M&A

Novartis builds cancer pipeline with a new platform/drug buyout, bagging Advanced Accelerator Applications for $3.9B

Novartis has just bought itself a new cancer therapy as well as a new tech platform for $3.9 billion in cash, bagging the French biotech Advanced Accelerator Applications $AAAP.

The pharma giant is paying a modest 44% premium over the biotech’s market valuation from September 28, when Bloomberg reported that Novartis was kicking the tires and running the numbers on the biotech’s drug Lutathera (177Lu-DOTATATE).

The drug is a radiopharmaceutical — using radioisotopes to target neuroendocrine tumors — a focus where Novartis has considerable experience. The pharma player touted the pivotal data for the drug from the NETTER-1 study, which demonstrated a 79% reduction in the risk of disease progression, with an interim median progression-free survival rate of 8.4 months that had yet to max out.

Novartis also gets a pipeline of drugs off the new platform with some near-term potential it likes. That lineup on AAA’s experimental meds includes 177Lu-PSMA-R2, which is now entering a Phase I/II study.

Approved in Europe, the FDA forced the biotech into the waiting line late last year after shaking its head at the way the company had presented some of the data in its application, forcing a rejection at the time. An approval would build on Novartis $NVS OK for Afinitor in early 2016 as a treatment for neuroendocrine tumors, as well as its marketing of Sandostatin.

Bruno Strigini

Now the biotech is waiting for another deadline to loom on the delayed application, and Novartis clearly believes that this time regulators should clear it for marketing.

The deal falls right into Novartis’ sweet spot. Outgoing CEO Joe Jimenez — soon to be replaced by R&D chief Vas Narasimhan — has said several times that the company is primarily interested in adding bolt-ons in the $2 billion to $5 billion range. This deal beefs up its cancer pipeline and portfolio after a major swap with GlaxoSmithKline landed the UK pharma giant’s advanced oncology drugs.

Peter Welford at Jefferies likes this deal, starting the peak sales forecast at $650 million a year for Lutathera, with a chance to add on about $285 million through added approvals.

Impressive Phase III NETTER-1 data, clinician feedback, and a proprietary US physician survey all underpin our confidence in Lutathera. The product is based on a well known concept of somatostatin analogues for NETs, has already treated >3,000 patients, and addresses an unmet medical need. We forecast $650m peak sales treating midgut GEP-NETs for $30/ADS NPV at 100% probability, assuming AAA commercialises itself in US/EU targeting the specialist centres. Adoption to treat other types of NETs could offer significant potential upside, with only $7/ADS NPV currently assigned assuming 60% probability and $285m incremental peak sales.

“Novartis has a strong legacy in the development and commercialization of medicines for neuroendocrine tumors where significant unmet need remains for patients,” said Bruno Strigini, the head of Novartis Oncology. “With Lutathera we can build on this legacy by expanding the global reach of this novel, differentiated treatment approach and work to maximize Advanced Accelerator Applications broader RLT pipeline and an exciting technology platform.”



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