NovartisThe CEO warned Tuesday that U.S. drug pricing policy under President Donald Trump poses a “very difficult situation” and that reality will soon catch up with both drugmakers and patients.
“The long-term implications are significant,” CEO Vas Narasimhan told CNBC's Carolin Roth. “The reality of MFN treatment will become reality in the next 18 months.”
Novartis is focused on getting European and Japanese governments to quickly change the way they reward innovation, he said, adding that if this does not happen, then new drugs could be delayed from entering these markets and patients will not have access to the drugs.
The most favored nation, or MFN, drug pricing policy implemented by Trump last year means that prices in the large and lucrative U.S. market are tied to prices in comparably wealthy countries. Trump has made lower drug prices for Americans a priority and has long criticized what he calls “foreign nations taking advantage of American-funded innovation.”
Narasimhan's comments echo other drugmakers who have lamented Europe's fragmented markets, bureaucracy and pricing policies.
Roche and AstraZeneca are among companies that have recently flagged the risks for European countries of missing out on new drugs unless they address lower drug spending and unfavorable policies.
“We are going to be in a situation where we will have to make difficult trade-offs,” Narasimhan said, adding that he hopes to find alternative solutions for patients to access critical medications.
The effect of MFN on Novartis' revenue and results is still limited, as it currently primarily affects 5% to 10% of sales in the Medicaid segment, Narasimhan told CNBC.
While there are “good initial conversations” with European governments, not enough action is still being taken, he added. “There is awareness, but I still think we don't realize the level of impact that is coming.”
Earlier this month, Germany announced a proposal to reduce costs in its national healthcare system to address a looming multibillion-dollar funding gap, including introducing greater discounts on patented medicines.
“We have seen recent moves, for example, from the German government, that are actually going in the wrong direction. And that is very worrying,” Narasimhan said.
“These governments are going to have to take this really seriously, because the [MFN] “The policy is set and I don't see it going away in the United States.”
Profits are missing
Novartis on Tuesday also reported its first decline in quarterly sales in more than two years, as generic competition weighed on the drugmaker's revenue.
Shares fell 2.9% during morning trading in Zurich.
The Swiss company posted first-quarter sales of $13.1 billion, below the $13.5 billion expected by analysts surveyed by FactSet and reflecting a 1% year-over-year drop. Sales decreased 5% at constant exchange rates.
Earnings per share were $1.65, down 10% year over year.
The loss was due to a faster-than-expected generic erosion of the company's best-selling drugs, Entresto, Promacta and Tasigna, which each lost between 7% and 17%, according to Citi analysts. The sales decline was only partially offset by the growth of newer drugs such as Kisqali, the breast cancer treatment, and Kesimpta, a multiple sclerosis drug.
Sales of the heart drug Entresto fell 42% after its patent expired in the United States. It faces the loss of exclusivity in Europe at the end of this year.
“We were heading into a first half that was going to be challenging: we knew these generics were coming. It's actually the biggest loss of exclusivity in Novartis' history,” Narasimhan said.
Novartis has forecast a rebound in growth during the second half of the year.
