Novartis will buy cholesterol drug developer The Medicines Company for $9.7 billion, the latest and largest in a string of deals under CEO Vas Narasimhan aimed at reshaping the Swiss pharmaceutical company around newer technologies and higher-margin prescription therapies.
Acquiring Medicines Co. will give Novartis control of a near-to-market heart drug, called inclisiran, which faces uncertain commercial prospects as well as high-profile rivals. Its path to a Food and Drug Administration approval, though, looks clear following late-stage study results confirming treatment with inclisiran cut cholesterol levels in half among individuals already taking statins. Medicines Co. expects to submit the drug to U.S. regulators by the end of the year.
Terms of the deal, which was announced Sunday, have Novartis paying $85 per share in cash, a 24% premium to the $68.55 which shares in Medicines Co. closed at Friday. The Wall Street Journal reported over the weekend that Novartis and Medicines Co. were nearing a deal.
Despite previously stating a preference for earlier, less expensive deals, Narasimhan guided Novartis to a takeover of Medicines Co. after a steady climb in the biotech's valuation. Measured from a recent nadir of $17.26 on Dec. 21, 2018, shares in the company rose nearly 240% to close at $58.65 on Nov. 18, the day before Bloomberg reported several companies were weighing a buyout.
Accounting for outstanding stock options and convertible debt, Novartis valued the deal at $7.7 billion. Boards of both companies have approved the transaction, which is expected to close in the first quarter of 2020.
Inclisiran, which Medicines Co. licensed from Alnylam Pharmaceuticals in 2013, targets a protein called PCSK9 that is essential to LDL, or "bad," cholesterol metabolism in the liver. Two approved drugs, Sanofi and Regeneron's Praluent and Amgen's Repatha, go after the same protein.
Medicines Co.'s treatment works differently, however, degrading the messenger RNA cells use to translate genetic instructions into proteins. Two other so-called RNA interference-based drugs, both from Alnylam, have won FDA approval.
For Medicines Co., the buyout is validation of its all-in bet on developing inclisiran.
Three years ago, under former CEO Clive Meanwell, the Parsippany, New Jersey-based biotech sold off several marketed cardiovascular therapies and shut down research on another heart drug. A round of layoffs and another divestment, this time of its infectious disease business, followed in 2017, freeing up resources to fund Phase 3 development of inclisiran.
But while Medicines Co. has shepherded inclisiran to the verge of an FDA submission, its commercial future looks less clear.
Both PCSK9 inhibitors on the market, Praluent and Repatha, have struggled to gain traction, hindered primarily by pushback from insurers over pricing. Each drug cost more than $14,000 per year when first introduced in 2015. More recently, Amgen and the team of Sanofi and Regeneron have separately announced price cuts that lower the annual cost by 60%, to under $6,000.
Inclisiran's principal advantage is convenience. Praluent and Repatha are taken by injection once a month, while inclisiran can be dosed once every six months, an administration schedule that Novartis hopes can be easily integrated into routine healthcare visits.
Studies tested the Medicines Co. drug in patients with established heart disease, or other risk factors like diabetes, whose cholesterol remained uncontrolled despite maximum doses of statins. Adding inclisiran lowered LDL levels by more than 50% after about a year and a half, a reduction roughly on par with what Praluent and Repatha have shown.
While that bodes well for approval, inclisiran's clinical journey still has one more stage to complete: a 15,000 patient cardiovascular outcomes study that's set to finish in late 2024. Both Praluent and Repatha can claim positive, if modest, cardiovascular benefits already.
Under Novartis' banner, inclisiran will join a cardiovascular portfolio that's headlined by Entresto, a heart failure drug that's met sales challenges of its own. New clinical data, coupled with increased salesforce investment by Novartis, have yielded a turnaround of sorts, with revenue from the first nine months of 2019 topping $1.2 billion.
For inclisiran to be worth the price paid by Novartis, Evercore ISI analyst Umer Raffat estimates the pharma will need to earn more than $2 billion in peak annual sales. Currently, sales of Praluent and Repatha combined are annualizing at about $1 billion per year.
While that may be a lofty goal, Novartis indicated high confidence in inclisiran's blockbuster potential, saying in a statement the drug "could become one of the largest products by sales in the Novartis portfolio."
Novartis was among other unnamed companies Bloomberg said last week were weighing a deal for Medicines Co. The recent Phase 3 successes reported by the biotech, while raising the company's stock price, took most clinical risk out of an acquisition.
In prevailing with a winning bid, Narasimahn has now led Novartis to buyouts of gene therapy developer AveXis for $8.7 billion, radiopharmaceutical specialist Endocyte for $2.1 billion and a $3.4 billion deal to acquire Takeda's eye drug Xiidra.
At the same time, Narasimhan has taken steps to focus Novartis' business more narrowly on pharmaceuticals, divesting the company's stake in a consumer joint venture with GlaxoSmithKline, shedding some generic drugs to Aurobindo and spinning off Novartis' eye care unit Alcon. (The deal with Aurobindo has yet to close.)
Novartis expects the deal for Medicines Co. to dilute its core earnings per share over the "next few years" as it invests in inclisiran, suggestive of the support the drug will require to become the blockbuster Novartis hopes.
Over the medium term, adding Medicines Co. will be accretive to core operating income and earnings per share, Novartis said.