Novartis embarks on nuclear medicine with $ 2.1 billion contract

ZURICH (Reuters) – Novartis (NOVN.S) pays $ 2.1 billion for nuclear medicine specialist Endocyte (ECYT.O) in the latest agreement of the CEO, Vas Narasimhan, aiming to turn the Swiss pharmaceutical group into a pills manufacturer into a producer of sophisticated therapies.

Narasimhan, which announced its 2018 sales forecast for 2018 by publishing its results for the third quarter, is counting on Endocyte's treatment of prostate cancer, whose sales reached $ 1 billion, after its entry into the US market in 2021.

Some analysts have said that the agreement, which should be concluded next year, would have made it possible to integrate specialized treatments with high margins, but was very expensive.

Since he took office in February, Narasimhan has dropped over-the-counter medications and generic pills, while pushing a spin-off of Novartis' Alcon sight care unit from 2019.

Meanwhile, the 42-year-old American doctor spent $ 8.7 billion on the Avexis gene therapy company to get his hands on his treatment for spinal muscular atrophy that offers hope for a cure to some children.

With Endocyte, Narasimhan steps up its efforts in the field of nuclear medicine – use of radioactive substances for research, diagnosis and treatment of diseases – started with the purchase of $ 3.9 billion in AA (Advanced Accelerator Applications ) last October.

"I am looking for acquisitions that strengthen us in our main therapeutic areas or that help us build these three platforms: cell therapy, gene therapy and radioligandtherapy," he said.

Novartis reported third-quarter net income of $ 3.1 billion, up 2% from the third quarter, compared to an average of $ 3 billion, according to Reuters analysts' forecasts. Sales rose 3 percent to $ 12.78 billion, below the average of $ 12.84 billion.

The turnover in 2018 now shows growth in the range of 5% to 5% more than the previous forecast of low to average growth of 5%.

However, analysts said investors were more sensitive to Narasimhan's progress in overhauling the vast European health giant that former president Daniel Vasella had envisioned before his departure in 2013 to become a concentrated and focused drug maker. on the data.

"Today, it's less about turnover than about transforming the company into pure pharmaceuticals, which seems to appeal to investors," said Laura Sutcliffe, an analyst at Berenberg.

Novartis, whose shares were up 1.7% at 8:30 GMT, agreed to pay $ 24 per cash share for Endocyte, more than 15 times its value in September 2017 and a 54% premium on the price of Wednesday closing.

"REACTION TIME LESS THAN AVERAGE"

Nevertheless, some analysts feared that Narasimhan waited too long.

"Note a less than average response time to the business development department, considering that Endocyte's market capitalization was $ 110 million just 12 months ago," said Bruno Bulic of Baader Helvea.

Endocyte complements the nuclear medicine technology acquired by Novartis with French AAA, including its drug Lutathera for neuroendocrine tumors like the one that killed Apple's founder, Steve Jobs.

Narasimhan said the deal led Novartis to expand its relationship with US and European nuclear medicine centers. After building his supply chain, Narasimhan needed more treatments.

"We said," What other products can we use to leverage this global network that we acquired earlier this year? ", He said." With Endocyte, we found a good fit. "

Endocyte and AAA treatments associate a radioactive atom with a molecule attracted by certain tumors, a process designed to kill cancer while bypassing healthy tissue.

Endocyte executive director Mike Sherman said Novartis' "worldwide reach and expertise" was key to getting its lead drug, PSMA-617 for castration-resistant prostate cancer (CRPC), as well as its portfolio expanded rapidly to patients.

Centerview Partners advised Endocyte with the help of Jefferies. PJT partners advised Novartis.