Novartis – The Medicines Company
Financial Times
Novartis cholesterol deal highlights mass-market opportunity.
Pharma focus on rare diseases has curbed investment in tackling common conditions.
More common conditions such as obesity may also paradoxically offer a less-crowded field for developers and investors.
By Sarah Neville and Hannah Kuchler
NOVEMBER 28 2019
When Novartis announced it was buying The Medicines Company, a biotech employing just 62 people, for $9.7bn one aspect of the deal was arresting.
The cholesterol-lowering drug that had induced the Swiss drug-maker to part with its money appeared to buck a trend for investing in diseases that affect far fewer people — but offer hope of a greater return.
The acquisition, confirmed on Monday, adds inclisiran, which had impressed in late-stage trials and is expected to seek US approval by the end of the year, to Novartis’s R&D pipeline.
Yet it marks something of a shift from big pharma’s recent focus. Since early 2018, according to Fitch Rating, Novartis has splashed $28bn for five early-stage drug-makers including AveXis, the maker of a $2.1m treatment for spinal muscular atrophy — the world’s most expensive drug. Almost a year ago, GlaxoSmithKline paid $5.1bn for oncology-focused biotech Tesaro, beefing up its portfolio of cancer drugs.
Jeremy Levin, chair of the industry group Bio and chief executive of biotech Ovid Therapeutics, said investments had soared in rare diseases and oncology for two reasons: clinical trials were smaller and less expensive than those for common illnesses; and pricing was more robust.
“By and large, when you have mass-market products, your return on investment is relatively low,” he said. “No system can afford for millions of people to be paying absolute fortunes for their drugs.”
About two-thirds of drug approvals by the US Food and Drug Administration in 2017 and 2018 were for oncology and rare diseases, while venture capital has flowed into these areas. In 2018, $2bn was invested globally in rare diseases, up from $300m nine years earlier, and $4.5bn was poured into US oncology companies over the same period. In comparison, investment in drugs to treat common conditions has virtually flatlined.
The Medicines Company’s decision to go all-in on heart disease came after Alex Denner, an activist investor and the group’s chairman, gained board control in March 2018. He sold off assets to focus on inclisiran and replaced the chief executive with Mark Timney, the former head of Purdue Pharma, late last year.
“We tried to accelerate development and make sure employees were all aligned on creating value for shareholders,” he told the Financial Times. Scientists were given incentives to meet milestones in the clinical trials, some of which vested if there was a change of control.
Cardiovascular disease is the number-one cause of death globally and represents a growing opportunity for pharma as the vast populations of India and China start to develop the diseases of prosperity. It is forecast to hit $64bn sales by 2024, according to GlobalData’s Pharma Intelligence Center.
More common diseases may also paradoxically offer a less-crowded field for developers and investors.
Gareth Powell, a fund manager specialising in healthcare at London asset manager Polar Capital, said: “There used to be a huge focus on cardiovascular medicine and treatments for central nervous system disorders. But now there is a lack of competition and a lack of investment, so if you can come through with something better you have a great opportunity, whereas in oncology and orphan diseases there is huge competition now.”
A key question, however, is whether there will be sufficient interest from big pharma and investors to spur a surge in the development of drugs for common illnesses.
Steve Bates, chief executive of the UK’s BioIndustry Association, said the deal showed there were “no ‘no-go’ therapeutics areas for biotech developers”.
He argued that “established global players broadening their primary-care portfolio through acquisition will encourage investors to see value in biotechs developing therapies across the disease spectrum”.
One precondition for success is a large salesforce, which Novartis already has in place for existing heart disease treatment Entresto.
In his call with analysts after the deal was announced, Novartis chief executive Vas Narasimhan spoke of “significant potential cost synergies given the overlap with the current Entresto field force in the United States”.
Mr Powell concurred that it was possible to get “huge operating leverage from a fixed cost infrastructure. That is when the pharma business model works extremely well.”
Whether this deal will trigger a resurgence of drug development in heart disease, and other more common disorders, may hinge on how well Novartis performs, however.
The company faces competition from Amgen and Sanofi, in partnership with Regeneron, whose own drugs using a roughly similar mechanism of action have undershot analysts’ expectations. Novartis believes inclisiran is measurably superior and will have greater appeal for both doctors and patients because it is a six-monthly, rather than fortnightly, injection.
Analysts are cautious, however, on whether the Novartis bet will pay off and spur similar moves.
Insurers have been seeking to bear down on prices for cholesterol-lowering drugs, including opting first for generic versions, while the appetite of doctors, who must administer the treatment, is unclear despite inclisiran’s promise of better adherence and control for patients. Phil LoGrasso, of GQG Partners, said the deal was “strategically risky?.?.?.?as both Amgen and Sanofi/Regeneron have failed to make good inroads in this market”.
