Novartis buys in hepatitis and depression drugs

Last Updated: 2006-03-29 16:00:09 -0400 (Reuters Health)

By Thomas Atkins and Ben Hirschler

ZURICH/LONDON (Reuters) - Novartis AG has boosted its pipeline by buying in rights to two new drugs, paying up to $525 million to U.S. biotech firm Idenix Pharmaceuticals Inc. for access to an experimental hepatitis C treatment.

The Swiss drug maker has also licensed a depression drug from privately owned French group Servier on undisclosed terms, it said Wednesday.

The deals underscore Novartis's reputation as an aggressive acquirer of medicines developed by other companies. Major pharmaceutical manufacturers are increasingly turning to licensed products to fill out their in-house portfolios.

Merrill Lynch analyst Graham Perry said the move bolstered Novartis's late-stage drug pipeline but would not have a major impact on stock valuations.

"We view the continued strengthening of the pipeline as encouraging, however, uncertainties over the full potential of these compounds means that they are not material to our forecasts at this stage," he wrote in a note.

Merrill rates the shares a "buy."

The hepatitis deal is a key event for Idenix and signals Novartis's support for its drug valopicitabine, or NM283, despite a recent development setback.

Idenix said last week it would delay late-stage trials of the drug to first test it at lower doses to avoid gastro-intestinal problems.

Industry analysts consider valopicitabine to be one of the most promising medicines being developed against the hepatitis C virus but the need to modify clinical trials cast a shadow over its prospects.

Under the deal, Novartis -- which owns 56 percent of Idenix -- will have exclusive rights to market and promote valopicitabine everywhere but in the United States, Britain, Spain, France, Italy in Germany, where the two firms will co-promote it.

Idenix may receive up to $70 million in license fees, of which $25 million is payable immediately. The remaining $45 million in license fees is payable when the drug moves into phase III clinical trials.

In addition, Idenix may get up to $455 million in milestone payments upon achieving regulatory filings and marketing authorization approvals in the United States, Europe and Japan, Idenix said.

Idenix Chief Executive Jean-Pierre Sommadossi told the Reuters Biotechnology Summit last month he was optimistic Novartis would exercise its option to the product.

When Novartis took a majority stake in Idenix in 2003 it also secured first right of refusal to the biotechnology firm's experimental drugs.

Shares of Idenix were down 66 cents, or 4.7 percent, at $13.43 in mid-day trade on the Nasdaq.

Friedman Billings Ramsey analyst Jim Reddoch said some Idenix investors may have been disappointed the immediate payment was only $25 million. But he said the $45 million for beginning the late-stage trial is virtually guaranteed.

Reddoch said focusing on the initial payments ignores the larger value of the deal, including that a large pharmaceutical company is validating the technology.

"This is a totally unwarranted weakness in the stock today," said Reddoch, who rates Idenix shares "outperform."

Novartis shares were 0.3 percent lower at 72.40 francs, slightly underperforming the European sector.

The deal with Servier gives Novartis U.S. rights to agomelatine, a phase III investigational drug for the treatment of major depressive disorder, which may have advantages over existing treatments.

Agomelatine has been filed for approval in Europe but Novartis will need to conduct a clinical trial program in the United States, which analysts said suggested sales were still a number of years away.

Industry analysts at Kepler Equities said agomelatine appeared to have similar efficacy to other antidepressants such as Wyeth's Effexor and GlaxoSmithKline's Paxil, but may have fewer side effects.

"The antidepressant market is crowded, so ultimate sales of agomelatine for Novartis will depend on the success of its clinical trial programme," Kepler said in a note.

(Additional reporting by Lewis Krauskopf in New York)