Ive often thought, was private equity. [laughter] and then i started interviewing. While i watch your interview, i know how to do some interviews. [laughter] ive learned from doing my interviews how leaders make it to the top. Jeff i asked him how much he wanted. He said 250. I said, fine. I didnt negotiate with him. I did no due diligence. David i have something i would like to sell. [laughter] and how they stay there. You dont feel inadequate now because being only the second wealthiest man in the world, is that right . [laughter] vasant narashimhan is the ceo of novartis, a major swissbased pharmaceutical company. Born in the United States to indian immigrant parents, he was educated at Harvard Medical School but chose not to Practice Medicine. Instead he chose to go into the pharmaceutical industry and is leading the transformation of novartis to one of the most important pharmaceutical companies in the world. I had a chance to sit down with vas in new york recently to talk about this transformation. So many people know the names of the drugs that they use but they dont know the names of the Drug Companies or pharmaceutical companies that produce them. So for people who might not know much about novartis, tell us what drugs or products people would have heard of. Dr. Narashimhan there are a pres. Biden couple of major drugs we have now. We have a medicine for heart failure. Another drug for a whole range of immunology indications. We have a drug for Breast Cancer. These names are not always tied to what the drugs actually do. We have a broad portfolio of medicines, over 15 medicines and over 1 billion in sales. David who comes up with these brand names because they are names i cannot pronounce sometimes. You dont know what they mean. Do you have a team that come up with them . Dr. Narashimhan its a whole industry, maybe private equity would be interested to getting into it. But theres a whole industry of people who basically try to find word permutations that might tie to the drug and then you have to send it to the regulators and they have to be sure the word will not be confused in any number of different languages for some other medicine or something else. David people who dont follow this industry carefully might not recognize it but the way the industry works as i understand it is that Large Pharmaceutical Companies either developed internally or through an acquisition a drug, pharmaceutical product, they can sell and it is patented and the patents last for 17 years and after 17 years it becomes whats known as a generic, which means it is not patented and you can get it presumably for a lower price. So, is that a good way to make a business . You bill products and in 17 years they are gone . Dr. Narashimhan its a tough way to make a business, you are on a constant treadmill and you have to constantly have the innovation capacity to have what we call replacement power. You have to replace your sales with the next medicines and next innovations. So the only winners in the long run are companies that have the r d firepower and capacity to keep inventing medicines, to rejuvenate almost an entire portfolio. So you think of a company like us, 45 billion in sales, every year we could have 2 to 8 billion dollars plus going off patent and we have to generate enough sales to replace that and grow on top. And that is why you have a relatively limited number of very Large Pharmaceutical Companies. David when somebody develops a drug or pharmaceutical like you do, is the lab in switzerland . Dr. Narashimhan we invest about 9. 5 billion a year in r d, the Research Departments are in massachusetts and switzerland. David you test on animals and then a small subset of humans and then a large subset of humans . Is that how it works . Dr. Narashimhan roughly thats how it works. It is a long journey. First we have to find what we call a target in the human body we want to drug. We think this target has some ability to impact human health and the disease we are interested in. The we have to design the drug to inhibit or promote that target. That takes time. Ai might help us to do that faster, we will see. And then once we have that target drug optimized, we take it to animals, make sure it doesnt cause preclinical safety signals, and then we finally move into humans. From the time we move into humans to when we get it the people is usually around nine years. David 2023 we saw an enormous increase in drugs that reduce your weight. And that they seem to work quite well. There are two Drug Companies, one in the United States and one in europe, that seem to dominate that business. You going to get into that business and why not . It seems very profitable. Dr. Narashimhan we are interested. We are interested in the next wave of medicines. The once youre talking about are very well serviced by the current companies. Its a fascinating story. It goes back to the early 1990s. It took us almost 25 years to realize the potent effect these types of drugs would have on obesity. We think theres opportunity to improve on them. Its very early stages in with novartis, but can we come up with drugs that better preserve muscle, or may be easier to take and more infrequently taken . One area where we are a leader is what is called small interfering rna therapies. It sounds like a fancy word, but really, what it allows you to do is to take drugs you normally would take every single day and make them drugs you only have to take twice a year. So in cholesterollowering, we have a medicine you only have to take twice a year to lower cholesterol 60 . We are working on medicines for hypertension, low blood high Blood Pressure. And the idea is can you get infrequently dosed medicines because most people dont stay on their drugs. David as i get older, the drug im most interested in is one that deals with alzheimers or dementia because im always wondering if im going to to get this disease. What