Novartis AG agreed to buy Medicines Co. for $9.7 billion, snapping up a promising cholesterol drug and adding to a string of recent acquisitions for Chief Executive Officer Vas Narasimhan.
Medicines Co. shareholders will get $85 a share, Basel, Switzerland-based Novartis said in a statement on Sunday. That’s a 45% premium to the closing price on Nov. 18, before Bloomberg reported the two companies were in talks.
Narasimhan has relied on acquisitions to sharpen the pharma giant’s focus on cutting-edge drugs for cancer, rare diseases and other illnesses. With the Medicines Co. deal, he’s paying a high price for essentially a single treatment, the experimental cholesterol drug inclisiran, analysts said. Novartis shares were little changed on Monday, trading at 90.22 Swiss francs in Zurich.
The transaction doesn’t deliver a research platform or other significant assets besides inclisiran, said Tim Anderson, an analyst at Wolfe Research. “For an outlay of $9 billion, it would be nice to have the latter,” he wrote in a note.
Margin Boost
Novartis is rolling out new products like Zolgensma, a gene therapy aimed at a devastating muscle disease that the company gained by acquiring drugmaker AveXis Inc. for $8.7 billion in 2018. Last year, it also bought Endocyte Inc. for $2.1 billion. Under Narasimhan, the company has also spun off the Alcon Inc. eye-care division and ditched a stake in a consumer-health venture.
The deal adds inclisiran to a stable of cardiovascular products that includes the heart-failure treatment Entresto. The drug fights bad cholesterol with two injections a year, compared with at least one shot a month for older treatments from Amgen Inc. as well as partners Regeneron Pharmaceuticals Inc. and Sanofi. High levels of the substance are a leading cause of heart attacks.
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 on a call with investors Monday. “There’s also significant upside potential” with the asset, he said.
Shares of Parsippany, New Jersey-based Medicines Co. surged 22% in trading before U.S. exchanges opened. The stock had already tripled in 2019 with anticipation building over the blockbuster potential of inclisiran. Analysts estimate its sales could climb to more than $1 billion by 2024. 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 that inclisiran may offer a differentiated option from Amgen Inc.’s Repatha and Regeneron and Sanofi’s Praluent. The treatment relies on technology known as RNA interference, a biological process discovered in plants a few decades ago that halts genes from making protein.
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 RNAi 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. The $9.7 billion valuation is on a fully diluted basis, including convertible debt and stock options.
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.
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