Novartis snags blockbuster hopeful Lutathera in $3.9B deal for Advanced Accelerator

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Novartis has said it's interested in bolt-on buyouts, not megamergers, and it made one such buy Monday in its $3.9 billion buyout of Advanced Accelerator Applications.

Last month, word on the street was that Novartis was in talks to buy Advanced Accelerator Applications, a French company that makes radiotherapies for cancer patients. Turns out, that scuttlebutt was true.

The Swiss pharma giant has agreed to shell out $3.9 billion, or $41 per share, for AAA, whose current products are radioactive tracers used in diagnostic scans. That in itself fits into Novartis' burgeoning cancer business.

But AAA also has a pipeline product that's an even better fit: Lutathera, a treatment for neuroendocrine tumors (NETs) that's based on the rare earth metal leutetium.

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Novartis sells two therapies for that type of tumor—Afinitor and Sandostatin—and Lutathera would be a quick addition to that portfolio. It won European approval last month, and is set for an FDA decision in January. All three medications would go hand-in-hand with AAA's NET diagnostic agents, NetSpot and Somakit.

"Novartis has a strong legacy in the development and commercialization of medicines for neuroendocrine tumours," Bruno Strigini, head of Novartis Oncology, said in a statement. "With Lutathera we can build on this legacy."

When the deal talk surfaced last month, analysts gave the idea a thumbs up. "We believe a Novartis acquisition of AAA for Lutathera in neuroendocrine tumors would be highly synergistic with [its] existing franchise, including Sandostatin and Afinitor, making a potential deal very logical,” Canaccord Genuity analyst John Newman said in a note at the time.

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NetSpot is AAA's only product that's now approved in the U.S., so most of its sales now derive from European markets. The company posted 2016 sales of €109 million. The buyout offer—which comprises $41 per ordinary share and $82 for each American Depository Receipt—is a 47% premium to AAA's valuation before the deal talk surfaced, Reuters said.

Novartis' NET sales are already at blockbuster levels. Sandostatin—which went off patent early this year—brought in $1.6 billion in worldwide sales last year. Afinitor brought in $1.5 billion. But Lutathera beat Sandostation in a clinical trial, cutting the risk of disease progression or death by 79% compared with the older Novartis drug, the company noted in Monday's statement.

At least one analyst sees Lutathera surpassing both drugs, and predicts Novartis will replace Sandostatin with the new med. "We see the more sophisticated technology to Lutathera commanding a premium price to Sandostatin and estimate peak sales potential at $2 billion," Baader Helvea analyst Bruno Bulic wrote in a research note (as quoted by Reuters).