Novartis (NVS) reported fourth quarter results that missed analyst estimates. Novartis CEO Vas Narasimhan joins Yahoo Finance Live to discuss the company’s outlook for 2024 and plans for beyond.
The company forecast mid-single digit percentage net sales growth, an estimate Narasimhan describes as “prudent.” Narasimhan says that though there will be headwinds due to the loss of exclusivity of some of its drugs, he overall believes the company has "the growth drivers to grow over the years to come.” Regarding recent supply issues with the company’s prostate cancer drug Pluvicto, Narasimhan insists that it's “one of the important growth drivers,” for the company and expects that with new manufacturing outlets, there will be “unconstrained supply.”
Narasimhan acknowledges the competition in the oncology treatment sector, but says Novartis focuses on where it has “unique science and unique capabilities” such as Radioligand therapy and hematology.
Watch the video above to hear what Narasimhan has to say about how the Inflation Reduction Act could harm drug development in the US.
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Editor's note: This article was written by Eyek Ntekim
Video Transcript
JULIE HYMAN: Pharmaceutical giant Novartis reported its fourth quarter results earlier today. The company's income gains aided by strength in a string of new drug launches, though some did fall short of market expectations. Over the past year, the company has undergone an ambitious restructuring, plan spinning off its generic drug arm and aiming for 1 and 1/2 billion in cost cuts by the end of this year.
With more on the company's innovation push and much more, I'm joined by Novartis CEO, Vas Narasimhan. Great to see you, Vas. Thanks so much for joining us.
VASANT NARASIMHAN: Great to be here, Julie.
JULIE HYMAN: So I want to just dive right in and talk about your forecast here. You guys forecast core operating profit to rise in the high single-digit percentage range this year. Sales up mid-single digit percentage. You know, last year, you guys raised your full year forecast, I think, three times. So should investors be viewing this forecast as conservative?
VASANT NARASIMHAN: We characterize it on today's conference call as prudent, and we want to be prudent given that we have some loss of exclusivity over the course of this year, which will create some headwinds for us. But, you know, I think the more important messages are underlying growth rate of double-digit growth and our growth drivers is continuing. That's what fueled our growth in 2023, allowed the 10% sales growth 18% core operating income growth. That also is what gave us confidence to increase our guidance for 2023 to 2028 to 5% plus sales growth in that five-year period.
So while next year, we will have a little more headwinds from LOE, Loss Of Exclusivity, as you know, in our sector that's a big role, we think we have the growth drivers to grow over the years to come.
JULIE HYMAN: And I want to zero in on one of your drugs in particular that was disappointing versus what analysts were expecting last quarter. That's Pluvicto, your prostate cancer treatment. You talked on the call about how the supply issues that have affected that drug should abate, and you see unconcern and supply heading forward. So what can investors expect from Pluvicto for this year? And do you think you're going to get additional indications approved as well?
VASANT NARASIMHAN: Yeah. You know, Pluvicto is one of the important growth drivers for the coming years for Norvatis. It's part of our radioligand therapy portfolio where we're the global leader, a really novel medicine that can target nuclear radiation directly to a cancer. We've got it to this medicine being a multi-billion dollar medicine. And we want it to reach nearly $1 billion of sales in 2023, which we did accomplish.
Now that we have our new manufacturing site in Indianapolis up and running, that gives us the opportunity to have unconstrained supply. We actually ended last year with 99.9% on-time delivery, which shows that we're back now to a very strong supply situation. So over the course of this year, we expect robust quarter-on-quarter growth each quarter to get us continuing to march up to that multi-billion dollar potential.
Now what's going to be important for this medicine to reach its full potential is we're going to have to get approvals in earlier lines of prostate cancer. Right now, we're awaiting an update on some data in the pre-taxane setting, so the pre-chemo therapy setting, which will allow us one step. And then we have two other studies ongoing in even earlier lines of prostate cancer. Each one of these increases the market opportunity for multifold.
So that's why I think there's a lot of focus on this medicine. It's got a really strong outlook. And we feel confident we'll get back to a strong growth trajectory in quarter one.
JULIE HYMAN: Now, obviously, that's in the oncology branch. You have these four focus areas that you and I have talked about before. There is a lot of competition in oncology right now, a lot of your competitors expanding as well, trying to get into new platforms for their therapies. So how are you thinking about competition right now?
VASANT NARASIMHAN: You know, oncology, I mean, really across the sector, we see significant competition. But in oncology, in particular, given how hard it is to find a really good oncology drug, so we really try to think about where do we have unique science and unique capabilities. I mentioned radioligand therapy, while much of the industry is focused on what are called antibody drug conjugates, we're focused on this area of called radioligand therapy where we have two medicines already on the market doing well, a broad pipeline, a broad capability in terms of our supply chain. So that's one area of focus.
