Novartis CEO Vasant Narasimhan On The U.S. Healthcare System

CNBC’s Jim Cramer interviews Novartis CEO Dr. Vasant Narasimhan from CNBC’s Healthy Returns Conference today

Vasant Narasimhan

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WHEN: Today, Tuesday, May 21, 2019

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Novartis CEO on single-payer health care: It is not the right move for America

Following is the unofficial transcript of a CNBC interview with Novartis CEO Dr. Vasant Narasimhan live from CNBC’s Healthy Returns conference in New York City on Tuesday, May 21st.

Realtime Transcription by www.RealtimeTranscription.com

TYLER MATHISEN: Our next guest runs one of the largest multinational pharmaceutical companies in the world, Novartis. And since he took over there a little less than two years ago he has turned this big battleship of a company in a variety of directions, getting it more focused and most, maybe importantly, changing the culture of a company. And that is very, very difficult to do. His company is on the front lines of so much, including the intersection of data science and medical science, tools that he and his fellow executives there are using to try and innovate and bring more drugs to market quicker and in a more targeted way. Dr. Vasant Narasimhan is the CEO of Novartis. And to interview him on stage, please welcome Jim Cramer of CNBC.

JIM CRAMER: The man known as Vas. Sir Vas. Who else is in that camp? Certainly no one from pharma. I am so excited to see you. I had dinner with this man and after this dinner I said to him, "I am stupid." I am stupid. I learned so much. You are about to learn a great deal. You're a doctor. You have a unique perspective. The industry has very few doctors -- there are some -- who run companies. Does the health care system need to be fixed, or is it fixing itself?

VASANT NARASIMHAN: I think it needs to be fixed, but I think the way it needs to be fixed has to be thoughtfully done. I think it's very easy to have knee-jerk reactions. I think in a world where there's extreme positions -- and I think we have to recognize that innovation is hard in this industry. Most of the things we work on fail. I think if you look at the stats on attrition rates, they just haven't moved in this industry in a decade. So, what we do is incredibly hard. In the end, you have a handful of medicines approved every year; and we need, of course, to be able to generate returns on that investment for our investors. On the flip side, patients need access. And the way I like to think about it is we need to fix some of the distortions in our U.S. health care system. And I think if we fix those distortions, we can create a more sustainable system.

JIM CRAMER: Other than Joe Biden, every Democratic candidate favors single payer. If we get single payer, what does it mean for Novartis and innovation?

VASANT NARASIMHAN: Look, I think there's different models all around the world, as you know. I mean, we deal with single-payer systems in Europe. I would say in general single-payer systems have lower levels of access and also delay the entry of new innovation, so that's the trade-off you certainly get. I don't believe it's the right thing to do in the United States. I think the United States has been a place where patients get the latest innovations and generally have gotten it in a sustainable way. So, I don't think that's the right solution. And I think there are thoughtful policy solutions right now in Washington, if we could just, I think, get all of the players to find a common ground.

JIM CRAMER: All right. So let's go away from Democrat and Republican. If you were the person -- let's say you were the House Speaker. Would you say it's too hard? Which is where Nancy Pelosi is right now. Would you say, You know what, we got to tweak ObamaCare? Or would you say, I've got another solution entirely that people aren't thinking about because it's just politically too hard?

VASANT NARASIMHAN: I think there's a couple of places where -- I like to think about these things in incremental moves that actually the system can handle. I think the idea that in a hugely complex system like the United States health care system, move all of these pieces in a radical way, I think is challenging. But I think, look, we know we can make fixes in Part D, which we need to do. And in our sector, but also in the medical care sector, I think there's important shifts we can make. We believe in rebate reform. I think that's one thing that's coming. I think on Part B, I think, again, we need to reform Part B and 340B. This is a system that needs to be more sensibly administered and needs to have more elements of competition within it; I mean, I believe in that. We need biosimilars. We need more transparency. We need to end elements of gaming that block the ability of generics to enter. So, we can do all of these very sensible things, I think, if we could just get the parties to talk. And that would already get us a lot of the way there without us talking about more radical solutions.

