Chief Executive Officer, Novartis
Novartis CEO on 2Q Profit Beat, Investing in Pipeline
Novartis reported better-than-expected sales and earnings for the second quarter, driven by strong performance from its new ...
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 (16 segments)
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Romina0:00
The headline here is the return to sales growth in the most recent quarter, a reaffirmation of your full year guidance. But still, some questions: with such a big beat this quarter, why not raise the guidance for the full year?
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Vasant Narasimhan0:13
Yeah, thanks for the time, Romina. I really feel like this year has been a tale of two sides. On the first half of the year, we needed to navigate these expiries, the largest patent expiries in our history, and then we get into the second half to a period of now growth that we expect to sustain over the coming years to deliver the 5 to 6% growth that we've outlined. Our second half is going to be about investing in the pipeline and investing in the launches that will fuel that growth. So we saw, you know, really deliver at the upper end of our guidance in the first half, but we still think it's prudent not to raise and to actually maintain our investment levels and ensure that we're setting up well for this next phase of growth going forward. And of course, we'll reevaluate in quarter three based on how the numbers flow.
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Romina0:59
So investors are obviously looking at the balance between the loss of patent protection on two or three of your drugs that had been big winners for you, and of course, a new pipeline of products with that patent protection. When we start to talk about some of those names, like a and others, can they make up for the deficit off the loss of that patent protection?
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Vasant Narasimhan1:17
Yeah, we feel really confident. I mean, when you look at growth in quarter two, I think that's showing that our big medicines, because they've done Kisqali and because of Entresto, with $10 billion of peak sales, and over $6 billion plus peak sales, are firing on all cylinders and can carry us through the end of the decade. But what's really exciting is the rest of our cancer portfolio, drugs like Symbicort and Fluvector performing extremely well. Our cardiovascular medicine, Leqvio, had an outstanding quarter and that's a good drug. We've got it to $4 billion plus peak sales. And then we have a few new launches that have just kicked off, drugs like Remibrutinib, taken together. We think that gives us more than enough to actually grow in that 5 to 6% range through the end of the decade. And I think what's exciting is with all the phase three readouts, six plus phase three readouts that we have over the back half of the year, if a few of those hit, we have the opportunity to further upgrade that mid-term guidance.
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Romina2:13
Absolutely. And that's certainly where a lot of eyes will be. Whether those readouts that you do have, whether they do prompt that guidance upgrade. And with that in mind, as you mentioned, I mean, you have several to look forward to. But when you think about the pipeline here that you have over the next 6 to 12 months, which readout do you think has the most potential to potentially change the trajectory for Novartis?
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Vasant Narasimhan2:38
Yeah, I mean, there's a number of readouts, but I think the two big ones that people are particularly watching. One is Remibrutinib in multiple sclerosis, where we have two phase three studies where we have the opportunity to be the first oral drug to completely redefine the standard of care in multiple sclerosis. We have a long history going back to 2005 with Gilenya in multiple sclerosis, and so if this drug were to hit, it would obviously represent a significant upside for a medicine that has a number of other indications as well in immunology. And then the other one I think a lot of people are focused on is a drug called deldisiran, for a muscular condition called DM1. We acquired that in the Avidity acquisition. It's a $5 billion plus peak sales potential asset. And if we were to win, we'd be the first medicine ever to show efficacy in this disease. Those are probably the two big ones. And then there's a number of other ones that, as I mentioned, will be coming out as well over the coming months.
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Romina3:34
And even with this calendar that you have of upcoming readouts here, you take a look at what Wall Street is expecting. And basically they've factored in no growth for your company post 2030. And I wonder, you know, from the chair where you're sitting, where do you think the market is most underestimating you? What do your own internal modeling and calculations tell you about what that growth picture looks like?
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Vasant Narasimhan4:00
Yeah, absolutely. So as I mentioned, we've got to 2030 that 5 to 6%. We've said mid-single digit thereafter. And I think the biggest question on people's minds will be these pipeline readouts. So that's one big thing. And we believe that we just take standard probabilities. If we win on half of these readouts, we'll be able to grow really consistently through the middle part of the next decade. But I think the other thing Wall Street is underestimating is the potential we already have in the current assets. Drugs like Leqvio, Scemblix, and Pluvicto. So these are all medicines that last with patent protection into the back half of the next decade or have significant life cycle management. So I think when taken together, we should be in a much stronger position. But I think you're right. The key question we need to keep demonstrating is that we can grow through the 2031, and next year that we have, and we feel confident that we can do that.
