Novartis CEO says U.S. rebate plan will return cash to patients

By John Miller

ZURICH (Reuters) - Novartis AG Chief Executive Vas Narasimhan said his company's prescription drug prices have been "flat to negative" over the last three years, and directed blame for high costs for U.S. patients on industry middlemen that manage drug benefits.

In an interview with Reuters in New York on Wednesday Narasimhan, a 42-year-old U.S. doctor who has headed the Swiss drugmaker since Feb. 2018, threw his support behind a U.S. government proposal to end a system of rebates drugmakers pay to pharmacy benefit managers (PBMs) and health insurers in order to get products on their lists of covered medicines.

"We (Novartis) pay almost 50 percent of our gross revenues in the United States into rebates," Narasimhan said. "If you return those rebates to patients, so patients pay less out of pocket, I think that is something that makes a lot of sense and will correct a distortion in the marketplace."

Narasimhan also acknowledged the industry and company reputational challenges stemming from anger over rising prices, kickback scandals and last year's revelation that Novartis paid U.S. President Donald Trump's former attorney, Michael Cohen, $1.2 million (£926,641).

"It's hard to call them outlier events, when there's enough of the outlier events," he said.

He described efforts to regain respect for the company that now has the world's highest prescription drug sales as "the great journey of my time as CEO."

Last month, U.S. Health and Human Services Secretary Alex Azar announced a plan that would end rebates now paid to PBMs and other payers and instead pass along savings to consumers covered by U.S. government health plans. Trump, in his State of the Union address on Tuesday, again called for lower U.S. prescription drug prices.

PBMs, which administer drug benefits for employers and health plans, argue that they are passing sufficient savings to patients and contend that rebates help keep down insurance premiums.

Narasimhan, echoing arguments of many large drugmakers, said the existing system obscures the true price of drugs and leaves patients on the hook, in the form of higher co-pays, or co-insurance payments.

'ZERO TRANSPARENCY'

He noted that changes in the decades-old rebate system could eventually affect insurance plans offered by U.S. employers, potentially leading to premium hikes.

"We have zero transparency into the billions we pay in rebates," the Novartis CEO said. "You could see some adjustment in premiums. But I think that's another area where we should get transparency."

Novartis, which had 2018 global sales of $51.9 billion and net profit of $12.6 billion, gets more than a third of its revenue in the United States. But despite all the talk about rising list prices, Narasimhan said since 2016 net prices for its prescription drugs fell about 1 percent.

"At Novartis, we no longer see net price growth as a meaningful contributor," he said.

Instead, the company is counting on recent and upcoming launches of new drugs to fuel 2019 growth of 4 percent to 6 percent, a forecast Narasimhan reiterated on Wednesday.

Since his elevation to CEO last year, Narasimhan sold off over-the-counter and generic drugs units and plans to spin off the Alcon eyecare business before July as he focuses on new, often very pricey transformative treatments.

These include a gene therapy for spinal muscular atrophy, a one-time treatment Novartis has said could be cost-effective at up to $5 million per patient, and Kymriah, a CAR-T cell cancer immunotherapy with a list price of $475,000.

Narasimhan said the extensive reliance on direct-to-consumer television advertising for medicines in the United States, a practice in which Novartis engages, may also be hurting the industry's image. TV ads for prescription drugs are not allowed in most countries.

"Our use of the television and television media has eroded some of the trust in the fact that we're a science-based industry," Narasimhan said.

Some image problems, however, are specific to Novartis.

Since 2015, it has paid hundreds of millions of dollars in settlements and fines following kickback allegations in South Korea, the United States and China. It also faces an upcoming trial in the United States over alleged doctor bribery.

Last year, Narasimhan disavowed the 2017 consulting deal with Trump's ex-attorney struck by his predecessor, Joe Jimenez, amid accusations that Novartis had inappropriately sought favour with the new administration.

But the CEO believes negative feelings towards his company and the industry can be reversed.

"It's a long journey back, but hopefully through consistent action over a decade, we can get there."

(Reporting by John Miller in Zurich; Editing by Bill Berkrot)