The pharmaceutical industry is being reshaped by new scientific, operational, and global demands. The CEO of Novartis shares how the company is embracing data, AI and new breakthrough therapies that make a real difference in people’s lives. 
Vas Narasimhan, Chief Executive Officer, Novartis  

In conversation with: Jeremy Kahn, AI Editor, Fortune

Reimagining Medicine

Conferences

Great, Vaz, thanks so much for joining us. Thank you, great to be here. Great to be here. So the title of the session is all about sort of reimagining medicine, but because we've just heard the president speak and he happened to talk a little bit about drug prices in the pharma industry and broadly speaking, that's one of the issues I think a lot of people think about when they think about medicine and healthcare going forward. I just want you to react a little bit to what he said about pharmaceutical companies and drug prices. I know. You guys have actually in the US challenged in court some of the price reductions for Medicare, but how do you react to what he said? 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 in the United States. The United States is a source of more than 50% 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 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 8 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 It'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, right? Of course, one of the issues, as you say, with, with, with the reason the prices have been high and the reason that a lot of the profits have had to come from the US is the tremendous expense of developing new medicines. Now I think with some of the technologies we're seeing, including AI, which I cover frequently, there is this maybe an opportunity to bring some of that development cost down. I don't know if you can talk about how that looks at Novartis and how you're maybe seeing a path to reducing research and development costs. 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. We have partnerships with companies like DeepMind 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 4 to 6 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, 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. That's fascinating. And what do you think the timeframe is for potentially delivering on that vision? Yeah, I think this is, 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, it will take time for this really to unfold. Now I would say more tangibly in the near term, it's clear that AI AI will transform how we approach customers, how we run our operations. I'll give you one very concrete example. We're building 9 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. So there are all these other optimizations you can bring to bear to hopefully ultimately lower lower costs while maintaining more. 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 what we have in the rest of the world, right? One of the other, I think, big promises of technology is the idea that medicine will become much more personalized, much more targeted. But of course pharmaceutical companies have the old model was definitely. You sold you attacked the diseases that were sort of most frequently encountered, that were most prevalent, where there were the biggest markets. Now if you move to a world where it's much more personalized, does that change the model of how you develop and does it change the model of how you go to market? 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. The payment models, I mean some of the things that have been talked about is, can you, 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 innovative. And what, what have your discussions been like with the insurance industry, particularly in the US where that's the primary payer of a lot of these medicines? What have those discussions been like about these moving to these more innovative pricing models? Not easy. I mean 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 up front, there's no way to do that. But then when you say you want to amortize that, that, that cost over years, there's also no mechanism to do that either. So it's been, 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 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, right? Uh, you know, one of the things that's enabled a lot of people in, in, outside of the developed countries to access drugs has been the, the huge rise of the generics industry. Um, and I know, you know, you, you're constantly facing this issue if you have drugs that are going off patent, um, that you have been making money on. You have to have this pipeline to replace those drugs. There's a lot of pressure in, in some places to, to shorten IP life lifespans or to bring these generics. Market much faster. I'm curious how you're looking at that evolving picture and making sure that you have the pipeline, but also that, you know, there is a real issue around equity and care for people around the world. 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, as you know, 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, it's a short term win. Wind politically to short term 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, 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 go 300 million patients, we have 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 just 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 a disastrous impact on innovation. There's also this idea in many parts of the world. I often cover from my beat looking at AI on how do you create these data sets and under what terms are they available to the world. So the UK, for instance, where I live, has the UK Biobank, great source of data. There's a constant debate about what terms that should be allowed. that should be allowed for commercial development. Do you have a sense of, you know, how we should think about these data sets, some of which were created by governments, by, you know, national healthcare systems, and what the terms of access should be to? 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 and money. They want payment and 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 that 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 in the public interest. But it's very important actually is we get that data and actually 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. And analyzable is immense, and I think that would be actually enable us to move much faster with those data sets. Great. One other question I wanted to ask is with the advent of a lot of new technologies, is it really changing the way pharma thinks about innovation? For a while, you know, the pharma companies developed drugs and they tested them and they took them to market, and then more recently, pharma companies have tended to try to de-risk the development by saying, we'll let a biotech do all the development and do maybe even some of the testing. Thing and we will then come in and we'll license it or we'll buy the company and we'll take it to market and that's become the model. Do we see, are you seeing a reversal of that model now with some of these new technologies? 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, 35% of our medicines to 40% 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. Tech 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. Is there more that can be done on the clinical trial side also in the US? I keep hearing that China in the last 11 to 2 years, past 11 or 2 years, has really advanced on doing clinical trials very quickly. There are these clinical research organizations that have sprouted up that can, can get your drug, you know, through testing. Much faster than you could maybe in a developed market. How, how are you looking at that Novartis? 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. I think it's a wake up 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. We 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. Fantastic, Vz. Thank you so much. We're out of time, but thank you for joining us. Thank you all very much. Thank you so much.