AI, vaccine distrust, & the future of healthcare: Novartis CEO

Thank you, Brian. Great to be with you today.

Yeah. When you look back in 2018 when I started in the role, we were a relatively diversified healthcare conglomerate. We were in generics, we were in eye care, we were in consumer health. And I think we were one of the early movers in our sector to really transform our company into a pure-play medicines company. We did over $130 billion in deals, exited businesses with some very large spins that were very shareholder-friendly—Sandoz and Alcon. We transformed the company with a very large restructuring program to really simplify down. And then really, last year was the first year that Novartis was a pure-play company really in its 200-year history. I mean, we've always had some element of being a conglomerate. And you saw us have an outstanding financial year. We raised guidance three consecutive times, double-digit sales growth, planning for double-digit core op inc growth, so really now putting us in the right trajectory. Now, looking ahead, as always in the pharmaceutical industry, it's all about the mid- to long-term growth and do you have the pipeline to keep growing. So we've guided to very robust growth through the remainder of this decade. But the big question for our company is what's the next wave of innovations that will power our growth in 2030 and beyond.

Yeah, absolutely. You know, when you think about it, we had always believed that being a conglomerate protected us from the ups and downs of pharmaceutical innovation. As you know, very high-risk innovation; only one in 10 medicines that we take into the clinic ultimately is successful. And so that was kind of the ethos in the organization. But when we really looked at the facts and we looked at the data, most of where the value creation that Novartis really made since really forming as Novartis, as it currently constituted in 1996, came from pharmaceutical drug discovery and research. And all of these other businesses with lower returns on capital, higher capital intensity, lower overall return profiles, were actually dragging down the company. And so what we found, and when we looked at the data, that the right thing to do was to really split this up. Now, it was a very hard road. I mean, these were really integrated businesses. Alcon took three years to spin, Sandoz took two to three years to spin. I mean, we had to disentangle these companies. But what you're left with is a much more focused organization. And it's really interesting: right now our sales and free cash flow is going to be—we expect at least to be—higher than what we had when we had all of these businesses. So we've more than made up for three major spins by becoming a pure play.

Very hard, but I think important. When I started in the role, we sort of took stock and said historically this has been a very top-down oriented organization, command and control, suits and ties. We were, you know, really I think more of an old-school company. What we set out to do was to really send a completely new message to the organization. So we said we wanted a culture that's inspired by a sense of purpose, curious about the internal and the external world, and unbossed, meaning that people were really empowered to do their work once they understood what the clear expectations were. The first few years were bumpy trying to make that happen. I mean, I think people were confused by the terminology. I think when you want to make a culture change happen, you need to really rattle the status quo. The word "unbossed" created confusion, created a lot of debate, created people feeling like there should be anarchy, that people should be able to do whatever they want. So we had a lot of good debates. But I kind of realized that if you want to grow a culture, you've got to create the great debate. You've got to really have people debate what kind of culture do they want in the organization. And I think over time we've gotten to a place now where people understand what we mean by unbossed. People understand we expect people to be held accountable, but also be empowered. And I think that's helping drive the performance. But it's an ongoing, ongoing journey. We operate in over 100 countries, we're 80,000 people, so there is one Novartis culture, but then there's also lots of microcultures around the world.

You know, I mean, that's a big question. I think certainly you need to have, I think, a pretty relentless passion for the mission of an organization to really want to fight every single day when you know that most of the time you're going to fail. I mean, my background is as a physician-scientist. I started out working in the world of public health on areas like HIV/AIDS, TB, and malaria. I ended up at Novartis, mostly working in R&D. So I cut my teeth in R&D. I've seen many, many, many projects fail. But then there are all those moments when—I like to think of it as a miracle that fits in the palm of your hand—a drug actually works, you have a big impact on patients, and that has such a huge impact on humanity because these drugs last for decades, generations. So I grew up in that world of failure and coming back and doing it again and doing it again. And so in the end, I always think about how do you inspire a healthier world. I mean, that's my core goal, that's why I got into medicine, that's why I do this work. But it is a tough business. I mean, we have to regenerate pretty much all of our sales every 15 to 20 years. So for Novartis, we have to regenerate over $50 billion in sales on an ongoing basis. It's part of the reason why our sector has a discount on its multiple relative to, let's say, the medical device sector, which doesn't have to regenerate everything, so it trades at 23 to 25x; we trade at 14 to 17x because there's this discount, because we have this patent expiry. At the same time, we work on the most cutting-edge science there is in the world, and I think it's pretty amazing that we can work on RNA therapeutics, or gene therapy, or now AI with Google DeepMind and Isomorphic Labs. So there's always more exciting things to work on and to keep generating these medicines.