Another area is hematology where we have a long, long track record of excellence. Earlier this month, we announced exciting new data for a drug called simplex, which beat Gleevec, which was one of the most successful cancer drugs in history and a head-to-head study in the frontline setting of treating this cancer called chronic myelogenous leukemia. That's another example of where we're taking our unique capabilities in hematology to find new medicines.
So I think the key in oncology is finding spaces where you have unique capabilities that your competitors don't. And that's going to be really critical now as the market continues to get more and more competitive.
JULIE HYMAN: I want to ask about what we're seeing from the stock today. As you know, both the US shares and the Swiss shares trading a little bit lower. But we have seen the stock rally into the print here. And I've seen some analysts sort of question the company's valuation. So I'm just curious how you're thinking about the reaction and the shares today. And do you think the shares are fairly valued where they are right now?
VASANT NARASIMHAN: You know, I try not to read too much into the single-day trading movements of our shares. I mean, when you look at last year, we were number three in total shareholder return in the sector. When I look at the five-year and the three-year, we're in the top half or the top quartile in most of these segments. So I think that's where we want to be at the end of this year.
So intraday trading, as you know, there's a lot of puts and takes us to why those things happen. I think more important for us is going to be to keep delivering on sales growth, margin expansion as we've outlined in the quarter. And really important will be the launches and these pipeline submissions and readouts that we have planned. As those come forward, I'm certain the shares will recover and then continue the trajectory that we've been on.
We still trade at a small-- at a discount to the other pure plays in the pharmaceutical sector. We're still, I think, rerating up from being a conglomerate when we had Alcon Sandoz, trying to rewrite up as a pure play. And I expect that to continue.
JULIE HYMAN: And, Vas, I want to ask you about policy for a minute, too, because you right now are serving as the chair of the Board of Pharma, which is the drug industry association here in the US. When we spoke in Davos a short while ago, you talked a little bit about your concern that the IRA could sort of serve as a constraint on drug development over the longer term. Is that message sort of getting a hearing in Washington? And do you have anything to tell us about what could potentially change or talks that you're having on that front?
VASANT NARASIMHAN: So this is a critical topic, probably the number one topic for the industry in the United States. Just for the listeners understanding, part of the IRA is to create a price setting provision, which kicks in after 13 years for drugs that are called biologics or injectable medicines. But only after nine years for small molecules and other pills and other related drugs in the world of medicines, we call it the pill penalty.
So nine years is simply too short. If you think about a cancer drug, it takes as many years to move through all the different lines of therapy for cancer. You think about a cardiovascular drug, it takes six, seven years for these medicines to reach their full potential. So what you're going to have then is companies de-investing in these types of medicines for the elderly. We're going to focus more on people under the age of 65, which is I think not on the best interests of health care in the United States.
So I think policymakers are understanding the challenge, understanding we need to fix this. But at the same time, the political reality is nothing is going to move on this topic, I think, after until-- after the presidential.
JULIE HYMAN: Right. And Vas--
VASANT NARASIMHAN: --educating this year.
JULIE HYMAN: Yeah. And just quickly, sorry, so how do you-- if not in this way, what's the best way to get drug costs under control for the patients?
VASANT NARASIMHAN: One of the big reforms that I hope will pass over the course of the next few months is pharmaceutical benefit manager reform. I mean, it's important to note for a pharmaceutical company on average across our portfolio, a company like Novartis, only gets about 50% of the price for a medicine that we charge. And the other 50% is going into the supply chain. So I think that's one important fix to make sure those savings actually get to patients and actually enable patients to afford their medicines.
I think one of the other important shifts you're going to see is with the IRA, there's an out-of-pocket cap at $2,000 that will kick in over the course of the next at the end of this year. That will make medicines much more affordable. And I think will change the dialogue because people will be able to afford their medicines, because the insurance is structured in a way to manage those out-of-pocket costs. So these are things I think that absolutely can be done.
The truth is this government negotiation is not going to lead to less better affordability at the pharmacy counter for patients. This was a tax that was put on our industry to fund other priorities in energy and other sectors. And it's something I hope will get corrected in the years to come.
JULIE HYMAN: Well, we will continue this conversation I'm sure over the coming year and years, Vas Narasimhan, thank you so much. Really appreciate it.
VASANT NARASIMHAN: Thanks, Julie.
JULIE HYMAN: We got much more coming up on the other side of the break. Stay tuned. You're watching Yahoo Finance.