JIM CRAMER: Let's go right to biosimilars, because Sandoz is really amazing. You guys have had tremendous success at it but it seems like it's success overseas, not in the U.S.

VASANT NARASIMHAN: It's been a challenge in the U.S. And in Europe now, we have eight biosimilars launched. In the U.S., it's been a challenge because I think at every step, it's taken longer to get through the regulatory hurdles that we have. And now I think FDA, under Dr. Gottlieb, has really clarified the regulatory hurdles, then. From the I.P. standpoint, it's been much more complicated to navigate the I.P. landscape in the U.S. And then lastly, again, we need Part D and Part B reforms to enable rapid biosimilars update. But you think about an opportunity, there's probably about 60- to $80 billion of spend in the United States that should be susceptible to biosimilars. And in Europe, we're seeing rapid price declines in those segments. And all of that money could then be plowed into new innovation, real innovation, that's advancing the standard of care. That's the world I think we need to create.

JIM CRAMER: That's an amazing map. I mean, you're talking about a dramatic decline, but you're also talking about a government that they receive deregulation when it comes to coal, deregulation when it comes to oil and gas, but not deregulation when it comes to pharma.

VASANT NARASIMHAN: Yeah, it's a challenge. I mean, I think even within the industry, of course, there's very different views on, of course, biosimilars. But I think we, as an industry, need to take a long view.
I think if we resist the ability to take out costs from medicines that are older and try to preserve that too long, we'll lose the right to license, to have the protections we have. Because we need those IP protections. After appropriate IP protections are gone, we need to allow for competition.

JIM CRAMER: Right. Now, I know the topic is refocus pharma. I know we can stay at 30,000 feet. I am being remiss if I don't talk about the changes that you have embarked upon as a 42-year-old doctor taking a company that everybody liked to a level -- one of my favorite moves that you made, and you just talked about the idea of doing this, you got rid of Alcon. Not that you got rid of it doesn't mean it's not worth owning. But that was shocking. I mean, Alcon was supposed to be your cash cow. How did you decide to do that?

VASANT NARASIMHAN: When I took over the role, I sat down and I really asked my team, ‘What is the real future of this company? Where do we have great strength?’ And I believe our innovation powers are our greatest strength and our innovation power in medicine. Then I asked myself, you know, ‘How can you really be a strong capital allocator within that framework?’ And to be in everything from consumer health and contact lenses to cell therapies and gene therapies just seemed like too broad a remit. So, you know, since taking over we've done about $50 billion in deals. We did consumer health, the Alcon spend, which is the largest spend in European capital markets history. And then the Aurobindo deal for our generics unit. And then we combined that with $15 billion of acquisitions, actually now, actually with the recently announced acquisition of Xiidra pending regulatory approval, that goes up to now closer to $19 billion of stuff we're bringing in on the innovative medicine side. And the kind of company I'm trying to create is one -- or that my team and I are trying to create is one that's positioned uniquely in the system. So, we're not a health care conglomerate like some of our priors. We're not an overly focused medicines company with lots of binary risk. If you look at Novartis today, we're a diversified medicines company. We are in the broadest range of platforms, cell therapies, gene therapies, radioligand therapies, RNA. We have 15 blockbusters in line, which is the most in industry.

JIM CRAMER: Creating something maybe this week.

VASANT NARASIMHAN: We'll see.

JIM CRAMER: Oh, come on.

VASANT NARASIMHAN: Possibly.

JIM CRAMER: Tell us. Come on! Give us a little -- show a little skirt here. Come on!

VASANT NARASIMHAN: Yeah, we're hopeful that we'll get the Zolgensma approval soon. I don't know –

JIM CRAMER: Oh, it's guesswork.

VASANT NARASIMHAN: Unfortunately, FDA doesn't give me a heads-up either, so we don't know exactly when the approval will come. But we're quite excited. I mean, it would be transformative. The first systemic gene therapy for neurological illness, really one of the first for any illness.

