We need short-term launches to keep driving growth: Novartis CEO

Dr. Vasant (Vas) Narasimhan, global CEO of $47.4 billion pharmaceutical major Novartis International AG, is leading his company towards a strategic and cultural transformation powered by advanced therapy platforms and data science. The company has completed strategic transactions worth over $70 billion since he took charge as CEO in 2018. In an exclusive interview with Business Today's Joe C. Mathew and P.B. Jayakumar, the second generation Indian American speaks about his vision for Novartis, new launches in India, and the increasing role of its Hyderabad centre. Edited excerpts:

 

What transformation is going on at Novartis?

Overall, we've been on a journey to focus as a medicine company powered by data science and digital technologies. I've successfully integrated a company that's 100 per cent focused on medicines. Its footprint is geographically diverse, and is also present across 10 therapeutic areas and different technology platforms. We continue to have traditional platforms, small molecule and large molecule drugs, but also new platforms like cell and gene therapies. That's the kind of profile we have today, and we want to transform to the next level of performance using data science and digital technologies.

I see them impacting the company in different ways. At the first level, from an employee experience, it means bringing AI and data science into every data driven decision. That is what we try to do with our own projects, the 12 Digital Lighthouse projects, aimed to scale up data science in all elements of the company. So, for example, in R&D operations, all 550 clinical trials at Novartis are managed from a central command centre that uses machine learning to predict how the trials will run. Our manufacturing sites have now been put on a system that uses predictive analytics to predict how production supply chains will run. Our 10,000 sales representatives now have a system in which AI makes recommendations about how they should spend their day. AI helps employees understand how they spend their time at work. This is at the first level - transforming operations.

The next level is to find insights from all the data. For example, one of the projects brings all our clinical trial data from the last 10 years into a single data lake and in that data lake we try to identify new patient populations, new drug candidates and drug targets. We also try to supplement with external data, trying to generate new insights. We're taking our image libraries - images of X-rays, CT scans, pathologies, PET scans at the cellular level - and trying to machine learn that to get new potential discoveries that would help us serve patients better by finding new drugs, in an ideal case.  Maybe we can find better diagnostics too. For example, we process all the retinal images in our library (in association) with Microsoft to see if we can find new diagnostic tools. We have another project to look at CT scans of joints to see if we can predict a disease called Ankylosing spondylitis.

The third level, which is aspirational and longer term, is to think of unlocking new science of the human body using AI. This is the hardest because it's much more complex. But the idea is that if we feed enough data into the systems, can we understand how cells in our body work, how cancers are growing, how the brain regenerates in Alzheimer's disease or other diseases. That will take longer. It could take seven to 10 years. We could find completely new medicines or completely new ways to treat diseases.

 

What is the current focus?

Right now, the focus is  about 80 per cent innovative medicines and 20 per cent generics. It is a good mix of long-term and short-term. We have 15 launches coming up in innovative medicines. That, I think, is the highest in the industry. We had six new drug approvals last year. We have 165 projects in drug development, which will hopefully be the next wave of innovation at Novartis. It's the right balance.

Some of this technology will take longer to evolve. Some of them are near-term RNA interference, and to some extent cell therapy and gene therapy. But in the longer term, we will need these technologies to mature. So this will be a 5-10-year journey. We try to balance as we need short-term launches to keep driving the company's growth.

At present, India business is just a fraction of your global revenues. Is it going to be more significant?

India is going through evolution. We've been in India since 1947. The first Prime Minister of India visited Sandoz at that time as did the first Vice President. The shift we made in about 2006 was because we wanted to build a global service centre in Hyderabad. That service centre has now evolved into a full operation centre and does everything from manufacturing and chemistry to digital. All our drug development operations are done out of Hyderabad. Our business service operations are there. India is thus a real operations hub for the whole company.