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Romina4:52
With regard to the growth, the potential growth of use of some of those products, let's take Pluvicto, for example. Do you have the manufacturing capacity and just the distribution pipeline to handle any material increase in demand?
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Vasant Narasimhan5:06
We do. We've made a significant scale up over the years. You know, in the US we have eight facilities that are either completed or will be completed and give us significant scale in radiopharmaceutical therapy manufacturing, or the nuclear material. We have a network now in Europe and Asia. We currently support over 900 sites in the US and over 800 sites internationally to provide radioligand therapy. And it's all with the mind that Pluvicto is, of course, a $5 billion plus asset in prostate cancer. But we believe radioligand therapy could be a $25 to $30 billion segment over time. And we're building the infrastructure to enable us to launch a pipeline of medicines to these centers around the globe. So we take a very long run view in building up that capacity. And I also think it creates a moat for competitors to have to really reach, because it's not easy to build up nuclear capable capacity around the globe. We deliver these medicines on time, in full, within 4 to 5 days, consistently anywhere in the world the patient needs them.
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Romina6:07
With regards to some of these new products and the pricing on them, with the backdrop, of course, of some of the U.S. regulatory decisions, or we should say, pressure coming from the White House to keep those costs in check. Have you found the balance between what you think you are going to be able to price on a competitive basis relative to maybe what pressure has come from the government?
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Vasant Narasimhan6:29
You know, when we look at our mid and long term guidance, we factored in now the MFN agreements that we've signed with the US government. That does mean we have to think differently about how we price medicines, particularly in the eight target countries of that agreement. And so we factor that in. I think it remains to be seen how those countries respond, because I think that the one nation, understandably, is that those countries start to raise their prices to properly value innovation on a GDP adjusted basis. We see some positive signs. Countries like Japan are making the right moves and trying to increase their prices, which allows us then to adjust our US pricing. But other countries go in the wrong way. I mean, Germany recently passed a law that really was a setback in reimbursement and valuation of medicines in Europe. And so that's a cause for concern. So I do think over the next 3 to 4 years, it's going to be bumpy as we start to work through how we implement pricing in the context of most favored nations.
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Romina7:30
Yeah. And I know that you had some comments about Germany and sort of the approach that they've taken on your earnings call a little bit earlier. And I wonder, you know, what you think the net effect of this will be as you have these different drug pricing conversations around the world, not just in the US, but in Europe, in Germany as well, because one of the fears out there is that you think about your champions potentially seeing reduced access to new drugs. And I wonder, you know, in your view, whether or not that's something that you think could actually play out.
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Vasant Narasimhan8:02
You know, we're already in a situation where only 60% of new medicines are launched in a timely manner in Europe today. And so I see that going down. I think there'll be even fewer, a lower percentage of innovative medicines that are launched, or they might only be launched in the private market, not in the government reimbursed market. As these policies continue to get rolled out and if this environment doesn't get improved, I think what will ultimately happen is similar to what we saw in Japan, eventually it gets to a point where the public will no longer accept the fact that the latest medicines are not coming to patients in that country, and then we'll see a correction. But I think that still is going to have to happen. This has to be something where patients and patient groups and physicians demand governments to actually enable these latest innovations to become available. I'm hoping that will happen, but I think that's going to take time. And unfortunately, in the medium term, we're going to have a lot of bumpy years in terms of where we launch products in Europe.
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Romina9:02
And you also mentioned some of the acquisitions that Novartis has made over the past year. You think about Avidity, for example. I know you said on the media call that you're going to continue that strategy of smaller deals here, smaller biotech companies, but you're remaining open to larger acquisitions. And I wonder, you know, what are the necessary ingredients that you would need to see when evaluating one of those potential bigger ticket deals?
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Vasant Narasimhan9:29
Yeah. When you look at our history, we've always looked at those bigger deals as bringing hopefully a technology platform and some assets that we think are late stage in our core therapeutic area. So you look at Avidity, neuromuscular disease that combines RNA therapeutics in an area that we're highly interested in. It gives us a new technology platform to develop a whole new range of RNA therapeutics. The Medicines Company was about a $9 billion acquisition that brought in, again, RNA therapeutics for cardiovascular disease, another core area. We acquired two companies for radioligand therapy for 4.4 and 2.1 billion. So I think whenever we find a profile that gives us new capabilities as well as late stage or mid stage pipeline assets, that's where we get excited about larger deals. And we're not looking just to buy sales, but we really want to bring in capabilities or strengthen one of our core therapeutic areas.