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Novartis streamlines further with $2.1B Endocyte buy to expand nuclear medicine

Novartis AG, the Swiss pharmaceutical group that cut a raft of jobs last month as it pivots towards more specialized medicines, continued its streamlining efforts by announcing the acquisition of radio-pharmaceuticals group Endocyte Inc. for $2.1 billion, alongside results for the third quarter.

At the same time, the Basel, Switzerland-based group increased sales guidance for the full year after third-quarter sales were boosted by a strong performance from the pharmaceutical business — offsetting continuing pressure in its Sandoz Inc. generics business. Still, Novartis has agreed to sell some 300 selected products from its U.S. Sandoz portfolio in a deal that is expected to go through in 2019.

Novartis, which appointed Vas Narasimhan CEO on Feb. 1, said the deal to buy U.S.-based Endocyte will compliment its focus on molecular nuclear medicine to target cancer — an area it entered into with the acquisition of French-based CERN spin-out Advanced Accelerator Applications SA last year.

Narasimhan told reporters on a conference call following the results that Novartis intends to focus on three key pillars: cell therapy with Kymriah — the first-ever CAR-T medicine to be approved; gene therapy to build on the AveXis Inc. acquisition in April; and now a third pillar based on the so-called radio ligand therapy.

"[With] that third pillar, radio ligand therapy, we've seen real tremendous growth already with Lutathera from Advanced Accelerator Applications, where we now forecast that product to be a billion dollar plus product, which is ahead of our deal case for what we expected when we made the acquisition earlier this year," the CEO said. "With Endocyte we saw a great fit — we see a first-in-class medicine using a very similar approach to treat metastatic prostate cancer."

He added that the lead product has the potential to be a blockbuster medicine.

Third quarter sales in the pharmaceutical unit came in at $8.59 billion, in line with consensus but propped up by cancer medicine Gleevec, according to UBS analyst Michael Leuchten, who rates the stock "neutral."

Psoriasis medicine Cosentyx garnered sales of $750 million in the quarter compared with analyst expectations of $748 million, and Entresto for heart failure posted sales of $271 million versus expectations of $267 million.

Exits

Narasimhan, who terminated the GlaxoSmithKline PLC consumer joint venture earlier in the year and intends to spin-off the Alcon eye care business in 2019, said he continues to be interested in bolt-on acquisitions that strengthen Novartis' key therapeutic areas.

He exited antibiotics in July and snapped up the rights outside of the U.S. market to Spark Therapeutics Inc.'s Luxturna gene therapy for a type of blindness.

Appointing John Tsai as head of R&D capped a series of executive changes undertaken since he took over the CEO job.

"Overall these results are modestly positive for Novartis and today is less about the earnings number and more about the company's transition to much more of a pure-play pharma business, which seems to be going down well with investors who have shown increasing interest in this name over the past few weeks," said Berenberg analyst Laura Sutcliffe, who rated the stock a "hold," in a note to clients.