What Novartis could buy with its windfall

Novartis’s sale of its stake in Roche, announced today, means the group will soon have $20.7bn burning a hole in its pocket. And there could be more to come, if Novartis sells Sandoz – something that looks on the cards after it recently started a strategic review of the generic business.

There are reasons why Novartis might be looking to strike big. A string of smaller buyouts have disappointed, and its pipeline contains few inspiring projects. The company claims to be looking at bolt-ons but it would hardly advertise its desperation by spelling out its specific targets. So, what could Novartis buy with the cash?

Takeout talk is currently swirling around the lupus player Aurinia, with both Bristol Myers Squibb and Glaxosmithkline said to be interested, although the latter dismissed such reports this week. Aurinia could also be a fit for Novartis, a big player in the autoimmune space; however, given the size of its war chest, the Swiss group could have its eye on bigger targets.

Jefferies mooted oncology, cardiovascular and perhaps novel gene technologies as potential areas for Novartis deals.

In oncology, the likes of Exelixis or Incyte could be safe if unexciting bets. Both have approved drugs but have struggled with becoming commercial entities; these groups' products could benefit from being in the hands of a bigger player. Incyte, with which Novartis is already partnered, is sitting at close to five-year lows.

Going bigger?

If Novartis is prepared to splash a bit more cash it could get its hands on Alnylam, which also has several marketed products to its name. Still, that group looks expensive at nearly $21bn, and its rival Arrowhead Pharmaceuticals would be a cheaper move into this space. A takeout of the latter would be an interesting turn of events, considering Arrowhead bought its RNAi tech from Novartis for $35m in 2015.

However, Novartis might have been burned by its experience in RNAi with inclisiran, gained through its $10bn purchase of the Medicines Company.

Also in the $20-30bn bracket is Eisai. This would be a leftfield move but could give Novartis – which already has a presence in neuroscience through its MS drugs – entry into the lucrative Alzheimer’s space. Buyouts of Japanese groups by western suitors rarely happen, however.

Others in this price range include Horizon and Genmab – the last might be an attractive way into cancer antibodies, but it hard to see how Novartis could make a swoop here given Genmab’s ties with Johnson & Johnson.

Horizon, which has presided over a strong launch of its thyroid eye disease drug Tepezza, might be a better fit, given Novartis’s existing presence in both autoimmune disease and ophthalmology via Xiidra and Beovu. 

Meanwhile, Seagen would give Novartis a revenue stream plus a new technology avenue in the form of antibody-drug conjugates. Both Horizon and Seagen are riding high on the stock market, but they are still well within the affordable range.

Even so, perhaps Novartis would be better off plumping for a group that is currently out of favour with investors but still has a lot to give. Step forward Vertex. The cystic fibrosis leader is currently valued at $49bn, less than the net present value of its marketed products alone, according to Evaluate Omnium.

Purchasing Vertex would also give Novartis a stake in Crispr Therapeutics’ sickle cell disease project CTX001. Given Novartis’s interest in the likes of Car-T and gene therapy, gene editing must also be on its radar.

Given the group’s recent track record with smaller buys, it is surely time to go big or go home.