(Bloomberg) — Novartis AG agreed to buy MorphoSys AG for €2.7 billion ($2.9 billion) as the Swiss pharma company starts following through on plans to use bolt-on acquisitions to beef up its pipeline.
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The Swiss drugmaker will pay €68 a share in cash for the German biotech maker of cancer treatments, which is 61% above the Feb. 2 closing price.
The swoop on MorphoSys, which has had some recent drug setbacks, is the latest move by Novartis Chief Executive Officer Vas Narasimhan, who has a spotty record with M&A and needs to show investors he can drive growth after a substantial restructuring of the business.
Speaking to Bloomberg TV last week, after reporting earnings that disappointed investors, Narasimhan said it had its sights set on targets of $5 billion or less. Bolt-on purchases like MorphoSys can pay off if a drug becomes a blockbuster, but their success is never guaranteed. UBS analysts estimated there’s a 70% chance of MorphoSys’s key experimental drug pelabresib reaching €1 billion in peak revenue.
MorphoSys extended gains, rising as much as 16% to the highest level in more than two years. Novartis shares fell as much as 0.4% Tuesday, having gained 20% in the past year.
MorphoSys has been banking on the pelabresib blood-cancer treatment after sluggish growth of the company’s main existing therapy, the cancer drug Monjuvi. It makes strategic sense for the two drugmakers to work together, because MorphoSys has been studying the effectiveness of pelabresib in combination with Jakafi, a treatment that Novartis sells outside of the US, according to Mark Purcell, an analyst at Morgan Stanley.
However, mixed clinical results on pelabresib that came out last year have cast doubts on the medicine, spurring some analysts to question the rationale behind the acquisition.
“Novartis is overpaying in this transaction,” wrote Suzanne van Voorthuizen, an analyst at Van Lanschot Kempen. “We have been bearish on the MorphoSys investment case for a while.”
Narasimhan has had disappointments in previous acquisitions. Leqvio, a heart drug obtained from his largest purchase, the $9.7 billion takeover of Medicines Co. in 2019, has struggled to win market share and the company lowered its ambitions on the medicine. MorphoSys is his biggest deal since then.
Novartis shares have gained 45% including reinvested dividends over the past five years, while the stock of crosstown rival Roche Holding AG has dropped 1%. Both pharma companies have been struggling to bolster their drug pipelines to fuel growth.
MorphoSys has been under growing pressure to raise funds, according to Bloomberg Intelligence. If it wins regulatory clearance for pelabresib, then it could launch that medicine as soon as mid-2025. Yet the company still needs to repay about €260 million in debt later in 2025 and sales of its only currently approved drug, Monjuvi, have been “underwhelming” of late, with more competition coming for that therapy, according to Bloomberg Intelligence.
The stock has rallied in recent weeks as investors reconsidered the company’s prospects, more than doubling from its November lows. Takeover speculation has also contributed after a Betaville report said that three large pharma firms were interested.
The Swiss and German drugmakers had formed an alliance in 2018, when Novartis agreed to buy the rights to a skin-disease drug from MorphoSys and co-developer Galapagos NV. However, trials on the experimental medicine ended about a year later.
In a separate deal announced Monday, MorphoSys agreed to sell the global rights for Monjuvi to partner Incyte Corp. for $25 million.
—With assistance from Tim Loh, Allegra Catelli, Naomi Kresge and Lisa Pham.
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