Inclisiran keeps on giving

Five months after Novartis paid $9.7bn for the RNAi project’s maker, Blackstone has put down a $1bn bet on a partial royalty interest.

Blackstone’s buy into inclisiran has set a new valuation for the largely unproven RNAi asset, and ranks as one of the biggest royalty monetisation deals of recent years.

Royalty monetisation marks a new departure for Blackstone, and might hint at the state of the market for private equity transactions – Blackstone’s bread and butter. But the deal, struck yesterday with Alnylam, has a broader strategic dimension too. And, at a stroke, it has validated Novartis’s controversial $9.7bn takeover of inclisiran’s primary owner, The Medicines Company, last November.

The value of that acquisition already looked rich: the NPV of inclisiran, The Medicines Company’s only asset, as calculated by EvaluatePharma from sellside consensus numbers, amounted to around $6bn, and the deal had a 25% premium to an already takeover-fuelled share price (Novartis bets $9.7bn on RNA interference, November 25, 2019).

Yesterday, Blackstone made Novartis’s C-suite look smart, marking up inclisiran’s value further still, and making it seem like the Swiss firm had picked up a bargain.

Mixing with Royalty: how Blackstone ranks against selected royalty monetisation deals
Product Acquiring company Deal source Deal value ($m) Comment
Cystic fibrosis drugs Royalty Pharma Cystic Fibrosis Foundation 3,300 Nov 2014: Cystic Fibrosis Foundation was owed royalties on sales from Vertex.
Tysabri Royalty Pharma Perrigo 2,850 Mar 2017: Perrigo was owed royalties on sales from Biogen; deal comprised $2.2bn cash, plus $650m dependent on sales thresholds.
Xtandi Royalty Pharma University of California 1,140 Mar 2016: University of California was owed royalties on sales from Medivation; additional fees due on future sales thesholds.
Inclisiran Blackstone Alnylam 1,000 Apr 2020: Alnylam was owed royalties on sales from Novartis, via legacy deal with The Medicines Company; deal additionally included $750m loan & $100m equity.
Lyrica Royalty Pharma Northwestern University 700 Dec 2007: Northwestern University was owed royalties from Pfizer.
Humira Royalty Pharma Astrazeneca 700 Oct 2006: Astrazeneca was owed royalties on sales from Abbott.
Remicade Royalty Pharma New York University 650 May 2007: New York University was owed royalties on sales from Johnson & Johnson via legacy deal with Centocor.
Emtriva, Truvada & Atripla Royalty Pharma Emory University 525 Jul 2005: Emory University was owed royalties on sales from Gilead Sciences.
Ibrutinib Royalty Pharma Quest Diagnostics 485 Jul 2013: Quest was owed royalties on sales from Pharmacyclics via legacy deal with Celera.
Nesina & Priligy Royalty Pharma Forest Labs 415 Jul 2014: Forest bought Furiex, concurrently selling Furiex’s royalty interest.
Source: EvaluatePharma.

Alnylam had been due a mid-teens royalty, up to 20%, on The Medicines Company’s (now Novartis’s) inclisiran sales, and most analysts reckoned this to average out at about 17%. As this royalty was pure profit its value, as endorsed by Novartis, was 17% of the Swiss firm’s purchase price, or $1.6bn.

Yet Blackstone’s deal with Alnylam calls for a $1bn cash fee for half of this royalty stream. Therefore, to make a meaningful return, Blackstone is betting on the entirety of the royalty being worth well above $2bn; put a different way, Blackstone must think that inclisiran is worth at least 25% more than Novartis thought five months ago.

The sellside, too, might soon have to mark up its models. According to EvaluatePharma consensus inclisiran sales will peak at nearly $2.6bn in 2033, two years before the drug’s patent expires. Using a 9% cost of capital and assuming 100% probability of success, a 17% interest in this has a net present value of $1.8bn; Blackstone needs it to be worth 12% more just to break even.

Valuing Alnylam's inclisiran royalty, using sellside consensus ($m)
  2021e 2023e 2025e 2027e 2029e 2031e 2033e 2035e
Global sales booked by Novartis 161 655 1,353 1,870 2,250 2,491 2,594 1,620
17% royalty due to Alnylam 27 111 230 318 382 423 441 275
NPV of royalty at 9% WACC 1,787              
Source: EvaluatePharma & Vantage.

Of course, Blackstone’s bet has broader importance, since it also gives Alnylam a loan worth up to $750m, up to $150m for the cardiometabolic projects vutrisiran and ALN-AGT, and $100m for an equity stake.

But the faith Blackstone is putting in RNAi technology has yet to be reflected in reality. True, inclisiran, a small interfering RNA that prevents the production of PCSK9 and is awaiting US approval, has produced stellar clinical data, but its biggest test will be in the market.

The precedent of Amgen/Astellas’s Rapatha and Sanofi/Regeneron’s Praluent, MAbs against PCSK9, is sobering; these drugs once carried massive sales expectations, but have failed to deliver and have had their forecasts slashed.

There is one difference, however: Repatha and Praluent are injected every two weeks or monthly, while inclisiran is given twice yearly. If this does not seem like much, it is on this convenience that Blackstone just put down a $1bn bet.

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