The CEO of a $230 billion pharma company explains why he's not scared of buying biotechs at an earlier - and riskier - stage
Forbes/ Victoria Engblom
- Ever since Novartis CEO Vas Narasimhan stepped into the role in February, Novartis has been going through a transformation, acquiring biotech companies with cutting-edge technologies and divesting other parts of the business.
- Narasimhan told Business Insider in a November interview that he doesn't expect that deal-making habit to change any time soon.
- "I think a company like us that wants to be a leader in innovative medicines is going to have to consistently do bolt-on acquisitions every single year," Narasimhan said.
Novartis CEO Vas Narasimhan has been in the job for 10 months now.
Since stepping into the job in February, Narasimhan's been working to change what the $230 billion pharmaceutical giant is known for.
Instead of being a diversified healthcare conglomerate, Narasimhan's narrowed the focus to make Novartis a "breakthrough medicines companies," divesting its consumer health joint venture as well as announcing the spinoff of its eye-care business Alcon in June.
Narasimhan's first year in the job has also been punctuated by deals including Novartis's $7 billion AveXis acquisition in April, which launched the drugmaker into the world of gene therapy, as well as a $2.1 billion deal for cancer-drug maker Endocyte in October, adding to an otherwise less-busy dealmaking year for biotech.
As Narasimhan sees it, this won't be the last time we see Novartis doing deals under his tenure.
"I think a company like us that wants to be a leader in innovative medicines is going to have to consistently do bolt-on acquisitions every single year," Narasimhan told Business Insider in a November interview on the sidelines of the Forbes Healthcare Summit. "I really don't see this as a one-year flash, I see this as hopefully a consistent approach."
But, of course there's a caveat to that: "The key is there has to be good assets."
Taking earlier risks
As he's sees it, valuations are getting more stretched for more mature companies that have gotten farther in bringing their treatments to market. That means drugmakers like Novartis have to take on more risk by going after biotech companies that aren't as far along in developing their drugs.
"You have to be willing to say, we're willing to make bolt-on acquisitions at that smaller - at least for us - price range and be OK that some of them won't work and some of them will," Narasimhan said.
That requires a change in mindset, something he's prepared to do given his background in drug development. Prior to taking on the CEO role, Narasimhan served as Novartis's global head of drug development and chief medical officer.
Read more: One of the biggest drugmakers in the world thinks it has 26 billion-dollar drugs in the pipeline - here's what they aim to treat
"Most of the things don't work, I know that in drug development," he said. "I appreciate that we're taking risk."
Should his team feel more secure in making a deal that might not pan out, Novartis could potentially make bets earlier on, when companies or technologies are less expensive.
"If you removed that mindset, we could probably bet on things a bit earlier."
For example, Novartis was interested in picking up AveXis starting in early 2017 but waited until the company had everything clarified with the FDA before stepping in and ultimately paying a higher price, he said.
AveXis is working on a gene therapy for spinal muscular atrophy, a rare genetic condition that affects muscle movement in children and is the leading genetic cause of mortality in infants. It could be approved in the US by as early as May 2019.
What's still missing
With the AveXis and Endocyte deals - as well as Novartis's ongoing work with Kymriah - Novartis has managed to extend its reach into a number of buzzy new areas of biotech, from gene therapies to cell therapies to radioligand therapy, which uses radioactive medication to go after cancer tumors.
Narasimhan said there's still a few areas left untapped that he's interested in.
- One is targeted protein degradation therapy, he said. That's a way of using medicine to guide certain faulty proteins out of the cell. It's a big area of interest for the president of the Novartis Institutes for BioMedical Research Jay Bradner.
- Narasimhan has his eye on RNA-related therapies, like the kind Moderna Therapeutics is developing, as well. Novartis is working with Ionis Pharmaceuticals to develop RNA-based treatments for heart disease.
- Finally, xenotransplantation, or transplanting other animals' organs into humans. In the 1990s, Novartis had invested close to $1 billion into xenotransplantation but then left the space. "Now I think with the work on CRISPR there is at least the possibility to get after that problem again," Narasimhan said.
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