While those drugs were different from the one developed by The Medicines Company and had different dosing regimens, he said, “there are payer and physician barriers that may make this deal challenging”.
Comments (6)
ConspiracyOfSilence
Scientists were given incentives to meet milestones in the clinical trials, some of which vested if there was a change of control.
Hmmmm, no wonder so much "science" is unreliable.
Skimbleshanks
'Scientists were given incentives to meet milestones in the clinical trials,' This phrase sets alarm bells ringing. Also the phrase 'diseases of prosperity', which is hardly new, still makes me wonder what the prosperity is for. Could the incentive structure for the health industries be changed so they make a profit from keeping people healthy and avoiding the need for these drugs?
Markdoc
In reply to Skimbleshanks
"Could the incentive structure for the health industries be changed so they make a profit from keeping people healthy and avoiding the need for these drugs?" I've been exploring this issue for years, and the answer is, unfortunately, probably no. This is exactly why pharma and biotech have largely abandoned areas like cardiac and respiratory health over the last 4 decades.
The reasons are complex, but there are a couple of key areas.
First, there's cost. By definition, treating people to keep them healthy means that you need to treat all or most people who are at risk. In the US, for example, roughly half of all adults have some form of cardiovascular disease. Add in respiratory problems like severe asthma and COPD, and you are up around 2/3rds of all adults. We actually already have drugs that reduce the risk of severe illness for many of these patients, but we don't use them on a large scale. The problem is, that even if the drugs are cheap, it would cost a huge amount to roll them out on a population scale. So insurers and healthcare systems actually don't want them. It's cheaper (for them) to treat people as they become ill, rather than keep people healthy, even if the latter is better for people and for society as a whole.
Second, there's attitude. People regard their present state as the default, and it is incredibly, incredibly difficult to get them to change their behaviour in exchange for the promise of future benefits. This is not just about drugs. If we could get everyone to just exercise briskly for an hour, 3-4 times a week, the health benefits would be enormous. Yet, in countries like the UK, more than half the adult population can't or won't. We know that health-wise, smoking is about the worst thing you can do to your body - yet about 1 adult in 6 in the UK smokes anyway. And so it goes. Getting people to accept treatment for future health benefits when they are not noticeably ill is so hard, it's frustrating. I cannot count the number of times I have heard "I don't need that - I'm healthy". The only thing that seems to make people compliant with medication is actual illness.
So industry has floated this idea multiple times, and it keeps coming up in discussions, but nobody is able to come up with a solution to these two basic problems.
John Russell
In reply to Markdoc
On your first point, are the proposed treatments cost-effective? In the UK it can be driven by Nice and the NHS. The marginal cost of production of these drugs must be quite low, so there should be room for a deal with the drugs companies where they produce a great deal more drugs at lower per-patient pricing. On your second point, I wonder if it may be possible to change attitudes by starting much younger with health-lifestyle education and practise. It's like eating fruit and vegetables. People who start young tend to keep it up and enjoy it, whereas those who don't find it more of a challenge in later life. By the way I understand even a few hours of walking every week has a significant effect on health, it doesn't have to be as much as 3-4 hours of intense exercise.
Markdoc
In reply to John Russell
It doesn't matter if the treatments are cost-effective (some of them are) if the direct cost is so great that it blows a hole in today's health budget. While you can easily show that some treatments are cost-effective, if that benefit accrues through greater productivity, and less healthcare utilization over the person's lifetime, it's unattractive to healthcare systems (and also to NICE) because you only have so much budget today. I can give a concrete example - NICE recently triggered a minor storm over its decision to arbitrarily reduce the QALY threshold for vaccines, to make it harder for them to qualify for NHS funding. You may ask why they would do that, and the apparent answer is that if vaccines were assessed like other medicines, most would easily pass current cost-effectiveness thresholds (and I should note this is without even taking into effect many downstream benefits, so the current NICE evaluation is extremely conservative with regard to benefits). So the threshold was changed to reduce the chance that the government would be pressured to include more vaccines in the national programs. In other words, vaccines are too cost-effective. This may sound absolutely bonkers, but the reasoning is straightforward. The benefits of better coverage are huge (even when you discount them over time), and as an intervention, highly cost-effective. But the cost of introducing them - which is significant - has to be paid up front, while the benefits accrue over decades. Governments today don't like that math, because it implies raising funding (and possibly taxes) today in order that politicians a generation hence will reap the benefits. And to a certain extent, the same applies to many other preventative activities. It's completely mad (from a public health perspective) and at the same time completely logical (from a financial/political perspective). As for the exercise, I stated "brisk exercise" not "intensive exercise". In other words, a jog or riding a bike, or even just walking briskly. It doesn't have to be cross-training. But it should be something that makes you puff and sweat at least a bit. If it's not raising your pulse, it'll help a bit but it's not doing as much as it could.