JIM CRAMER: Huge. You got to explain to people, neurology is -- everybody's given up on heart, and they've given up on neurology. You have it.

VASANT NARASIMHAN: Yeah, we stay the course in respiratory, cardiovascular, neuroscience. We believe that in the end, in the long run, if we can bring meaningful innovations in these areas, we can -- huge breakthroughs. And when you look at Zolgensma, this is opportunity to cure -- potentially cure kids of this disease. We recently presented at AAN, the American Academy of Neuroscience. We showed two or three striking things. The most striking things to me were children who got this in their first year of life, single infusion, maintain all of the benefits four to five years later. So, this drug is really making a transformational effect. The other one is if you do newborn screening and you treat with this medicine, these kids are growing up almost normally. So, could we live, imagine, let's hope, to live in a world where we eliminate maybe a genetic disease that was otherwise killing these children either in 2 years or 10 to 15 years of age. I mean, that's what we hope for when we do this work.

JIM CRAMER: Well, a lot of people feel that big pharma means go after chronic and don't solve because if you solve, you're Gilead, which has got the lowest multiple in the history of major pharma. You're not afraid to solve.

VASANT NARASIMHAN: Not afraid to solve, because you have to be about all of these things. We are still in heart failure, as you know. We have Cosentyx and psoriasis. We're working on asthma. But then we're working on gene therapies to cure these genetic diseases. I think we have to be a company about the whole spectrum. I believe ultimately society will value those innovations.

JIM CRAMER: Entresto. Talk about it. We're back in a wayback machine. But you know that this is what people have to do.

VASANT NARASIMHAN: Entresto was an interesting story. We started out believing this was going to take off like a rocket. Certainly did not take off like a rocket. I think a lot of people externally gave up on us, on our ability to turn around this medicine. And actually what we've seen with consistency, we actually are now back on track for this to be a 4 to $5 billion –

JIM CRAMER: Incredible. It wasn't in anybody's numbers.

VASANT NARASIMHAN: You know, it was interesting learning. One of the key things we've learned is we have to talk not just about the lifesaving benefits of these medicines but the quality-of-life benefits. Because what patients want is actually to feel better. And once we changed our messaging and put our focus on the quality of life, we actually saw a big uptick.

JIM CRAMER: Is that because you're a doctor?

VASANT NARASIMHAN: I don't know. It's good the drug improves the quality of life.

JIM CRAMER: I mean, if you were a salesperson, it would be like -- You're not a salesperson. I make that allusion because there are lawyers who run big pharma, and there are salespeople who run big pharma, and they are very good at having a fantastic sales force. You're very good at innovation. I think I would -- the latter gives you high mobile.

VASANT NARASIMHAN: But I give my R&D executives a headache. We sat in our full-day portfolio review, and I was happy to sit there for 11 hours going program by program, trial dataset by trial dataset.

JIM CRAMER: They can't wear you out, could they?

VASANT NARASIMHAN: They can't wear me out. So, you can ask them.

JIM CRAMER: All right. Let's talk about Cosentyx, because it's a crowded market. Severe plaque psoriasis, a lot of companies are going for it. Why did you want to be in a crowded market?

VASANT NARASIMHAN: Well, first, we were the first, actually, out of the gate into this whole space. So after the TNF, you know, the approved tumor necrosis factor-alpha drug inhibitors, we came in with the IL-17A. And I think we created this next era of psoriasis. Now the key for us is to shift Cosentyx increasingly from psoriasis into rheumatology where the medicine –

JIM CRAMER: Right, RA hard.

VASANT NARASIMHAN: -- also -- Hard. But, actually, ankylosing spondylitis, psoriatic arthritis relief, where we focus, Cosentyx is pretty unique, unique benefits. Scientifically, it's the right medicine for these diseases. We feel pretty good.

JIM CRAMER: Okay. Let's talk about Aimovig; you're calling it a runaway success. You probably don't know this, but I am -- next month, I'll be the national spokesperson for the American Migraine Foundation.