We are now entering a phase in which we launch new products in India because for a long time, India was a market dominated by generic drugs and there was limited opportunity to launch novel medicines. A few things have changed now. One, of course, is the growing middle class and private insurance. Second, a greater interest even in government insurance programmes to bring in innovative medicines. There is, of course, the Ayushman Bharat. All of that is creating an environment for launch of new innovative medicines.

We do very well in India now and we have double-digit growth here with novel medicines. The future is to launch new novel medicines in the country while continuing to maintain the Hyderabad centre. Our Hyderabad centre is one of the crown jewels of Novartis.

 

Given the high price of patented medicines, is there a marketing strategy for to make medicines affordable in India?

One of Novartis' success stories in India has been our emerging market brands approach, which enables us to use a distinctive brand and distinct product presentation to (differentially) price (innovative medicines) for the Indian market. This was not possible, maybe even a decade ago. The heart failure drug, Vyamada (globally sold under the brand name Entresto), reaches over 300,000 patients in India. We have other drugs as well at a similar level. So the key is to have a differential pricing strategy. We also have the Arogya Parivar initiative, which reaches villages at a much grander scale of over 30 million. So we think we've done a good job, bringing in innovation at an affordable price for the private market and insured markets and then to also reach the broad scale of people (who cannot other afford these medicines).

But will the same approach work for gene therapy, or other such futuristic medicines?

If you take a 10-year view, yes. For example, monoclonal antibodies were first introduced in the late 1980s, but they probably only came to low and middle income countries in the last five to 10 years. I want that to be much faster in the case of gene therapy; I don't want it to be 25 years. Let's see if we can do it within 10 years. We have to first scale up our own capabilities and our ability to manufacture at scale. Right now we make limited quantities and these products are complex to manufacture. We just don't have supply. We have to continue improving our manufacturing and scale. Second, we need to build the infrastructure in India or any low and middle income country to be able to take on these therapies. These are complex therapies; you need hospital systems that can actually handle them. Then you need a rare disease policy in the country; India is working on it. We've been working with India as well, but we need a rare disease framework to be able to treat these kinds of diseases in a country like India. Lastly, we'll have to come up with access and pricing models. That will be the last stage but will take more time to figure out.

India is only second to China in population. But your presence in China has been much bigger than in India. Why?

As I said, India is very attractive, but from a scale standpoint, China is a factor 10 larger in terms of the size of the market in the near term. In China, we have $2.2 billion in sales; we plan to double that. In India, we are less than $400 million in sales. It's a very big difference. I do think that over time India will continue to grow, but it will not be as large as the China market in the near and medium term.

You plan to save about $2 billion through operational efficiencies and improvement in operating margins. How is that programme progressing?

The $2 billion savings programme for 2020 is well on track and we expect to continue and have it completed over the course of this year. It was a combination of savings in business service, manufacturing and procurement. We will have a new plan to save an additional $1.5 billion through the same effort. So we continue to see the opportunity to drive productivity. It's driven in part by technology, heavy deployment of technology. We continue to see opportunities to consolidate our footprint, and we continue to also move roles to India and that also enables greater efficiencies as well.

Novartis has been reducing its employee strength in some geographies. Will India be also impacted?

India has a net growth from a workforce standpoint. We expect it to continue to be so. India is, as I mentioned, one of our top, probably our largest operations centre in the world. It is the largest centre for executing digital projects. We have huge infrastructure in Hyderabad to deliver digital projects, IT projects. Hyderabad is a central site for Novartis, and that will continue longer term. The way we attract talent here through very progressive people policies. We have an unbossed culture movement, which is all about empowering employees and in a much clearer way We have very successful work-employment programmes such as our parental leave programme, which gives parents 26 weeks leave, whether it's the father or the mother, learning programme, where we make all of our learning programmes free for all associates. So that's LinkedIn learning Coursera, Harvard Business School's case library, all free for our employees. We've also prioritise equal pay for equal work and gender balance in our workforce. Our workforce in India is almost 80 percent of millennial. So having progressive policies like that attracts great talent to the company. We have exciting projects for people to work on them and we have a big digital effort data science hub in India. So if you want to work in healthcare, data science and digital, I would think in India, Novartis is probably your top destination.

