U.S. Markets closed

Novartis to Pay $9.7 Billion in Latest Bet on New Technology

James Paton and John Lauerman
Novartis to Pay $9.7 Billion in Latest Bet on New Technology

(Bloomberg) -- Novartis AG agreed to buy Medicines Co. and its promising heart drug for $9.7 billion, the latest move in the Swiss drugmaker’s push to amass novel treatments for complex conditions.

Medicines Co.’s experimental treatment inclisiran uses a new approach to lower bad cholesterol in especially hard-to-treat patients. Novartis Chief Executive Officer Vas Narasimhan was willing to foot the bill, which includes stock options and convertible debt, for a medicine that appears to be moving quickly to the U.S. market where it will compete against existing products from Amgen Inc., Regeneron Pharmaceuticals Inc. and Sanofi.

Drugmakers are targeting conditions and technologies that can set them apart from rivals, leaving more room for sales growth and allowing them to charge higher prices in an increasingly cost-conscious market. Narasimhan is adding Medicines Co. to a list of purchases that includes AveXis, maker of the $2.1 million gene therapy Zolgensma, and Endocyte, developer of targeted cancer treatments.

The 43-year-old CEO has moved to spin off contact-lens maker Alcon and to ditch a stake in the consumer-health venture with GlaxoSmithKline Plc that makes Panadol painkillers and Theraflu cold remedies.

Medicines Co. gives Novartis entry into a realm where at least one drug, Repatha, is forecast to achieve blockbuster status by 2021. Another similar cholesterol treatment, Regeneron and Sanofi’s Praluent, hasn’t fared as well, and prices on both drugs were recently cut as studies questioned their cost-effectiveness.

New Technology

The medicine at the heart of the Novartis transaction is based on a technology discovered in the last few decades, called RNA interference, which stops cells from making specific proteins. The therapy is injected just twice a year, unlike existing treatments that need to be administered once or twice a month. Should it be approved by regulators, annual sales might reach a peak of $4 billion, according to Peter Welford, an analyst at Jefferies in London.

Medicines Co. shareholders will get $85 a share, Novartis said in a statement. That’s a 45% premium to the closing price on Nov. 18, before Bloomberg reported the two companies were in talks.

Shares of Parsippany, New Jersey-based Medicines Co. surged as much as 23% in early New York trading. The stock had already tripled in 2019 with anticipation building over the blockbuster potential of inclisiran. Novartis rose 0.7% at 3:40 p.m. Monday in Zurich.

Narasimhan is paying a high price for a deal that essentially delivers a single treatment, analysts said.

The transaction doesn’t bring a research platform or other significant assets besides inclisiran, said Tim Anderson at Wolfe Research. “For an outlay of $9 billion, it would be nice to have the latter,” he wrote in a note.

At Novartis, inclisiran will join a stable of products that includes the heart-failure treatment Entresto. High levels of bad cholesterol, also known as LDL, are a leading cause of heart attacks and millions of people take statin drugs to keep them under control. Novartis is targeting a patient population of around 50 million people, according to a presentation.

The medicine could become one of Novartis’s biggest sellers and help boost profit margins in the company’s innovative drugs division to a percentage in the mid- to high-30s in the medium term, Narasimhan said. Medicines Co. plans to submit an application for the drug in the U.S. before year-end.

‘Cause for Caution’

Recent data on the cholesterol treatment, a partnership with Alnylam Pharmaceuticals Inc., suggest RNA interference will help inclisiran stand out from Repatha and Praluent.

The only approved drugs that use the gene-silencing approach come from Alnylam, which licensed rights to inclisiran to Medicines Co. The success of the drug, which has shown few side effects in clinical trials, is good news for Alnylam, whose Onpattro treatment for a rare inherited protein abnormality was the first therapy approved in the field. Givlaari, another one of Alnylam’s RNA products that treats a rare liver disease, was approved last week and will carry an annual U.S. wholesale price of $575,000.

“Novartis hopes to leverage its growing cardiovascular might and inclisiran’s differentiated profile,” Bloomberg Intelligence’s Sam Fazeli wrote in a note. “The lackluster performance of drugs targeting the same mechanism from Amgen and Sanofi is cause for caution.”

At 11 times consensus 2023 sales, Novartis is paying a high price relative to recent deals, according to Fazeli.

Medicines Co.’s drug cleared a key hurdle this summer as a late-stage study showed it cut bad cholesterol levels in half over 18 months. Two years ago, the company said it would lay off most of its workers as it restructured to focus on developing inclisiran.

(Updates shares in eighth paragraph.)

--With assistance from Cristin Flanagan and John Lauerman.

To contact the reporters on this story: James Paton in London at jpaton4@bloomberg.net;John Lauerman in London at jlauerman@bloomberg.net

To contact the editors responsible for this story: Eric Pfanner at epfanner1@bloomberg.net, Marthe Fourcade, Anne Pollak

For more articles like this, please visit us at bloomberg.com

©2019 Bloomberg L.P.