Yahoo Finance Novartis CEO criticizes US, EU efforts to curb drug company power
Novartis (NVS) CEO Vas Narasimhan has been vocal about the pressure the drug industry is facing both in the U.S. and in Europe, but he argues the Inflation Reduction Act and Europe's proposed patent rule changes will both erode incentives for the drug industry to find cures.
"I think it's going to shape how we make investment decisions in the future if we don't fix some of the policy problems the IRA created," Narasimhan said of the U.S. policy set to go into effect in 2025.
The IRA, which empowers Medicare to negotiate drug prices, also includes provisions such as capping the rate of price increases for drugs and out of pocket costs for Medicare members. In addition, it says that price negotiations for small molecule drugs (such as pills) can begin nine years after they reach market and large molecule drugs (such as injectables) can begin after 13 years on the market.
"What that's going to do over time is shift capital away from these medicines. There are many diseases you can only treat with small molecule drugs," Narasimhan said in an interview with Yahoo Finance Tuesday.
It's something Eli Lilly's chief scientist recently noted as well, saying that, "Both small and large molecule medicines need at least 13 years before they come under the Medicare price control regime or incentives to pursue risky research into precision medicine will evaporate."
But Narasimhan added that since the IRA provisions won't be implemented until 2025, there may be time to address his concerns with Medicare officials.
Meanwhile, the European Union is considering compulsory licensing during emergencies, such as the COVID pandemic, which would require companies to share their drug formulas. The drug industry fought against global attempts to share their vaccine and treatment recipes. Some agreed not to enforce patents, but also didn't provide resources for interested parties to gain the knowledge needed to actually produce the products.
"They have to create the right innovation ecosystem," Narasimhan said of Europe's rule proposal.
"If they erode patent protections, in even small ways, it just erodes the ability for us to invest in that region," he said.
These combined efforts come at a time when drug companies are shrinking their operations, streamlining to focus on key therapeutic areas. Novartis will complete its generics spinoff, Sandoz, later this year, and announced a 10% cut to its pipeline to focus on key areas.
It's "hard to be good at everything from women's health to cancer to cardiovascular disease," Narasimhan said.
He isn't alone. Recently Amgen (AMGN) also culled its pipeline, and Johnson & Johnson (JNJ, KVUE) spun off its consumer health brands to focus more on drug development.
Follow Anjalee on Twitter @AnjKhem
Click here for the latest stock market news and in-depth analysis, including events that move stocks
Read the latest financial and business news from Yahoo Finance