Which are the business outsourcing segments that derive most value from India, from the Hyderabad centre? Is it clinical trials?

We think of Hyderabad as a centre of excellence. We don't think of it as a business service outsourcing location, it is a true operation centre for the company. We will see investment there in digital and data science in technology and technology areas as well as in areas of chemistry, where we already have investments in our Genome Valley facility. So I think in Hyderabad, we're committed for the long term and we think we get world class talent capabilities. On clinical trials, in 2019 we had 65 studies across 432 sites in India as part of both global and local trials. And then more broadly in India, we think we will continue to see double digit (revenue) growth in India for the coming years given all of our new medicines launches in a cross innovative medicines or innovative medicines portfolio. Overall we are very optimistic on India business.

Will generic drug business take a backseat? Do you still find value in Sandoz division?

 We're committed to be a leader globally and in generic (drug business) we are committed to (promote) Sandoz. We have a great leadership team (in Sandoz), we're investing in Sandoz. We acquired a company in Japan acquired a range of different biosimilars. I don't think India will be a priority market for Sandoz given the competitive environment here is quite intense (for generic drugs). But that doesn't mean that we're not committed to Sandoz globally and we think Sandoz can be a leading high quality generics player globally.

Will India be a manufacturing hub for Sandoz?

Sandoz continues to have a manufacturing centre out here in Maharashtra and I don't think that will change.

Cancer seems to be the priority therapeutic area if one looks at your research pipeline. Is that the focus?

We think our strength is our diversity. We have a presence in 10 therapeutic areas. We have 15 blockbusters, ranging from heart drugs, lung drugs, cancer drugs, eye care drugs, drugs for the skin and joints to rare disease, gene therapy drugs. Our strength, we believe is our diversity. So we're not overexposed to any one area. Even cancer is roughly 35 to 40 percent of our portfolio, the remainder is all of these other therapeutic areas, and I think that's one of the things that makes us unique. We stay in heart disease, we stay in lung disease. We don't overly focus just on cancer, like many parts of our industry do. And we think that's important because if you look at the major killers in the world, from healthcare standpoint, it is heart disease, lung disease, cancer. I mean, these are the areas you need to be in and we are in all of them.

Novartis has been focusing on diseases like Malaria, which are often neglected by big pharma. What are the new thrust areas in this segment?

In Malaria, we're the only company running the only novel clinical trials right now for anti malarial drugs. We continue to supply the world We continue to do tremendous amount of work in diseases like the Chagas disease. Even in India, we work on sickle cell diease like we work in West Africa.

We are seeing emergence of new threats like corona virus outbreaks quite frequently these day. How should companies respond to such medical emergencies?

I think for virus and bacterial outbreaks, you need very long term investments in basic research, new science that enables you to tackle these situations, You will find solutions for each one, but we need to keep improving our knowledge to ensure that whenever these things come up, we can rapidly find solutions. I think in the case of antimicrobial resistance, we need strong government policies to support people to make these antibiotics. Right now there's not great markets for these antibiotics. The cost of bringing a new antibiotic to market is very high from a manufacturing and clinical standpoint, In the case of virus outbreaks, we need to figure out ways to sustain investment in between the outbreaks. Right now of course, you'll have a lot of investment because there's an outbreak.

But what happens in the five years between this and the next outbreak? How do you maintain the investment level?

I think it's a challenge for policymakers.

You mean to say it make no business sense for companies to do the research?

Usually it is not a great business case, especially in between the outbreaks. There's only a business case  during the outbreak and it's very hard to time your success around one of these moments. The governments should make sustained investments to enable companies to maintain their readiness from outbreak to outbreak.