When Novartis unveiled its $9.7 billion buyout of The Medicines Company a few days ago, several analysts suggested the price was too high. Turns out, the Swiss drugmaker apparently thought so, too.
Novartis’ internal models “could not justify $85.00 per share” for MedCo, Nigel Sheail, Novartis’ global head of mergers and acquisitions and business development and licensing told MedCo CEO Mark Timney on Nov. 18, according to a securities filing. That was the last trading day before Bloomberg reported on the then-rumored deal.
Sheail said the company had dialed back from an earlier, non-binding offer of $90 apiece after considering a variety of factors, including the cost of launching siRNA PCSK9 drug inclisiran—the centerpiece of the deal—the company's “go-to-market model” and the underlying patent.
But how did the two get there? It took many months of hunting—and one hard no from a now-departed Novartis exec—before the talks would really get into gear.
It all started June 10, 2018, when MedCo’s then-CEO Clive Meanwell reached out to a global pharma for a potential strategic collaboration. At that time, the New Jersey company had just shifted focus to inclisiran—a potential rival to the two FDA-approved PCSK9 cholesterol drugs Repatha and Praluent—by selling several marketed infectious disease meds to Melinta Therapeutics.
But the talks with that Big Pharma didn’t go anywhere, as the other firm, Party A, walked away after due diligence.
Timney kept hunting for a buyer after replacing Meanwell some six months later, on Dec. 11, 2018. And it didn't take long before it made first contact with Novartis in January.
Paul Hudson, then-CEO of Novartis’ pharma division, immediately said no. But Timney didn’t give up.
He sent Hudson another email on May 20, shortly after positive results from the Orion-3 study, an extension of the phase 2 Orion-1 trial testing long-term dosing of inclisiran. In hindsight though, Hudson was probably already busy thinking about his new gig at Sanofi, as his appointment as the French pharma’s CEO became public in early June.
In any case, when Novartis reached out May 29 to express an interest in further discussions, it was Timney’s turn to put on a cold face—he didn’t respond. Instead, the MedCo CEO started talks with Party C. The company’s board had previously turned down a proposal from another company, Party B.
For the next two months, Timney responded to inquiries from “various third parties,” including Party A, B and C, about potential transactions or partnerships. It wasn’t until Novartis’ cardiovascular business chief, Alette Vrbeek, reached out on Aug. 7 that the two sides connected again.
The first major boost to inclisiran’s case—of several more to come—hit Aug. 26, as the firm said phase 3 Orion-11 study met its primary endpoint. According to full data presented at the ensuing European Society of Cardiology conference, inclisiran cut bad cholesterol by 54% when used on top of statin therapy. On that day, Sept. 2, MedCo’s share price opened at $46.15, or 10% above the closing price of the previous trading day.
With that, the deal talks started to get serious. Hudson successor Marie-France Tschudin attended a meeting the next day between the two companies to discuss the Orion-11 data, paving the way for a phone call between Novartis CEO Vas Narasimhan, Sheail and Timney on Sept. 16.
Narasimhan offered to buy MedCo at $74.03 per share, a price that marked a 52% premium over its closing price that day.
Even though the MedCo board deemed that initial offer insufficient, it stuck to a "strategic process” initiated on Oct. 7 amid a surge of other interest. By that time, five other companies had expressed interest in MedCo at some point.
As part of that process, MedCo tapped J.P. Morgan and Goldman Sachs to contact 12 potential buyers, five of which, including Novartis, said they would participate. All these firms were hence invited to submit offers by Nov.5.
When that day came, Novartis proposed $85 per share. J.P. Morgan and Goldman Sachs pushed Novartis to sweeten its offer to $90 to make a quick deal and go public on Nov. 18 at the American Heart Association (AHA) conference. Novartis agreed.
But a request to revise the licensing agreement between MedCo and Alnylam Pharmaceuticals got in the way. Inclisiran is made with Alnylam's siRNA delivery platform under a pact signed in 2013. After anonymously participating in MedCo and Alnylam's licensing talks on Nov. 14, Novartis decided it would need more time to complete due diligence.
At the AHA conference, MedCo rolled out more LDL cholesterol reduction data from the Orion-10 and Orion-9 trials, pushing up its share price to a closing of $58.65 on Nov. 18. Raining on that parade, though, Sheail called Timney with the conclusions of its due diligence—and it was not good news.
Novartis had decided MedCo wasn’t worth $90 per share or even the $85 it had previously offered. That said, it kept the latter as its “best and final offer”—and that’s the price the two companies eventually shook hands on.
We'll probably never know whether Novartis truly believed $85 was too much or whether it was a negotiating tactic. But for at least three groups of analysts—from Wolfe Pharma, Jefferies and Evercore ISI—Novartis faced major hurdles to justifying the purchase price.
As Wolfe’s Tim Anderson noted in a Nov. 24 memo to clients, despite high enthusiasm for anti-PCSK9 therapies, strong cholesterol-lowering data and “high-visibility commercial efforts,” Amgen’s Repatha and Sanofi and Regeneron’s Praluent “have very much disappointed” sales-wise. Without cardiovascular outcomes data, which won’t be available around 2024, inclisiran could hit payer pushback, he said. What’s more, Novartis is basically buying a single product rather than a broader R&D platform.