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Novartis CEO's $50 Billion of Deals Was Just the First Act

James Paton
Novartis CEO's $50 Billion of Deals Was Just the First Act

(Bloomberg) -- Vas Narasimhan is still keen to shake up Novartis AG after orchestrating more than $50 billion of deals in his first year at the helm of the pharmaceutical giant, and he has the firepower to do it.

With plans to spend more than $10 billion a year on acquisitions, Big Pharma’s youngest boss is hunting for partnerships to develop groundbreaking gene therapies. He’s also weighing sales of Sandoz assets in Asia and emerging markets amid speculation about the fate of the overall generic-drugs business.

His flurry of opening moves -- spinning off the Alcon eye-care division, ditching a stake in a consumer-health venture and three key acquisitions -- have added up to a seismic shift at Europe’s largest drugmaker by market value. Since taking over early last year, Narasimhan has sharpened Novartis’s focus on competing with AstraZeneca Plc, Roche Holding AG and other rivals developing cutting-edge drugs.

“We’ll have to be on top of the next wave of innovations,” Narasimhan, 42, said in an interview at the company’s headquarters in Basel, Switzerland. “What we’re going to have to do to be successful in the long run is to keep an eye on what will be the next big fields.”

The pressure is on to deliver. Novartis needs new products, like the experimental gene therapy Zolgensma, as the expiring patents of blockbusters like cancer drug Gleevec and multiple sclerosis treatment Gilenya are expected to hurt sales. Pushback from insurers and governments to limit price increases and escalating drug-development costs are also causing industry-wide pain.

Scouting Gene Therapies

The CEO will be judged mainly on his ability to bring life-changing treatments to patients. Mayzent, a multiple sclerosis treatment, was cleared last month, and the drugmaker anticipates two more big approvals in the first half of 2019, he said. Zolgensma, which treats a childhood muscle disease, and a breast cancer drug still await decisions.

Novartis is also scouting medicines outside the company to bolster its pipeline, concentrating mainly on nervous system, eye and metabolic illnesses. Narasimhan wants to consistently spend the equivalent of about 5 percent of Novartis’s market value on deals each year. With several promising gene therapies already in development, he’s looking for more opportunities like Zolgensma, gained last year through the $8.7 billion purchase of AveXis Inc.

“What we’re looking for is something that could have a transformative effect,” or would bring valuable new technology, he said.

AveXis this week expanded its gene-therapy manufacturing capabilities with the purchase of a plant in Colorado. That network makes Novartis a good partner for the field’s smaller companies, Narasimhan said.

Pricing Challenge

Rivals have followed Novartis into gene therapies, with Biogen Inc. agreeing last month to buy Nightstar Therapeutics Plc and Pfizer Inc. collaborating with Vivet Therapeutics on a rare liver disorder treatment. Roche also agreed to buy Spark Therapeutics for $4.8 billion.

Those companies developing drugs with dramatic results in patients will need to overcome the financial challenges for the field as health systems figure out how they’re going to pay for products that could cure patients through a single treatment -- and come with prices that run into the millions of dollars. UBS Group AG assumes Zolgensma will cost about $2 million.

Novartis plans to allow payments in installments over five years, while it expects the benefits to extend far beyond that, Narasimhan said. If a patient death or another sign of the treatment’s failure were to occur during that period, Novartis would offer reimbursement.

“We want something with a massive effect in order to make a credible case to society to invest in these medicines,” Narasimhan said. “I think ultimately payers will come around.”

Revamping Sandoz

Meanwhile, Sandoz is facing price erosion and tough competition for its generic drugs in the U.S. Narasimhan, an American doctor who joined Novartis 14 years ago, is looking at exiting some countries in Asia and emerging markets as the company seeks to improve its performance and make it leaner. The company plans to give Sandoz independence, allowing it to become a “stand-alone” firm within the broader company, he said.

“Our focus is really making it a leading generics company, perhaps the leading generics company,” Narasimhan said. As rivals pull back in the field, “we want to actually double down on” on Sandoz’s main business, he said.

The efforts to revamp Sandoz, whose CEO stepped down last month, have raised questions about the unit’s strategy. Novartis is working on the internal separation of Sandoz, which could pave the way for an initial public offering, spinoff or sale in the future, according to people familiar with the deliberations. While the company is considering various options, no decision has been made and Novartis could also opt to keep the unit, the people said.

Narasimhan said the company isn’t currently considering those alternatives.

“Right now we have no intention to separate from that business or sell the business,” he said. “What we want to do is put it in the best position to succeed, and then down the line we’ll of course evaluate where we are.”

(Adds disease areas for potential deals in seventh paragraph.)

--With assistance from Eyk Henning and Jan-Henrik Förster.

To contact the reporter on this story: James Paton in London at jpaton4@bloomberg.net

To contact the editors responsible for this story: Eric Pfanner at epfanner1@bloomberg.net, John Lauerman

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