Novartis (NVS) to Acquire The Medicines Company for $9.7B

Swiss pharma giant Novartis NVS is the latest company to join the ongoing M&A wave in the pharma/biotech sector.

The company announced that it entered an agreement to acquire U.S.-based biopharmaceutical company, The Medicines Company MDCO, for $85 per share in cash or a total valuation of $9.7 billion, and add a potentially transformational investigational cholesterol-lowering therapy.

Financial Terms of the Acquisition

Per the terms, the offer price represents a premium of approximately 41% over The Medicines Company’s 30-day (to November 22, 2019) volume-weighted average price of $60.33 and approximately 24% premium over the closing share price of $68.55 on Nov 22, which represented a fully diluted equity value of approximately $7.7 billion.

The transaction, expected to close in the first quarter of 2020, has been unanimously approved by the boards of both companies.

The acquisition is expected to modestly dilute core earnings per share.

Value of the Deal

The acquisition will add a potentially first-in-class siRNA inhibitor targeting PCSK9, inclisiran, to Novartis’ pipeline. The Medicines Company recently announced data from its late-stage program consisting of three phase III studies (ORION-9, 10 and 11) on inclisiran for the treatment of atherosclerotic cardiovascular disease (ASCVD) and familial hypercholesterolemia (FH). Inclisiran demonstrated potent and durable LDL-C reduction with an excellent safety and tolerability profile. The candidate’s twice-yearly dosing schedule allows administration during patients’ routine visits to their healthcare professionals and will likely improve patient adherence and sustain lower LDL-C levels.

Additionally, an ongoing clinical trial (ORION-4) will evaluate the cardiovascular morbidity and mortality benefits of inclisiran.

The Medicines Company expects to file regulatory submissions in the United States in the fourth quarter of 2019 and Europe in the first quarter of 2020. The Medicines Company has a partnership with Alnylam Pharmaceuticals for the development of PCSK9 inhibitor, inclisiran.

Our Take

The planned acquisition will add a promising candidate to Novartis’ cardiovascular portfolio, which includes Entresto. With regulatory applications planned shortly, inclisiran represents a near-term product launch opportunity and is expected to contribute to sales from 2021. The twice-yearly dosing schedule provides a great advantage to the candidate over the existing treatments in the market.

Though the targeted market holds significant potential, competition is stiff from the likes of Amgen’s AMGN Repatha and Regeneron and Sanofi’s SNY Praluent. While Praluent and Repatha are approved with once every two weeks or once a month dosing, inclisiran has been developed for twice-a-year dosing.

Shares of the company have gained 5.5% year to date compared with the industry’s growth of 5.2%.

Novartis has been making prudent acquisitions in recent times to diversify its portfolio, as its legacy drugs are facing generic competition. Earlier, the company acquired Endocyte to expand expertise in radiopharmaceuticals and transformational therapeutic platforms. In 2018, it acquired U.S.-based, clinical-stage, gene-therapy company, AveXis, Inc, which focuses on developing novel treatments for patients suffering from rare and life-threatening neurological genetic diseases. The company spun-off its ophthalmology division, Alcon, into a separately-traded, standalone company in order to grow as a medicines company solely.

We are positive about the impending acquisition and expect Novartis to witness significant growth in sales once inclisiran obtains approval.

Zacks Rank

Novartis currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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