00:00Novartis, one of the big pharmaceutical firms, to agree a deal with the White House on drug pricing to bring them in line with other countries.
00:06Now, the company will also be keeping a close eye on the trade and tariff situation as President Trump again ramps up threats.
00:13Now, let's discuss all of this with the chief executive of Novartis, Vaz Narasimhan.
00:18Thank you, Vaz, for joining us.
00:19Look, there's a lot going on.
00:20We were just hearing from the House speaker.
00:22We heard from Scott Besson, the Treasury Secretary, trying to urge calm amid this growing transatlantic rift.
00:27But are things going to get worse?
00:29You were kind of also at some point with, you know, other companies in the filing line.
00:33I don't know how we should be taking this.
00:35You know, what we've tried to do, Francine, is, you know, really future-proof our business.
00:39We made these $23 billion investment commitment, and we've been making progress on that.
00:44And what that allows us to do is already progress almost completely to making our medicines in the U.S. for the U.S.
00:50So even if there are shifts in the tariff landscape, we feel like we can weather that.
00:53There'll be no impact on our guidance or our outlooks.
00:56We feel very good about that.
00:57And I think, importantly, part of the agreements that we struck as well should exempt us from these tariffs.
01:03Though, of course, that also is always an open question.
01:05And, Vaz, this is basically, you know, the so-called most favored nation.
01:08What does this agreement mean in concrete terms for your portfolio, but also investment strategy going forward?
01:13I think probably the biggest impact is going to be on future launches.
01:16I mean, there are other elements to the agreement, but I would say those are smaller.
01:19But the commitment that we've made to the U.S. government is that our prices in the U.S.
01:24will not be below the net price we have in the second lowest price in eight countries, eight benchmark countries.
01:30And what that, in effect, means is we cannot launch in those eight countries unless the prices are comparable.
01:35Be delayed launches, might be no launches.
01:38And I think this is a real wake-up call for those markets, which are primarily in Europe, but also Japan and Canada,
01:44that they need to better value innovation if they want these medicines to come,
01:47and then future investments in R&D and manufacturing.
01:50This is a pretty seismic shift in the structure of our industry.
01:53I mean, you've called for a lot of governments, including Switzerland, but also, you know, some others in Europe, you know, France,
02:00to step up their support for life sciences.
02:02What does the industry need right now?
02:04Look, when you look at investment in innovative medicine spend as a percent of GDP per capita,
02:10you know, Europe is about half of the U.S., but it's a closable gap.
02:14When you look at the kind of investments these countries make in subsidies of other industries,
02:18non-high-tech, high-innovative industries,
02:20if you want to attract industries like ours, properly value our medicines,
02:25properly value the impact they have on patients.
02:27If you can do that, then, of course, we'll stay, we'll keep investing.
02:30But I think it's a wake-up call, and what I worry, Francine, is it's going to take this to become a crisis,
02:34multiple medicines not launching across the industry,
02:38patients not getting the medicines they need, and then we're going to have the response only then.
02:42Yeah, you also, I think, cut 550 jobs from a factory in Switzerland.
02:46Is this an early warning sign of things that could come?
02:49Yeah, I think that was more of a normal, I think, workforce realignment.
02:53But I think that the bigger topic will be, when you think about future investment,
02:56rather than expanding plants in Europe, we've now put up sites in the U.S.
03:00We have sites in China.
03:01I think the bigger issue is now we're having really a, you know, balkanization, so to speak,
03:06of the global manufacturing network.
03:08And so if Europe wants to attract investment, it has to step up.
03:11It can't rely on the U.S. market for building out European factories.
03:15Why is it so hard for Europe to do things differently?
03:18I don't know whether it's competition, it's growth.
03:20We have the Draghi report.
03:21Like, what's the problem?
03:24Look, I think European governments have multiple challenges.
03:26The fiscal challenge of trying to respond from a military standpoint, from an energy standpoint.
03:30But I also think there's a lot of holding on to old industries and old subsidies.
03:35And I think as long as you want to spend your money subsidizing, you know, things like farming,
03:40like, you know, other sectors that maybe aren't as high tech and high innovation as ours, that's a choice.
03:46And I think now that choice is really in front of leaders.
03:48If they want high tech industries, they're going to have to invest, reward innovation,
03:52and then you really attract the investment going forward.
03:54Are you looking to buy anything this year?
03:58Look, last year we were the number one company in terms of dealmaking in the sector.
04:01We were very active, most notably our proposed acquisition of Vividity Biosciences for $12 billion.
04:07We'll continue to be active this year as well.
04:09You know, when we think about growing a company of our scale, getting to be now over $60 billion of sales,
04:14aspiring to get to $70 or $80 billion of sales in the next decade,
04:18we need external innovation to complement our internal innovation engine.
04:22So absolutely, we'll be active in the dealmaking world.
04:24I mean, do you have a treasure trove?
04:26How much do you have to spend?
04:27And how are valuations?
04:28Well, I mean, from a finance standpoint, we're in a very good position.
04:32Strong free cash flow, low debt burden.
04:34So we're in a position where we're not capital constrained.
04:37It's more, I think, the science and does the science support, you know, what we want to do.
04:41You know, I think valuations have rebounded now in the biotech sector.
04:44So I think there is no more of the opportunity to buy the dip, so to speak.
04:48But that's okay.
04:49I mean, we're more driven by is this an innovation that could really drive long-term value creation?
04:54This is not your first Davos.
04:55I know I've seen you here many times.
04:57It's my ninth.
04:57It's your ninth Davos, and every year we say this is a turning point.
05:01This is the critical year for world affairs.
05:03I mean, does this year feel different because of the Trump administration being here and talking tough?
05:09I mean, it does feel different in so much as a lot of the action is happening here.
05:13Like, we're kind of in the middle of it.
05:14We're in the middle of all of it, all these different topics.
05:17So in that sense, it's very, very exciting.
05:19But I think it's also important to just keep the long view.
05:22I mean, if I think about an industry like ours, we have 10-year innovation cycles.
05:24That's two-and-a-half U.S. presidencies.
05:27So I keep telling our people we need to adapt to these near-term realities, but we can't lose sight of the long-run approach that our company needs to do to win.
05:35Is there a danger that people, including CEOs, are moving too fast or thinking too short-term?
05:41I think there's a danger right now because you can get very reactive in this moment.
05:44I think you have to just take a deep breath, see how things play out.
05:47You don't want to constrain your company or constrain, you know, your future opportunities by acting too quickly.
05:52Even when you think about these MFN agreements, we tried to take months to engineer an agreement we thought we could manage for 10 years, not just trying to win for three months.
06:02You've been in charge of Novartis for 10 years?
06:05Ninth year.
06:05Nine years.
06:07I mean, what are your personal goals?
06:09Look, right now I've been super proud.
06:10As you know, we were number two in shareholder return over the last three years, strong innovation pipeline.
06:15Really for me now is how do I set up the company for the next decade, 2030 to 2040, and how do we get all the right innovation and medicines in-house?
06:22But it's a great position to be in because it's much more about thinking about the future of medicine and how do we really realize that in our company.
06:30Vaz, thank you so much for joining us.
06:31Vaz and our same on there, the Novartis chief executive.
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