VASANT NARASIMHAN: I did not know that.

JIM CRAMER: It's not been announced yet, but I just announced it. And I'm an Aimovig user. It's been remarkable. I want to know how much -- how you decide what the pricing is, how did you decide to have a little combat here with Amgen, and what's the best way to reduce stigma? There are a billion people who suffer from this. And when I so-called came out about this, I could not believe how many people refused to be the national spokesperson. I mean, I was, like -- they asked me, Do you want to be the national spokesperson? I said, Sure. Well, let me tell you about the ten actors that wouldn't do it. Let me tell you about the ten big stars. You have decided that this is a very important issue. Awareness, what do you do? And how come it's run away?

VASANT NARASIMHAN: First of all, on the price, I'm not allowed to comment. I'm not being coy. It's just that that has to go to Amgen, and so I'm not allowed to say anything on that. But I think on the broader topic, I think migraine is a hidden epidemic.

JIM CRAMER: Yes.

VASANT NARASIMHAN: We know there are potentially 60 million migraine sufferers, 10% in the U.S., Europe, and other wealthier economies. And 10% are severe migraine sufferers. I mean, this is a really terrible disease. When you talk to the patients -- and I'm sure you know this -- it disrupts your life. Often, you can't go to work. And the other striking thing is how many women are affected -- working-age women are impacted by migraines. So, actually, the societal toll is quite significant.
What we have been trying to do is build a social media platform.

JIM CRAMER: Good, good.

VASANT NARASIMHAN: We have an app now that I think has a couple hundred thousand users that actually talk to one another.

JIM CRAMER: You are a leader on this. This man is the leader in trying to get the science. And that's really important because -- well, first, I mean, if you were an investor, it's really important. But you're also trying to reduce the stigma. And that is radical.

VASANT NARASIMHAN: And we're investing in interests not just in the U.S. also, but throughout Europe because I think actually in Europe it's sad. It's actually a really sad situation because migraine is just viewed as a headache.

JIM CRAMER: I know.

VASANT NARASIMHAN: And really the underpinnings of this unique type of headache is really not well-understood.

JIM CRAMER: All right. Let's talk about things that you're willing to do that I've not seen a lot do. You have a deal with Tilray. Is this a deal about CBD? Is it about THC? Is it about radical use of it in illnesses we don't know because you can't really dose it. So what is the deal doing?

VASANT NARASIMHAN: Honestly, I don't know because -- it's actually a relatively small distribution deal for us.

JIM CRAMER: Tilray is just as big.

VASANT NARASIMHAN: So actually I think for us it was more an opportunity to use standard infrastructure around the world to support Tilray. But cannabinoids is not a focus area for the company.

JIM CRAMER: That's good to know. I think there's what too much hype. It's good that you said that, because there's a lot of people investing in these stocks believing your partnership is going to produce multiple -

VASANT NARASIMHAN: As always, we need good studies to understand the data.

JIM CRAMER: You're going to let the data get in the way of the story?

VASANT NARASIMHAN: That's right.

JIM CRAMER: CAR-T, craze or real deal?

VASANT NARASIMHAN: CAR-T, in my mind, is a long game. So my fundamental belief is the ability to take human cells out of the body, reprogram them and put them back in is the capability a company like us needs. And it is going to have an impact not just in cancer but could have an impact on hematological diseases, enzymes, replacement therapies, and others. So we wanted to build that capacity. So we have that now globally. We've got manufacturing capacity in the U.S., Germany, France, Switzerland, Japan, and China to take human cells and reprocess them. We're actually not seeing solid uptick in Kymriah. We've been reimbursed in 18 markets. So despite the headlines you see, actually 18 markets now reimburse Kymriah as a cost-effective therapy. In the early day that we see back, this continuum, I mean, we continue to see 90% of kids getting cured of their cancers with this single infusion, when they failed all other lines of therapy. Now, what's the key is we've got to get the manufacturing more efficient.

JIM CRAMER: Right.

