Novartis to acquire Endocyte in $2.1bn deal
Push into high-margin specialty treatments
ZURICH: Novartis International AG is paying $2.1 billion for US cancer drugmaker Endocyte Inc in chief executive Vas Narasimhan’s latest deal to reshape the Swiss drugs group from a pillmaker to a producer of sophisticated therapies.
Narasimhan, who raised Novartis’s 2018 revenue forecast yesterday as he released third-quarter results, is counting on Endocyte’s treatment for prostate cancer topping $1 billion in sales after it hits the US market in 2021.
Some analysts said the deal, seen closing next year, fitted his push into highmargin specialty treatments, but was very expensive.
Since taking over in February, Narasimhan has shed over-the-counter medicines and generic pills while pushing a spin-off of Novartis’s Alcon eyecare unit come 2019.
Meanwhile, the 42-year-old US doctor spent $8.7 billion on gene therapy company Avexis to get hold of its spinal muscular atrophy treatment that offers hope of a cure for some children.
With Endocyte, Narasimhan is intensifying his drive into nuclear medicine — the use of radioactive substances to research, diagnose and treat illnesses — that began with the $3.9 billion purchase of Advanced Accelerator Applications (AAA) last October.
“I’m l ooking for acquisitions that strengthen us in our key therapeutic areas, or that help us build out these three platforms: cell therapy, gene therapy and radioligand therapy,” he said.
Novartis reported third-quarter core net income rose 2% to $3.1 billion, beating analysts’ average forecast of $3 billion in a Reuters poll. Sales rose 3% to $12.78 billion, shy of the $12.84 billion poll average.
It now sees 2018 revenue growing by a mid-single-digit percentage range, above the previous forecast of low-to-mid-singledigit growth.
But analysts said investors were more keen on Narasimhan’s progress in recasting Novartis International AG’s logo is seen at the company’s plant in the northern Swiss town of Stein, Switzerland. the broad European health-care giant that former chairman Daniel Vasella envisioned before his 2013 exit into a focused, datadriven drugmaker.
“Today is less about the earnings number and more about the company’s transition to much more of a pure-play pharma business, which seems to be going down well with investors,” Berenberg analyst Laura Sutcliffe said.
Novartis has agreed to pay $24 per share in cash for Endocyte, more than 15 times its value in September 2017 and a 54% premium to Wednesday’s closing price.
Still, some analysts worried Narasimhan waited too long.
“Note a below-average reaction time at the business development department considering that the Endocyte market cap was at $110 million only 12 months ago,” Baader Helvea’s Bruno Bulic said.
Endocyte complements the nuclear medicine technology Novartis acquired with France’s AAA, including its Lutathera medicine for neuroendocrine tumours like the one that killed Apple founder Steve Jobs.
Narasimhan said that transaction prompted Novartis to expand relationships with US and European nuclear medicine centres.
“We said, ‘What other products can we bring in to leverage that global network we acquired earlier this year’?” he said. “With Endocyte, we saw a great fit.”
Endocyte’s and AAA’s treatments attach a radioactive atom to a molecule attracted to certain tumours, a process meant to kill the cancer while bypassing healthy tissues.
Endocyte chief executive Mike Sherman cited Novartis’s “global reach and expertise” as critical to getting its main medicine, PSMA-617 for castration-resistant prostate cancer (CRPC), as well as its broader portfolio quickly to patients.