Novartis shares slip, Avidity soars after US$12 billion biotech deal

The logo of Swiss pharmaceutical company Novartis AG is shown on one of their buildings in Basel, Switzerland, Oct. 25, 2011. (AP / Keystone, Georgios Kefalas)

LONDON — Shares of Novartis fell one per cent on Monday following news of the company’s plans to acquire U.S. biotech Avidity Biosciences for about US$12 billion, marking the Swiss drugmaker’s largest acquisition under CEO Vas Narasimhan.

Before the Avidity deal, announced on Sunday, Novartis had already committed over $17 billion this year on acquisitions and licensing deals. They came as the drugmaker looks to bolster its pipeline ahead of key patent expirations for its top-selling heart failure treatment Entresto and asthma drug Xolair.

While Avidity’s late-stage therapies for neuromuscular disorders would fit well with Novartis’ expertise and existing products, analysts were cautious and the Swiss company’s shares, which have gained around 16 per cent this year, slipped.

Novartis’ offer of $72 in cash for each share of Avidity represents a premium of 46 per cent to the biotech’s last closing price on Friday.

Shares of Avidity surged 43 per cent to $70.45 in U.S. premarket trade on Monday.

Brokerage Jefferies said there are questions about Avidity’s therapies known as antibody oligonucleotide conjugates and how well they reach muscle tissue and behave in the body.

“We don’t think the deal will be without controversy,” Jefferies analysts wrote in a note.

Its therapies are designed to deliver genetic material directly to muscle cells that are affected by disorders like Duchenne muscular dystrophy or myotonic dystrophy type 1.

GOOD SIGN FOR BIOTECH M&A

The deal marks Novartis’ largest acquisition since Narasimhan became CEO in 2018.

It is the second largest biotech acquisition this year after Johnson & Johnson’s JNJ.N $14.6 billion deal for Intra-Cellular Therapies in January, suggesting a clear acceleration in M&A in the sector, at least two analysts said.

RBC analyst Luca Issi said this trend is driven by a combination of factors, including depressed valuations for biotechs and recent easing in policy through drug pricing deals between the U.S. government and manufacturers like Pfizer PFE.N and AstraZeneca AZN.L.

“The Pfizer and AstraZeneca deal with the White House felt like the turning point for many investors,” Issi said.

(Reporting by Bhanvi Satija; Editing by Susan Fenton)