are you doing in that area . Dr. Narashimhan we are active. And i think what we are really interested in the next wave of what might be effective therapies for alzheimers disease. Today, there are two drugs, one drug licensed and one coming, targeting the plaques in the brain. We think the next generation opportunities will be other elements that accumulate in the brain. There are other targets as well. I would say alzheimers is a tough space. One thing that is hard as you need to intervene very early because its a slowly progressing disease. And identifying which patients to intervene on and figuring out what to treat them with is very difficult. David cancerrelated drugs. There are some cancer related drugs and i guess you have some as well, they tend to deal with cancer. Once you have cancer, they try to ameliorate the side effects or the effects of it. What about something that prevents cancer, is that realistic in my lifetime . Dr. Narashimhan that is something thats a heavy interest of the field and at our company. We just got great data about a Breast Cancer drug that can be given to women to prevent it recurring. Where there is a lot that interest right now is can you identify things in the blood, things that are circulating, so circulating tumor dna, that would show the cancer is starting to happen in the body but well before it would be detectable in any scan . If we can get those tests to an adequate level of precision and start to treat patients before the cancer shows up, that would be the big opportunity, but thats a long time away. David you produce drugs that help people with their lives, so why arent you a more popular industry . You know, the private Equity Industry has its detractors no doubt, but the pharmaceutical industry is not far behind us. Why do people not love you for the drugs you are producing . Dr. Narashimhan its a long story in terms of the history of this industry. Even if you go back to the 1970s or 1980s, we were much more popular as a sector. I think one of the things that happened is as we brought more and more medicines forward and patients got on more and more therapies, the one thing we were not watching carefully enough as an industry was what was happening at the pharmacy counter. Theres a lot of focus and congressional hearings and other places on list prices. But list prices mean very little in the sector because you have pharmacy benefit managers, retail pharmacies, wholesalers. But what really matters is at the end of the day when someone comes to the pharmacy counter, can they afford their medicines . And we are starting to address that. Some recent legislation addresses it. We are thinking a lot about it. But thats what we have to think about how to solve. David lets talk about your background. So your parents came from where . Dr. Narashimhan they came from southern india. David when did they come to the United States . Dr. Narashimhan the late 1960s and early 1970s. David were they educated . Dr. Narashimhan they were, my father alongside his brothers were some of the first people in our family to go to college in india. My father did his phd in india. He was able to work his way up and was one of the first people to come to the United States. My mother came to carnegie mellon, becoming a nuclear engineer. And yeah, i think it was pretty extraordinary story in that they were able to come from relatively modest beginnings, beginning with my grandparents in relatively small places in india, and find a way to the United States. David you grew up in the pittsburgh area . Dr. Narashimhan a steelers fan indeed. David you did well in high school . Dr. Narashimhan did well. Did well. David you went to the university of chicago. And why did you go there as opposed to other good schools . Dr. Narashimhan its an interesting story. I applied to all of the ivies and didnt get in anywhere and actually the one school that did admit me was the university of chicago. It ended up being such an incredible gift in the end because i would still credit it perhaps more than any other educational experience with how to think, synthesize and be relentlessly curious. It was really positive. David harvard recognizing its mistake admitted you to medical school. Dr. Narashimhan they did. David i assume your immigrant parents were saying great, my son is going to be a doctor. Yes. David so when you told him you were knocking to be a practicing doctor, what did they say . Dr. Narashimhan there were very confused. I had this idea in my mind i did work in Public Health and had great mentors at harvard and i really wanted to see how could i have a bigger impact beyond individual patient care. And so i wanted to i first went to the world health organization. Then i went to mckinsey. But all of this time, i think my parents were assuming i would do a residency and become a cardiologist and finish the journey. And it never actually worked out that way. David for a while, you were i guess a protege of paul farmer, the famous doctor at harvard for a while among other places. You then went back to india and went back working with Street Children in india. Thats right. Yes. David so did your parents say you have a Harvard Medical School degree and you are making no money in india . India is a great country but why dont you go Practice Medicine . Did they ever say that . Dr. Narashimhan my father would ask, i worked so hard to get out of these places, why are you working so hard to go back to them . It was certainly a confusion he had in his mind. But overall my parents were very supportive of this Public Health goal, had. David ok. So you ultimately came to mckinsey after some Public Health work and why did you not stay at mckinsey . Dr. Narashimhan mckinsey was a great Training Ground for a physician who did not anything about a pnl, a balance sheet, new nothing about m a or valuation. I learned a lot quickly. But i felt a little detached