Summary
- Novartis announced that it would acquire The Medicines Company for $9.7 billion or for $85 per share, which was a 25% premium from Friday's close.
- The acquisition came in time because an NDA filing for inclisiran to the FDA is expected in Q4 of 2019, with an MAA filing of the drug thereafter in Q1 2020.
- Competing PCSK9 products in the cholesterol treatment space include Praluent from Sanofi and Regeneron Pharmaceuticals and Repatha from Amgen.
- Inclisiran has several advantages in that patients are only required to be given the treatment twice per year and the cost of manufacturing the treatment is much lower compared to the other PCSK9 inhibitors.
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Novartis (NVS) announced that it would acquire The Medicines Company (MDCO) for $9.7 billion. This buyout was at $85 per share which was a 25% premium to the closing price on Friday. This acquisition comes at the most opportunistic time in that an NDA filing for inclisiran is expected in Q4 of 2019 and then an MAA filing is expected thereafter in Q1 of 2020. This will be good for Novartis in that it lives up to its reputation of establishing therapies that transform the therapeutic landscape for diseases. However, there are some risks in entering the bad cholesterol treatment space with other major competitors like Regeneron Pharmaceuticals (REGN) and Sanofi (SNY) with Praluent and Amgen (AMGN) with Repatha.
Massive Acquisition Which May Take Time To Pay Off
Novartis has certainly spent a lot of cash to acquire The Medicines Company, but as I briefly discussed above, it makes sense why. The NDA and MAA filings for inclisiran are expected to be filed in the coming months. That means Novartis just came in time to scoop up the company. The biggest question is, will the acquisition ultimately pay off? There's some perception that it might be a good deal in the long term. That's because in the short term, there are still a few headwinds. The first headwind involves going up for regulatory approval. In this sense, I believe that there is a good chance for approval both in the United States and in Europe. That's because the company was able to meet on all primary and secondary endpoints in several late-stage studies. Specifically, these studies were: ORION-9, ORION-10, and ORION-11. These studies were looking at safety and efficacy of inclisiran in being able to treat patients with atherosclerotic cardiovascular disease (ASCVD) and familial hypercholesterolemia (FH). In essence, the goal was to see if inclisiran could lower LDL-C (bad cholesterol) for these patients. Inclisiran is a small interfering RNA ((siRNA)) inhibitor targeting PCSK9. This an important target when treating patients with elevated LDL-C levels in the blood.
Potential Risks To Be Considered
There are several risks with the latest acquisition by Novartis.The first item of risk to note involves inclisiran itself. That's because The Medicines Company did not develop the drug. It was developed by Alnylam Pharmaceuticals (ALNY), which means it is entitled to sales also. That means not only does Novartis have to navigate through the competitive landscape, but it has to split sales with Alnylam as well. The Medicines Company had developed a license and collaboration deal many years ago with Alnylam. That's why Alnylam will be entitled to a low to high teens royalty percentage on net sales. I briefly discussed above about the competition. Both Regeneron and Sanofi have Praluent and Amgen has Repatha. Not only will Novartis have to ultimately go against these competitors, but it will also have to fight to get sales of its drug. There is a lot of skepticism in this space based on sales of Praluent and Repatha. Before either of these drugs hit the market, analysts were expecting multi-billion dollar blockbuster drugs. Unfortunately, both of these drugs have failed to live up to the PCSK9 treatment hype. A lot of that reason has been because of pricing. Both drugs were priced at about $14,000 or more per year when they first hit the market. Despite the lowering of the price of the drugs since then, sales of these cholesterol-lowering drugs have not improved. For example, in March of 2019 Regeneron and Sanofi lowered the cost of Praluent to $5,850 per year. This was a price reduction of 60% and that still didn't help improve sales all that much in the short term. I think the biggest reason is that statins are priced at $4 per month with discount generic programs. Insurers haven't yet fully committed to wanting to push Repatha and Praluent all that much. In the short term, these companies face headwinds. They may start to pick up in the long term little by little, but the path for sales on these drugs is not all that great at the moment. On the flip side, Novartis may have some advantages with inclisiran. For instance, this treatment only needs to be given 2 times per year. On top of that, the manufacturing process for inclisiran is less expensive and there might be some pricing flexibility in terms of what price it can be set at. This is the key though, it will ultimately depend on how much the cost of the treatment ends up being. That will be key to getting insurers to pay and to drive up sales if and when inclisiran is ultimately approved by regulatory authorities.
