Novartis CEO figures M&A's the way toward 'transformative' innovation: report

Novartis
Novartis will rely on "bolt-on" acquisitions to build its presence in gene therapy and other advanced treatment areas, CEO Vas Narasimhan says. (Novartis)

When Novartis acquired AveXis for $8.7 billion last year, it was betting the smaller company's gene therapy for spinal muscular atrophy could soar to blockbuster levels. That therapy, Zolgensma, is closing in on FDA approval—and Novartis CEO Vas Narasimhan has ambitious plans for more M&A.

Narasimhan is just one year into his stint as CEO of the Swiss pharma giant, but he's already established himself as a dealmaker. He not only engineered the AveXis deal last year, he also picked up the radiotherapy company Endocyte for $2.1 billion.

And now, Narasimhan says he plans to spend at least $10 billion a year on acquisitions. “We’ll have to be on top of the next wave of innovations,” he told Bloomberg, adding that he’s searching for acquisition targets that would have a “transformative effect” on Novartis. 

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RELATED: Novartis' AveXis buys AstraZeneca site in Colorado as it anticipates gene therapy launch

He figures Novartis has more to offer than money, too. In anticipation of Zolgensma’s launch, Novartis acquired a former AstraZeneca manufacturing site in Colorado last week. The purchase came just weeks after the company announced plans to double the size of a manufacturing plant it’s building in North Carolina.

The additional manufacturing capacity, particularly in Colorado, could be a selling point for small gene therapy companies that might be looking to make deals with Novartis, Narasimhan told Bloomberg.

The company’s widening presence in gene and cell therapies has not come without difficulties, however. Novartis has yet to disclose its pricing plans for Zolgensma, but the expectation of a $2 million price tag has already generated controversy.

The Institute for Clinical and Economic Research (ICER) used $2 million as a placeholder price in assessing Zolgensma, and the group concluded last week that it wouldn't be cost effective at any price over $1.5 million.

RELATED: Novartis' SMA gene therapy would not be cost-effective if priced over $1.5M: ICER

AveXis president Dave Lennon told FiercePharma that the company supports alternative payment models for Zolgensma, such as installments spread over time or outcomes-based reimbursement plans. Narasimhan echoed that sentiment in the recent interview—and provided more details about how the payment model for Zolgensma might work.

Narasimhan told Bloomberg that the payment scheme would allow payers to spread reimbursement over five years. If any patient showed signs that the gene therapy had failed within that period, Novartis would pay the insurance company back.

“We want something with a massive effect in order to make a credible case to society to invest in these medicines,” Narasimhan told Bloomberg. “I think ultimately payers will come around.”

That confidence in the payer community’s willingness to fund high-priced therapies will no doubt drive Novartis’ M&A strategy going forward. The company is looking for “bolt-on” deals to build its market share in key areas of focus like neurology and metabolic disease.

During Novartis’ fourth-quarter earnings call in January, one analyst asked Narasimhan to explain his goal of spending $10 billion a year on acquisitions. The CEO replied that the goal is actually “to do M&A in the range of up to 5% of our market cap,” which would amount to $10 billion.

The main goal, however, is to build upon “these new … advanced therapy platforms where we want to lead,” he said, adding “bolt-on M&A has to be part of that strategy.”

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