‘Biotech can become a powerhouse in India’: Novartis’ Narasimhan

To listen to this interview on The Sktech podcast, go here.

Vasant ‘Vas’ Narasimhan completed five years as the CEO of Novartis—the $50 billion Swiss pharma giant—this month. He has calibrated the company’s focus by exiting a number of businesses and focussing on its core as an innovation-driven drugmaker, leveraging data science and digital technologies to bolster R&D and aid the drug discovery process. The US-born physician-turned-CEO, whose parents migrated to the US from Tamil Nadu, sat down with Sruthijith K.K. for a conversation on The Sketch podcast. He discussed the strategic direction Novartis has taken under his watch, the company’s presence in India and his expectations from the market, his agenda for the next five years, the evolution of cancer therapies, the future of Indian pharma sector and his thoughts on India’s drugs regulatory regime. Edited excerpts:

You completed five years as Novartis CEO this month. What were your focus areas when you took over and how much of your agenda have you gotten through?

When I took over as CEO, we set out a strategy to become a pure play innovative medicines company over time. And it’s really taken us five years to realize that journey. We began by spinning out some of our businesses like consumer health and Alcon, our eyecare device company, as well as exiting some other businesses. Five years ago, when I started at Novartis, we saw that there was really a need to focus ourselves as a pure play innovative medicines company. Technology was moving so quickly in the external environment and we needed to get to a place where we could create the most value, which is in high-end technologies, high-end medicines. So, over the last five years, we’ve done about $100 billion in transactions to focus Novartis into one of the largest pure play innovative medicines companies in the world. And what’s exciting now is that we are well positioned for this next era of medical innovation.

What kind of monies do you invest in research and development (R&D) every year and how critical is that?

Every year, we invest almost $10 billion in R&D. That’s one of the highest among companies in any sector. It’s very traditional for a pharmaceutical company to invest a lot in R&D. But what’s unique about Novartis is our consistency in that investment over time. You know, our history goes back 250 years. We started in the dye making industry, moved to the chemicals industry. And it’s evolved since then now into a global healthcare and global pharmaceuticals giant. What we’ve learned over that time is you have to be consistent in your commitment to innovation and make that consistent R&D investment to really find breakthrough medicines and breakthrough innovation. So that’s what we’ve tried to do. And what’s exciting is that a lot of that happens here in India, at our corporate centre in Hyderabad, where we now have over 9,000 people.

What were the hardest trade off decisions you had to make in that journey of becoming a focused, innovative drug maker?

A decade ago, Novartis was in areas as broad as vaccines and animal health, eye care devices, consumer health, generics. So, that gives you a broad portfolio but it means you can’t focus and really become leading edge in any one of those areas. Making that transition to a pure play, you go to a different risk profile. So that was the first decision to make in that kind of transition. The second part of our journey has been to decide where we really wanted to focus. And we used to be a company that was in over 10 different therapeutic areas. That is down to five technology areas where you can win and create the most value. That’s the next transition.

You’re a trained physician; your DNA is that of a scientist and an R&D person. It sounds like you’ve had to do a lot of deal structuring and related finance. Has it been a lot of learning?

As a CEO you’re always learning. That’s the one thing you have to accept. And I think the longer you do this role, the more you realize you don’t have the answers but you have to ask the best questions you can and try to explore and figure out the right way forward. I’ve learned a lot about the world of corporate finance. You have to learn to speak many different languages. I was trained in the language of science, the language of medicine. You have to speak the language of investors, that of the business community, politicians, and the policy makers. You need to learn as a CEO to be able to communicate your narrative to the external stakeholders.

Pharma companies make a lot of high-risk investments in drug discovery. How do you assess and hedge that sort of risk?

