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Novartis agreed to $9.7B The Medicines Co. deal yet failed to justify price

After a summer of competing with other suitors, Novartis AG agreed to buy The Medicines Co. for $9.7 billion in November even though the Swiss pharmaceutical giant's own models could not justify the price tag.

Novartis CEO Vas Narasimhan, who personally oversees the company's M&A strategy, had been public about his desire to bolster holdings in RNA technology. Meanwhile, The Medicines Co. was seeking a buyer or strategic partner when discussions began with several unnamed parties in June 2018, a regulatory filing from the target company shows.

Negotiations surrounded inclisiran, a late-stage therapy for managing cholesterol levels that uses ribonucleic acid interference, or RNAi.

Between June and September 2018, The Medicines Co. courted a company referred to as Party A. Novartis first appears in the regulatory documents in January, when The Medicines Co. CEO Mark Timney reached out to Paul Hudson, then head of the drugmaker's pharmaceutical division, to share the latest news on inclisiran. Hudson informed Timney that the Basel, Switzerland-based pharmaceutical giant was not interested. Hudson is now CEO of French drugmaker Sanofi.

Meanwhile, a deal was proposed by Party B to commercialize inclisiran, which The Medicines Co.'s board ultimately determined was not in the best interest of the company and its shareholders.

Novartis' lack of interest changed in May, when phase 2 results from a clinical trial of inclisiran showed the therapy reduced bad cholesterol by more than 50% in a long-term dosing study. Novartis executives responded to a second cold call from The Medicines Co. to inquire about a possible partnership, but Timney did not respond as he held discussions with a fourth company, Party C.

Discussions with parties A, B and C continued throughout the summer. Novartis reached out again in August, and an agreement was made to share information and conduct due diligence.

While in Paris for the European Society of Cardiology's Congress in September, The Medicines Co. met with all the parties, including Novartis' cardiovascular, renal and metabolic and business development and licensing teams. At the medical conference, results for the phase 3 Orion-11 trial were presented, and discussions between all the parties stepped up. Party A dropped out around this time, and two other companies entered the fray.

On Sept. 13, Novartis' Alette Verbeek, global head of business development and licensing, asked for more scientific details on inclisiran as the company considered an acquisition deal for The Medicines Co.

Three days later, Narasimhan and other executives presented to Timney their first offer: $74.03 per share in cash. More positive trial results came in for inclisiran as The Medicines Co. tried to seek a competing offer from Party B. Novartis pushed for an answer to the proposal.

Financial terms

The Medicines Co.'s board authorized a sale of the company on Oct. 4, after receiving advice from investment banks Goldman Sachs & Co. LLC and J.P. Morgan Securities LLC, but Novartis' offer was deemed insufficient. Dozens of possible buyers were contacted in this period, including all the previously interested parties.

Novartis upped its bid to $85 per share on Nov. 5. No other interested parties followed suit. The investment banks countered with $90 per share, which Novartis agreed to on the condition that The Medicines Co. cease discussions with other companies. The board agreed to the terms, and the deal was to be announced on Nov. 18.

The deal was delayed, however, as Novartis sought more due diligence, particularly surrounding a licensing agreement The Medicines Co. previously signed with Alnylam Pharmaceuticals Inc. for inclisiran.

On Nov. 18, the date the deal was supposed to be announced, Novartis informed The Medicines Co. that the due diligence process was complete, but the deal value was being revised to $85 per share. Novartis' Nigel Sheail, global head of mergers and acquisitions and business development and licensing, said the new value was more appropriate in light of the investment that would be needed to launch inclisiran, the "go-to-market model" as well as the Alnylam partnership.

Sheail told Timney that Novartis' models could not justify either $90 per share or $85, but the company would nevertheless proceed.

The Medicines Co.'s board agreed to the terms on Nov. 19.

The board acknowledged that a third party was unlikely to come forward with a better offer, but noted that the terms of the deal did not restrict a competing offer. The deal was adopted by the board on Nov. 22 and announced two days later.