Novartis’ CEO warned Tuesday that the U.S. drug pricing policy under President Donald Trump poses a “very difficult situation” and the reality will soon catch up with both drugmakers and patients.
“The longer-term implications are significant,” CEO Vas Narasimhan told CNBC’s Carolin Roth. “The reality of MFN is going to set in in the next 18 months.”
Novartis is focused on getting European and Japanese governments to quickly change how they reward innovation, he said, adding that if this doesn’t happen, then novel medicines might see delayed entry into these markets and patients won’t have access to the drugs.
The most favored nation drug pricing policy, or MFN, implemented by Trump last year means that prices in the big 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 freeloading on American-financed innovation.”
Narasimhan’s comments echo other drugmakers who have lamented Europe’s fragmented markets, red tape, and pricing policies.
Roche and AstraZeneca are among the companies that have recently flagged risks to European countries of missing out on new drugs unless they address the lower spending on medicines and unfavorable policies.
“We’re going to be in a situation where we’re going to have to make difficult trade-offs,” Narasimhan said, adding that he hopes to find alternative solutions for patients to access critical medicines.
MFN’s effect on Novartis top and bottom line is still limited as it currently mainly impacts about 5-10% of sales in the Medicaid segment, Narasimhan told CNBC.
While there are “good early discussions” with European governments, there is still not enough action being taken, he added. “There’s awareness, but I still think there’s not a realization of the level of impact that’s coming.”
Earlier this month, Germany announced a proposal to cut costs in its national health system to tackle a looming multi-billion-euro funding gap, including by introducing steeper discounts on patented drugs.
“We’ve seen recent moves, for instance, by the German government, who actually go in the wrong direction. And so that is very concerning,” said Narasimhan.
“These governments are going to have to now really take this seriously, because the [MFN] policy is set, and I don’t see it disappearing in the United States.”
Earnings miss
Novartis also reported its first quarterly sales decline in over two years on Tuesday, as generic competition weighed on the drugmaker’s top line.
Shares fell 2.9% in morning trading in Zurich.
The Swiss company posted first-quarter sales of $13.1 billion, below the $13.5 billion expected by analysts polled by FactSet and reflecting a 1% decline year-on-year. Sales declined by 5% on a constant currency basis.
Earnings per share came in at $1.65, down 10% year-on-year.
The miss was driven by faster-than-expected generic erosion of the company’s best-selling medicines Entresto, Promacta, and Tasigna, which each missed by between 7% and 17%, according to Citi analysts. The sales decline was only partially offset by the growth of newer medicines like breast cancer treatment Kisqali and multiple sclerosis drug Kesimpta.
Sales of heart drug Entresto fell 42% after its U.S. patent expired. It faces loss of exclusivities in Europe later this year.
“We guided to 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 guided for a pickup in growth over the second half of the year.