from the real action. I had an opportunity presented to me to join novartis pharmaceuticals, to look at the r d strategy at novartis at the time. And it was a little bit of a whim, sort of a gamble to see how that would work out. I would never have imagined it unfolded the way you did but it was great. David so you work your way up and then, at the age of 40, somebody at novartis says we have a 40yearold who didnt go to business school, is not from switzerland, and is a medical doctor who has never practiced medicine, lets make him the ceo. Dr. Narashimhan thats right. David were you surprised . Dr. Narashimhan i was shocked. I was shocked when they first even asked me to be part of it. I was the head of drug development. I had the opportunity to do so many different roles at novartis in developing vaccines, our vaccines division, leading a little bit of our generics unit, working in our drug unit. And i think part of the reason they were interested is because i had a background in research and development, but i think it was also not only my age but the fact that i think no other Major Pharmaceutical Company had an r d or Development Head as their ceo. David your strategy has been different than the strategy you inherited. Novartis was in many different areas. They had a generic drug business and you sold that. Yes. David why did you get out of that business . It seems to be a reasonably profitable business. Dr. Narashimhan as you know, when you have these conglomerates, you have to ask, is there value in the conglomerate. Is there value building all of these businesses together . And then the question is, what are we really great at . When i came into the role of ceo, i looked. We were in Consumer Health, eye care devices, generics, we had a broad range, a broad portfolio. And i think what our company is great at is discovering these novel breakthroughs and getting access to over 280 million patients, which is our reach today, largest we believe of any pharma company, to all of these patients. And so in order to do that well, i didnt think we could allocate capital successfully across all these different businesses. So we spun the largest market spin recently in europe. So we spun off sandoz, sold our Consumer Health business, and about 130 billion of transactions later we come out as a pure play medicines company. David you are the ceo and you go to the board and say weve been in the generics business, we are in the consumer drug business, we will get out of all of them except the business we are in now. Did they say you are not qualified to make that judgment . Or what did they say . Dr. Narashimhan i think they went along and generally were aligned but it also was a stepwise journey. I mean, first, we did Consumer Health. We saw how that went. Two years later we did alcon. Then the pandemic came. Then we did sandoz. The fear comes back from what we discussed earlier. When you have a business in Innovative Medicine and you have these patent cliffs, if you have these other more stable businesses, theres a feeling you can offset risk. You have stable businesses and this one business where you face these cliffs every 15 to 17 years. I take the view that the only way you will generate enough medicines to keep growing is to focus your capital on innovation. David last week you made another acquisition i think for roughly 5 billion. You bought a company dealing with blood cancer. Why was that a good acquisition and how long does it take you to make an assessment about whether an acquisition is good or not and do you come up with the ideas yourself or does some investment banker come along and tell you this is a great idea . Dr. Narashimhan we limit our time with Investment Bankers overall. We have been in blood cancers for over 20 years. Some of the most pioneering drugs in blood cancers have come from our research labs. And we say if this is an area we are in and we have deep understanding, therefore it makes sense to add another medicine to that portfolio. We made that assessment and it was a good strategic fit. In this case a good financial fit. We will make the bet. One of the things we have tried to be much more disciplined on is to try to go at the lower end of the range, under 5 billion for acquisitions, and really ensure they are in areas where we have deep understanding. Generally when weve gone too far away from our core, the Value Creation hasnt been there. David in 2023, ai burst onto the scene. Everybody now is excited about ai. How is ai affecting your company . Do you think it will help your company . Dr. Narashimhan i think you will have an impact. But i think it will take more time than most people expect. First, in productivity areas, ai has immediate applications. I think in productivity, we can use ai for Document Management , document generation, not sexy areas. In our sector uniquely, the big question is can you speed up or increase the efficiency of drug r d . And there we are doing a couple of things working on Clinical Trials and optimizing our Clinical Trials, but the big bets we have made here with palantir, Microsoft Research labs, google deep mind, and a few other partners to say can we discover some novel drugs that were not discoverable without ai . Can you optimize drugs more quickly . Its built on the parenting work that Google Deepmind did. There is a huge opportunity here, but we also have to acknowledge we only understand about 5 to 10 of whats going on in the human body. So to expect ai to use that 5 to 10 to extrapolate and come up with big discoveries will is going to take time. David other than ai, what other medical technologies will come along in the next one to three years are likely to change what you do or the medical world . I think a couple of things. One, rna therapeutics as i mentioned in the broadcast. Si rnas. These are really coming to life now. What this allows you to do is treat diseases that were n