VASANT NARASIMHAN: I think right now for the whole sector, the key will be manufacturing innovation. But I still believe long-term that having the ability to reprogram human cells is something we need to be in.

JIM CRAMER: Last week I had the privilege of having dinner with my team and Jensen Huang --

VASANT NARASIMHAN: You have got a better outfit than me. I'm always trying to channel Jensen Huang, but I'm not succeeding.

JIM CRAMER: Well, he is the godfather of artificial intelligence.

VASANT NARASIMHAN: He looks great in a leather jacket.

JIM CRAMER: Yes, he does. He has two kids who are 29 and 27, but he looks 26. So I can't explain it.
But he's talking about how hard it is that -- he said we're just not there yet on cancer. He said cancer is too hard. He said there are some guys using genetic mapping. But he said those who think that artificial intelligence is the key to curing cancer are misguided. We're just not there yet. Why?

VASANT NARASIMHAN: So, first, my favorite new quote, when people ask me about artificial intelligence, is humans are underrated because I think humans are absolutely -- combined with artificial intelligence, we can solve a lot of problems. But here's the thing. So when you build a driverless car, right, and the car is continually taking images -- and even there we're not completely there -- you can build a training dataset for the car. When you talk about the human body, the human biology, most of human biology we don't understand. Here's some stats, Jim. Every human being is made up of about 40 trillion cells. In every one of those cells, there's 1 trillion molecules. And we only understand a fraction of what all of those molecules are doing. So now you unleash AI on that problem, and we don't understand. So what are we training the AI algorithm on? And so this is the challenge of saying AI is going to solve all drug discovery. I think what AI can do is make us better at diagnosis so we know that whether it's skin cancer or x-rays, it can make a smarter diagnosis. A physician plus AI makes better diagnosis. We also know AI can help us, guide us on drug discovery. But to think that we're just going to leave this all to an algorithm and suddenly cancer drugs are going to start popping up, I only wish it were that easy.

JIM CRAMER: I'm so glad you said that because, once again, we get misled. I like the idea that you said humans are underrated because there is a consensus that if we just invest in AI companies, that's who's going to solve cancer. That is naive.

VASANT NARASIMHAN: I would say yes. And we are -- we are, of course, also investing. We've gone big on data and digital. We believe --

JIM CRAMER: Right. You are number one.

VASANT NARASIMHAN: We're investing hundreds of millions of dollars in the space. But we go in sober. I mean, we know -- we're trying to understand where these technologies can have a big impact and where we have to say, look, there are limitations and then we need to be prudent.

JIM CRAMER: This is National Mental Health Month, mental health awareness. Most of the big pharma does not want to tackle mental health. It's not just they see no money in it. They don't think that the science can be there. Why are you not afraid of going after this?

VASANT NARASIMHAN: Yeah. We, of course, have limited our efforts as well on mental health, but we're still going after it. We talked about it just last week. We continue our push. I mean, if you look at it, we haven't had a really novel drug in areas like antipsychoses or antipsychotics in 30, 40 years. They're very limited. If you look at depression, with J&J's recent approval, it was the first to advance --

JIM CRAMER: It could be huge.

VASANT NARASIMHAN: You will have to ask Alex later. 30 years. So you see there's just been a dearth of innovation. I mean, the challenges, again, point back to the artificial intelligence model. There's so little about the human mind that we really understand. But I still think we have to stay the course. Again, we're a company that builds for decades, not just for the next five years. We have to be in the spaces.

JIM CRAMER: I would be remiss if I didn't talk about it. You have ten potential blockbusters in the next few years. I don't know anybody else who has that. That's a pipeline that you inherited? How many of those did you inherit?

VASANT NARASIMHAN: That's a pipeline -- not to be self-serving -- that I built as the head of drug development when I was there.

JIM CRAMER: Take credit. No one else is going to give it to you.

