Novartis Builds up Pipeline of Promising Drugs

Collaborates with Ionis Pharmaceuticals to license two novel cardiovascular treatments

Swiss pharmaceutical giant Novartis International AG (NYSE: NVS) is restocking its pipeline with promising drugs through several acquisitions in skin, eye, and cardiovascular health, to help offset revenue loss caused by many of its drugs losing patent protection. Several blockbusters are set to take a nosedive in 2017 as patent losses hit Novartis, Merck & Co. Inc.’s (NYSE: MRK), and other top pharmaceutical companies.

Among the list of major drugs losing their patent protection in 2017 is Novartis’ Sandostatin LAR with $1.6 billion in annual sales. Used to treat acromegaly, severe diarrhea, and flushing associated with carcinoid syndrome, the drug is set to face generic competition from companies including Teva Pharmaceutical Industries Ltd. (NYSE: TEVA) and India-based Sun Pharmaceutical Industries Ltd. In Q3 FY16, Novartis’ core profits  fell for the seventh straight quarter as generic competition eroded sales of blockbuster cancer treatment Gleevec.

To gain access to two promising cardiovascular drugs that are in the investigational phase, Novartis announced a collaboration and option agreement with Ionis Pharmaceuticals Inc. (NASDAQ: IONS) and its affiliate Akcea Therapeutics Inc. on January 06th, 2017. The agreement will allow Novartis to license two novel treatments with the potential to significantly reduce cardiovascular risk in patients suffering from high levels of lipoproteins known as Lp(a) and ApoCIII. The two investigational antisense therapies developed by Ionis, called AKCEA-APO(a)-LRx and AKCEA-APOCIII-LRx, have the potential to lower both lipoproteins up to 90% and significantly reduce cardiovascular risk in high-risk patient populations. In addition Novartis entered into a stock purchase agreement with Ionis.

Ionis is the leading company in RNA-targeted drug discovery and development focused on developing drugs for patients who have the highest unmet medical needs, such as those patients with severe and rare diseases. Using its proprietary antisense technology, Ionis has created a large pipeline of best-in-class drugs. Ionis and Akcea are eligible to receive $225 million in near-term payments, including a $75 million up-front option payment and a $100 million equity investment in Ionis.

Novartis is building a robust cardiovascular portfolio of targeted therapies to address unmet medical need of high-risk patients. Lp(a) and ApoCIII are potent, genetically validated cardiovascular risk reduction targets. The importance of predictive biomarkers in achieving successful cardiovascular outcomes will also be essential in the future payer environment. Novartis will be able to exercise its options to license and commercialize AKCEA-APO(a)-LRx and AKCEA-APOCIII-LRx following the achievement of specified development milestones and prior to the initiation of Phase-3 studies for each program. Upon in-licensing, Novartis will be responsible for worldwide development and commercialization of both assets. The deal would be valued at over $1 billion through license fees, milestone payments and royalties if both drugs are licensed and successfully commercialized.

Earlier on December 20th, 2016, Novartis signed a definitive agreement to buy Texas-based Encore Vision, which is focused on developing a novel treatment in presbyopia, or far-sightedness. On December 19th, 2016, Novartis signed a licensing deal with Conatus Pharmaceuticals Inc., to jointly develop Conatus’ drug Emricasan, an experimental first-in-class oral treatment for non-alcoholic steatohepatitis (NASH) with advanced fibrosis and cirrhosis. On December 16th, 2016, Novartis announced that it is buying privately held drugmaker Ziarco Group to gain access to its investigational eczema medicine, ZPL389.

Novartis gears up for generic competition

Novartis, which is in the midst of a massive restructuring of its global operations to streamline its R&D efforts, hopes that the above acquisitions will pay off in the long term even as it faces intense competition from generic drugs and biosimilars. Novartis is pinning its hopes on a novel cell therapy for childhood leukemia called CTL-019, which is on track for submission to regulators for approval in early 2017. Another closely watched new drug is BAF-312 for secondary progressive multiple sclerosis. Novartis is discussing with U.S. and European regulators whether it could file BAF-312 for approval based on a single Phase-3 clinical trial.

Novartis is also targeting to win the regulatory approval for Ribociclib, its experimental breast cancer drug, by the end of June 2017. The FDA designated Ribociclib as a breakthrough therapy in August 2016. If the drug is approved, Novartis could compete with Pfizer Inc. (NYSE: PFE), whose rival medicine Ibrance may generate sales of $2.16 billion in 2016, as per industry experts. Sales of ribociclib, or LEE011, may reach $1 billion by 2020, according to forecasts. Novartis is looking to these and newer therapies like heart medicine Entresto and Cosentyx for psoriasis to help offset generic competition to its cash cow Gleevec.

Will Novartis benefit from Obamacare repeal?

At the World Economic Forum in Davos, Switzerland, Novartis CEO Joe Jimenez stated on January 19th, 2017, that repealing and replacing Obamacare could benefit the pharmaceutical industry if it allows drugmakers to sell cutting-edge new medicines to more US patients. Parts of the Affordable Care Act, President Barack Obama’s signature healthcare law implemented in 2010, have made it hard for patients to get access to some new drugs because they have high co-pays or are not covered, Jimenez said.

Drugmakers in general did not see a big increase in volume following the enactment of the Affordable Care Act because many of the roughly 20 million Americans who gained their insurance under the law are young, and are not major users of prescription medicines. President Donald Trump, on the other hand, has vowed to repeal the law and replace it with an alternative plan. The new President has also pledged to clamp down on drug prices and make it more affordable for the poorer population.

Moreover, Donald Trump’s plans to cut US corporate tax rates could trigger increased investment in the US by Novartis. Jimenez said that he expected continued pressure on prices in the US market, but Novartis was adapting to these changes by shifting to outcomes-based pricing. The pharmaceutical industry will need to move increasingly toward tying the prices of drugs to the results they achieve for patients.

Meanwhile, Novartis has increased spending for its heart failure drug Entresto to build a US primary care field force and incremental medical support. The Swiss drugmaker recently struck deals with two US insurers for Entresto, under which payments are calculated based on any proven reduction in patient admissions to hospital, not on the number of pills consumed.

Despite uncertain policies on US corporate tax and drug pricing, Novartis is banking on record performance from its approved biosimilars in Q4 FY16. The Company has four biosimilars approved, which are on track to deliver record $1 billion of sales in 2016, with 50% of that coming from the US Zarxio’s sales exceeded $100 million since launch, while Glatopa has captured a 40% market by the end of Q3 FY16.

Stock Performance

Novartis’s stock stood at $70.65, gaining 0.31%, at the close on Friday, January 20th, 2017, having vacillated between an intraday high of $70.79 and a low of $70.30 during the session. The stock’s trading volume was at 3,027,134 for the day. The Company’s market cap was at $185.49 billion as of Friday’s close.

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