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Novartis (NVS) In-Licenses Ophthalmic Drug from Lubris LLC

Zacks Equity Research

Novartis AG NVS recently announced that it has exercised an option to in-license ECF843 for ophthalmic indications worldwide (outside Europe) from Lubris LLC.

A look at Novartis’ share price movement over the past one year shows that the stock has underperformed the Zacks classified Large Cap Pharma industry. Novartis’ stock decreased 1.9% during this period, while the industry gained 1.9%.

The company did not provide any financial details. The closing of the deal is subject to customary closing conditions that includes regulatory approvals.

We note that ECF843 is a recombinant human lubricin (rh-Lubricin) protein, developed by Lubris. ECF843 demonstrated the potential to provide immediate improvement of symptoms by increasing lubrication across various eye and tear surfaces as well as an improvement in signs of dry eye within 28 days without reporting treatment-related adverse events.

We note that Novartis has a diverse portfolio in ophthalmology and dry eye treatments with a global portfolio of artificial tear products that includes Systane, Tears Naturale and Genteal.

In Dec 2016, the company entered into a definitive agreement to acquire Encore Vision, Inc., a privately-held company focused on the development of a novel treatment for presbyopia to strengthen its ophthalmology portfolio. The transaction will add Encore Vision's lead candidate, EV06, a first-in-class disease modifying topical treatment for presbyopia to the company’s ophthalmology pipeline. Financial details of the transaction were, however, not disclosed.

We note that Novartis combined its retina medicines business with the Alcon pharmaceuticals business in 2016 which is now operating as one ophthalmology franchise under Novartis Pharmaceuticals.

The performance of the Alcon business has been disappointing due to lower surgical equipments sales owing to competition faced by intraocular lens and a slowdown in demand for equipment purchases. Novartis is mulling strategic options for Alcon which includes retaining the business to separation via a capital markets transaction such as a spin-off or an initial public offering.

We remind investors that Novartis broadened its oncology portfolio by acquiring GlaxoSmithKline plc’s GSK certain oncology products and pipeline compounds in Mar 2015 after having divested its Animal Health Division to Eli Lilly and Company LLY. In Oct 2015, it acquired a portfolio of cancer immunotherapies through the acquisition of Admune Therapeutics and added bispecific antibodies through a collaboration with Xencor, Inc. XNCR in Jun 2016.

Going forward, we expect approval of new drugs and label expansion of existing ones to bode well for Novartis. Also, strong performance of growth products should be able to offset the impact of generic competition for Gleevec.

Novartis currently carries a Zacks Rank #4 (Sell). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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