's hidden taxes. I mean, I think all of these things will have to get addressed, but as you point out, it will not get addressed overnight. And this will be a multi-year effort to hopefully have those countries better reflect the innovation that we bring.
I
Interviewer7:18
Vas, while I have you here now, the White House also threatened 100% tariffs on branded pharmaceuticals unless new ground has been broken on US facilities. I saw in a press release you spent 20 or investing $23 billion and you're hoping to break ground on a number of facilities in the US. Does that also mean that you're shielded?
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Vasant Narasimhan7:41
As best as we can understand, as long as we continue to build our factories in the US and we continue to work towards an appropriate agreement with the US, we can manage through the tariff situation. That's why we don't expect it to impact our near or midterm guidance. We have five facilities we'll break ground on before the end of this year. We'll be in a position hopefully relatively soon where we can produce our US products for the US. And with respect to all the different tariff investigations, I've learned a lot about tariffs, I'd say, in the last six months. We're an industry that was never exposed to tariffs before, and now this has become a topic. But I think our teams have done a good job to navigate it. So, we feel confident with where we are and we'll just keep rolling with the situation.