It is an extraordinary industry in that people sometimes forget we live in this era of so many medicines, vaccines and diagnostics. You know 99% of the things we do in research don’t work. Actually, it’s even worse. I mean, when you really look at it in early stage research, it’s one out of a thousand. That’s what we are doing. And I like to tell our people, we’re unpacking billions of years of evolution of life on this planet as we try to understand the 20,000 genes and 20,000 proteins and trillions of transcripts, try to figure out how it pieces together to impact a disease. The odds are long. It’s like sending a rocket to the moon. That’s what we try to do.

You have to have a really strong comfort with failure. We fail a lot. That failure can’t dissuade you from trying again. I think the reason we’re able to do it is that most people in our company, and in our sector, are deeply passionate about improving human health. And they’re willing to take these long odds. Because, it’s such an incredible thing to improve people’s ability to live longer, healthier lives. And when you make a scientific discovery, it’s extraordinary. And, of course, then you can hopefully generate the returns down the line. The biggest thing I’ve learned about portfolio management, the business element of this, is you can pick the losers. So, the art of this is to keep screening and say here are the things which are unlikely to really make a big difference in medicine. And stop those and then hope among all the rest, you might get a hit and accept the fact you might go years without getting a big hit. And that’s when you have to have tremendous courage to stay the course. And that’s why I think in the end, while our sector has been around for 150 years, you really only have 10-12 giant players. Those are companies that had the courage to stay the course.

The other element is you make an investment and you don’t know if it’s going to pan out for eight to 10 years. So you make this portfolio of bets and you hope that you make the right ones with great scientists, great thinking. And that, in eight to 10 years, this ultimately pans out.

What do shareholders in a pharma company look for and expect from a CEO?

The most important is the concept of what we call replacement power. And that’s really the ability of your innovation to replace your sales over time. Because there’s multiple challenging dynamics in our industry. All of our innovative products go generic at some point. We have to replace all of our sales with new innovations. So not only do we have long odds at the baseline, but we don’t keep those innovations forever. Other sectors might be able to hold their innovation for long periods of time. We have to replace it over and over. Investors want to see growth. That’s standard across sectors. They want to see replacement power as evidenced by R&D productivity and the ability to launch medicines consistently. And then, of course, all the other things you would expect, such as financial discipline, strong and free cash flows. But it’s that growth pipeline replacement power that really is the most important thing in our sector.

Tell us a little bit about your presence in India, your operations in the Indian market. Is it an exciting market for Novartis?

We’re very proud of our presence in India. We believe we’re the largest of the multinationals in India with our total presence of over 10,000 people that spans our business, including our large corporate centre in Hyderabad where we’ve had a presence since 2005. And we’ve built that consistently over time. It is an extraordinary centre where we house everything — from a lot of our operations for drug development, patient safety, manufacturing, AI, IT capabilities, finance etc.—and is really at the heart of Novartis. It’s unique that we’ve been able to build that here. And that’s really a testament to the talent we find in India, and the ability for that talent to integrate with our global company. So that’s been an extraordinary story from a business standpoint. We try to mirror the journey that we have globally in India.

We have plans to exit generics. We’ve exited consumer health, we’re exiting older brands. And the same thing happens in our Indian affiliate here at Novartis, where we focus on bringing the next wave of innovations to the Indian market consistently over time. India, for a global biopharmaceutical company, is kind of a mid-tier market, and that’s driven by a few things. One, of course, the reimbursement environment here is much more geared towards generics. And then there’s limited reimbursement for innovative medicines. But that’s improving consistently, but still not at the level you have in many global markets. The other part of the journey for India now is to make the transition from a more generics commodity-oriented, bio biotechnology environment to an innovation powerhouse.

Do Indian government officials consult you on some of these matters? Are there conversations about what India could do that you’re pitching in on?

Our India team is very closely involved with the government and providing advice, and perspectives. Not me personally, but there are very strong links between Novartis and the government. And we do our best to provide that feedback.

What role should the state play in securing healthcare for its citizens?

