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Novartis to Buy Full Arzerra Rights from GlaxoSmithKline

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Novartis (NVS - Free Report) announced that it has inked a deal with GlaxoSmithKline (GSK - Free Report) to acquire all remaining rights to Arzerra for up to $1 billion plus royalties. With this acquisition, Novartis will gain rights to develop Arzerra for auto-immune disorders including multiple sclerosis.

We remind investors that Novartis had already acquired the rights to Arzerra through the acquisition of Glaxo’s oncology segment in Mar 2015. The drug is already approved (for use in combination with Leukeran) for treatment-naïve chronic lymphocytic leukemia patients, who are not suitable for treatment with Fludara.

Terms of the Deal

Upon completion of the deal, Novartis will be responsible for the development, regulatory and commercialization activities for Arzerra across the world. The company will make an initial upfront payment of $300 million to Glaxo, apart from $200 million payable following the initiation of a phase III study on Arzerra for multiple sclerosis (MS). Novartis may also make contingent payments of up to $534 million upon the achievement of pre-determined development milestones. Additionally, the company will pay royalties of up to 12% to Glaxo on any future net sales of Arzerra for auto-immune-related indications.

The deal is slated to close by the end of 2015.

We remind investors that Novartis had already acquired the rights to Arzerra as a treatment of cancer through the completion of a three-part transaction with Glaxo, announced in Mar 2015. This deal included the acquisition of certain oncology products and candidates by Novartis in exchange for its non-influenza vaccines business. In addition, the two companies decided to form a joint venture by combining their consumer divisions to establish a large consumer healthcare business.

Boost to Novartis’ MS Portfolio

We note that Novartis already has a number of MS drugs in its portfolio, including Gilenya (first-line treatment for relapsing forms of MS in the U.S. and highly active relapsing-remitting MS (defined as either high disease activity despite treatment with at least one DMT, or rapidly evolving severe relapsing remitting MS) in the EU) and Extavia (relapsing forms of MS in the U.S. and relapsing remitting MS, secondary progressive MS with active disease and patients with a single event suggestive of MS in the EU). Additionally, Sandoz, the generic arm of Novartis, has an agreement with Momenta Pharmaceuticals Inc. (MNTA - Free Report) for the development and commercialization of Glatopa, Momenta’s generic version of Teva Pharmaceutical Industries Limited’s (TEVA - Free Report) Copaxone 20 mg. The acquisition of rights to Arzerra for auto-immune disorder indications including MS by Novartis should help the company strengthen its MS portfolio.

Gilenya, which generated revenues of $1.3 billion in the first half of 2015, is slated to lose patent protection in 2018 in the EU and 2019 in the U.S. Novartis should gear up to bring new MS drugs to the market to maintain its position.

Meanwhile, Novartis is preparing to advance Arzerra to phase III studies for MS. The company is also developing BAF312 (in phase III development as an oral therapy for secondary progressive MS) and CJM112 (under development for MS).

Novartis carries a Zacks Rank #3 (Hold). Teva is a better-ranked stock, carrying a Zacks Rank #2 (Buy).

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