VASANT NARASIMHAN: That's true. Over four, five years, but actually long before that. Of course, these are long, long lead times. I think, no, our team has done a great job. And I like the fact that it's a diverse set of blockbusters. We're not overexposed to cancer. We're in ophthalmology. We had the approval in neuroscience earlier this year with Mayzent. We hopefully have Zolgensma and Ticray [phonetic], another drug in cancer. So those ten blockbusters are diversified. And here's the thing, in our total pipeline, right now we have over 25 blockbusters, when you look at the full late-stage portfolio. So it's a pretty full pipeline. That's another reason why we wanted to move on from Alcon and consumer health and focus on the core.

JIM CRAMER: It is interesting that you are alone among the pharma -- alone among a lot of things -- pharma CEOs saying, Listen, we want to buy other companies. I thought that the Takeda acquisition was not talked about enough. You're going up against Allergan. I think it's a weakened Allergan. Do you ever sit there and say, You know what, here's an opponent that is wounded. Let's go in against Restasis? Do you think like that?

VASANT NARASIMHAN: I think what we saw there is Xiidra is a unique medicine. And I think in a marketplace that we're dry eye -- we have tens of millions of dry eye sufferers that don't have great therapies, Xiidra is the only drug that's has been approved for signs and symptoms of dry eyes. So when I looked at the clinical data and our team really looked at has this been a motivated team that's really been, you know, moved -- pushing this drug, there's an opportunity to reenergize this team and really take over the medicine.

JIM CRAMER: I don't want to get in trouble with the timing gods. But I do want to know, do you think it takes too long to get approval; or do you think it's right, given the fact that if somebody dies from an approval -- after approval, that it's just not worth it and they have to stop the stuff?

VASANT NARASIMHAN: I think the regulators do a tremendous service in this space. I think it's very easy to convince ourselves to go on very limited clinical datasets. Now, I think it's very situation-specific. If you have cancers, if you have terminal diseases, of course, you're going to have to take more risk. But I think it's underestimated how strong regulatory systems have ensured we get high-quality medicines and we have strong datasets that come out. So, I would be leery of eroding that too much. What I would rather do is invest in data science and digital to see, can we take up 20% or 25% of the time lines and the cost of drug development. I think that's the future for this industry.

JIM CRAMER: So you want to keep Sandoz because biosimilars could be fabulous.

VASANT NARASIMHAN: We're going to keep Sandoz.

JIM CRAMER: You are? That's important because the literature says -- 50/50 says that you're going to get rid of Sandoz.

VASANT NARASIMHAN: We're going to keep Sandoz, Jim.

JIM CRAMER: And you kept ophthalmology for Alcon. You keep the science. You're a scientist --

VASANT NARASIMHAN: We kept the medicines. We kept the medicines, and we pushed out the devices and the contact lenses.

JIM CRAMER: Yeah, you moved the gravestones but not the bodies is the way I look at it. Okay. Last question. If you were the head of FDA, what would you do?

VASANT NARASIMHAN: I would continue Scott's efforts to take on the tobacco industry in a big way because I think -- I think we have to really ensure that smoking does not move into other approaches.

JIM CRAMER: You don't favor the watermelon JUUL, the gateway?

VASANT NARASIMHAN: I don't. When I look at the data --

JIM CRAMER: You don't favor high school smoking? They are very much about 21.

VASANT NARASIMHAN: Right. You want to tackle cancer, you got to get after smoking; and if you want to tackle obesity and diabetes, you have to get after the food industry.

JIM CRAMER: Soda.

VASANT NARASIMHAN: You have to get after soda.

JIM CRAMER: Well, I got to tell you, I applaud everything you've done. I hope you guys understand why I'm kind of enthralled with this guy. I'm old enough to be allowed to say that. That's Vas Narasimhan. I have got to tell you, Novartis is probably the best growth pharma if you want to buy big pharma. Thank you, Vas.

VASANT NARASIMHAN: Appreciate it.

JIM CRAMER: Great.




About the Author

Jacob Wolinsky
Jacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Prior to ValueWalk, Jacob was VP of Business Development at SumZero. Prior to SumZero, Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and four kids in Passaic NJ. - Email: jacob(at)valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities anymore to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own a few grams of Gold and Silver