You know, you have a lot of failure in these roles, and I think that's one of the things leaders probably need to talk about more openly with their organizations. I think it's always a huge punch in the gut, of course, when you have a big setback. And we had some tough years. We had some years where, especially during the pandemic, we were not one of the companies that I think really had a pandemic boom. In fact, we had really, really tough years where share price was depressed, investors were understandably quite upset with the performance. But I always tried to think about how could you use failure as a way to get better. I always found the only times I got better or our organization got better is when we could transform setbacks into opportunities. And that's tough. It doesn't usually happen in the moment. But if you can keep reframing things as to how can I take this as an opportunity for growth—either growing myself, growing my team, growing the company—then you can turn failure into a real engine for improvement. And I think that's what great leaders have to do. You've got to take the failures, learn from them, and then get better, and then the organization will follow.

Yeah, I mean, I think that is the right question because, for us, the next five years is relatively set based on the portfolio we have and the medicines that are either approved or soon to be approved. We made a couple of big bets early on in my tenure as CEO. I really believed that medicine was going to move beyond the world of pills and so-called biologic injections into what I like to call advanced technology platforms: new areas of science and medicine. And we've made a number of bets—one of the first movers in many of these areas. So the key ones we really bet on big: one is an area called radioligand therapy. This is an area where we microdose radiation to cancers in a very targeted way, so we can basically guide radiation directly to the cancer and kill the tumor without having to radiate the whole body. Already two drugs approved, one called Lutathera, one called Pluvicto. And our goal is to build this out across a range of solid tumors. It's pretty hard stuff. We have to make the drug and deliver it to the patient within five days. We have to be able to handle nuclear material. But our bet is post-2030, this could be a $30 billion-plus market. Another area of high interest for us is cell and gene therapies. I mean, this was an area that was really hot a few years ago, has really gone through the valley of kind of despair where there were a lot of failures, and now I think it's having a renaissance. In cell therapy, the big renaissance is that you can use these therapies to reset people's immune systems, and that could enable us to treat a whole range of immunological diseases. So our company and others are racing to try to figure this out. In gene therapies, we already know we can transform the lives of children with a rare disease called spinal muscular atrophy, and now we want to use gene therapies to address even more diseases in the future. So that's another big bet. And then the third is the whole world of RNA therapeutics. People know a lot about mRNA vaccines, but alongside that came up a whole new space around RNA therapeutics, which is pretty amazing. Basically, you can take medicines that used to have to be given daily and give them once every six months, maybe even once a year. So could you vaccinate almost, or could you treat cholesterol or hypertension with an injection once a year? And that's what we're trying to get to by the 2030s. So I think there's a lot of exciting stuff. There are things we're not as big on, like gene editing and other things. But I think the real question for the 2030s and beyond is who is best positioned to take advantage of these new technology areas, and that's what we're trying to be.

Look, we think AI could have a big impact in R&D in our sector. You won't see it in the next five years, but I do think you'll see it in the 5 to 10 years. Our big bets are really partnering with some of the leaders in this space, one of them being Isomorphic Labs, whose CEO Demis Hassabis won the Nobel Prize. We're one of their two core partners. What we do there is try to use AI to identify targets for drugs and then better design the next wave of drugs for those targets, and then move them rapidly into the clinic. Isomorphic Labs and DeepMind really shocked the world in 2020 when they were able to model the structure of pretty much any protein that we know in the human body. So that enables them to really come up with novel approaches to find new drugs that could really speed up both the time it takes to find the new drug candidate, but hopefully increase the probability of success as well. We work with Palantir. We've got a large data lake now across all of our clinical trials that we've built over many years now—five years of partnership with Palantir. And that's really powering our ability to mine our data hopefully to find new insights. Other partnerships as well, all focused I would say in the preclinical and early development space. The big win for our sector is can you get from having one in 10 medicines succeed that enter into humans to maybe three in 10. Now, that doesn't sound like a lot, but that is massive when you operate in the scale that we do. And AI might enable us to do that over time, and that's what we're hoping at least might happen.