Novartis never did say just what kind of deal it put together in buying Ziarco late last year. But Bloomberg had already reported that the company was scouting for a deal, with cash and considerable milestones probably totting up to around the $1 billion mark.
In Big Pharma land, that’s the kind of modest biotech acquisition deal you can complete without sweating the details about cash in. And right now, Novartis execs are using it as a marker for the kind of buyouts that make sense right now, staying focused on small 1 or 2 drug deals.
In yesterday’s Q2 rundown for analysts, Novartis CEO Joe Jimenez made it crystal clear that the market for mid-sized bolt-ons looks awful from a buyers’ perspective. It’s a familiar mantra during a year in which significant M&A deals have largely failed to materialize — with Actelion as the exception proving the rule — and it speaks directly to what likely lies ahead in H2.
From the call, here is what Jimenez had to say:
In terms of M&A, we are still very focused on our strategy of bolt-on acquisitions anywhere from $2 billion to $5 billion would be our sweet spot. I have said previously that valuations are such that it’s very difficult to find acquisitions that are in that range that would add value for Novartis shareholders. So what’s happened is we have moved upstream in terms of earlier stage assets. So you saw us buy Ziarco is one example for atopic dermatitis and a few others over the last six months. So we are still focused on the bolt-on strategy that will strengthen either oncology or the pharmaceutical business or differentiated generics business. And that’s where we are going to invest. But we are not going to invest in a place where we can’t see a clear path to adding a tremendous amount of value from Novartis shareholders. And if you look at the existing what you would describe as bolt-ons or even bigger than a bolt-on at the tender to $15 billion range, we just don’t see it yet from a valuation standpoint.
That’s the Swiss view, shared by crosstown Basel rival Roche. And you’ll find other Big 10 pharmas playing the same sort of million-dollar ante game.
Sanofi, which needs a transformational deal more than any of its rivals, helped underscore the low-cost strategy just days ago with its $750 million deal to add Protein Sciences’ Flublock for its vaccines group.
Ask any of them, and you’re likely to hear that biotech valuations just don’t make sense. Anything that looks ripe from a pipeline perspective is likely going to fetch an inflated price. Just ask Pfizer, which paid $14 billion for Medivation and is still trying to explain it to analysts.
On another note, Novartis execs also used the Q2 review to discuss pricing strategies for CTL019, the pioneering CAR-T that appears headed to an historic FDA approval. These personalized meds are made from patients’ cells and won’t come cheap. One analyst asked if the pharma giant was looking at a pay-for-performance approach. Novartis Oncology chief Bruno Strigini replied:
So we are looking at a number of options, including health economic models and also outcomes models that consider the significant value CTL019 brings to patients, its scientific innovation and the high cost of manufacturing. We will disclose the price at the time of launch of the product. In terms of Access, our team has started to provide appropriate information to payer describing the patient population unmet needs, limited treatment options for eligible patients and manufacturing process.
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