The state should ensure people can get basic healthcare--the very basic elements, if you think about childhood vaccination and really improving childhood mortality. Around the world, over the last 30 years, childhood mortality is down 50%. We have to remind ourselves the gains we’ve had are simply extraordinary and improving health around the world, regardless of income level. That basic level is the key. And then as countries get better and better from an income standpoint, there should be more support for innovation and how the state can enable that. Now, I think it is very context specific. Should that be private public insurance? Probably a mix is.

Novartis India’s December quarter sales were down 19%. In terms of scale, it seems quite dwarfed by what you have in China. Is that limited by market size? How do you see this playing out? Can it be a lot bigger here?

As for our Indian business over the next five years, we expect it to grow in double digits and continue with very solid growth. India is a longer term play for us to really build a globally sized market that could be one of our top 10 markets over time. And that’s really dependant on the continuing growth of insurance, private insurance, innovation and reimbursement in many of the various sectors. I think India’s done well to really provide the basic services and the basic healthcare. But I think as a reimbursement environment improves, you could look at a very, very different narrative for India and global biopharmaceuticals.

When you look at China, what they were able to do is modernize their regulator. They provided strong IP and strong data protection. They put in place a national reimbursement for innovative medicines, where they provide the access to the population. And that led to it becoming the second largest biopharmaceutical market in the world. And, it also created a burgeoning biotechnology sector in Shanghai and Beijing. That took a decade, but they were able to do it. And you could certainly see India on that path over time.

The implication of what you said in some ways is that India has not modernized its regulator. Is the drug price control regime in India an obstacle to innovation?

As India becomes an innovation powerhouse, there is a moment now to really rethink many of these regimes to create a pro-innovation environment and the government has to provide for a very large lower income population but I think you can do both. And I think it’s finding the balance now to really create a pro-innovation environment so that you can keep investing in the leading edge. And, actually you raise the overall level of healthcare for the broader population when you do that. So, there is an opportunity to further modernize all these elements, regulatory IP and reimbursement in India.

Where would you say India’s drug regulatory regime stands?

I would say it’s kind of in the middle of the grouping of countries that is certainly consistent with global middle income countries. But I think the difference that India has is this extraordinary innovation capability. There’s an opportunity for the biotech sector to become a powerhouse in India, but you have to get these other elements right, and you have to stay consistent over a long period of time to make that happen.

If you’re a biotechnology company in India, you need to know that your innovations are protected in India. So, you can access the Indian market and then go global. Second, you need a regulator that is efficient, clear and transparent and has modernized its regulatory framework. That’s absolutely critical. And then you need reimbursement support in the local market, which then gives a first market for any biotech company. And then you can go global from there.

Is there far too much uncertainty about the protection of your IP in India?

I think the situation has improved substantially, and I certainly give the Indian government tremendous credit for that. But we have to continue to look at ways, and I think the Indian government is looking at this too, to get your IP instituted in India. And that can take me a long process.

And then in our sector, there’s an additional complexity because the IP covers one part of the story, which is the compound and how we produce this molecule, this medicine. But then along the way, we generate a tremendous amount of data, and it’s the data plus the medicine together that creates the medical product that we provide. And that data also has to be protected. Right now, in India, there is no regulatory data protection.

So, we need not only the IP framework to continue to strengthen, but also regulatory data protection to be instituted in India. The other thing is that signals matter in our sector and in global businesses. And I think India can send more signals to say it’s pro-innovation, trying to support the next wave of technologies and companies.

How has your Indian heritage influenced your life and your work?

It’s influenced me tremendously. And as time passes, the things I’ve learned or were taught by my parents and grandparents, and being raised reading the Bhagavad Gita and the great Indian epics, it has a bigger impact.

I’d say the practices of yoga, pranayama and meditation are ways that help me navigate the complexities of being a CEO. So those were tremendous gifts. So, I do meditation and pranayama every day, yoga a few times a week. I try to be very consistent about it.