Novartis seeks more bolt-on deals as it purchases neuro startup for up to $1.1B

Novartis is buying gene therapy and neuroscience biotech Kate Therapeutics in a deal worth $1.1 billion in upfront and milestone payments, the Swiss pharma confirmed to Endpoints News on Thursday.

And Novartis is not done yet. It is still on the lookout for bolt-on M&A opportunities — but don’t expect them to go higher than $3 billion.

“That’s not that we couldn’t do a little bit bigger, but that’s the majority of the available target companies, if you will,” Novartis CFO Harry Kirsch told the media ahead of its investor event in London on Thursday.

CEO Vas Narasimhan added that a lot of M&A from the recent past has been in the $1 billion to $2 billion range, pointing to its acquisitions of Mariana Oncology and KateTx. Over the past eight years, it made $5 billion to $10 billion deals only “occasionally” because of valuation considerations and “financial discipline,” he added.

Novartis will take on KateTx’s pipeline of preclinical candidates in Duchenne muscular dystrophy, facioscapulohumeral muscular dystrophy and myotonic dystrophy type 1.

The San Diego biotech’s gene therapy tech features adeno-associated virus capsids that deliver their payloads into specific tissues to avoid off-target issues such as hepatic side effects. In June 2023, it said that it was partnering with Astellas on a neuromuscular disease called X-linked myotubular myopathy.

Novartis revealed its purchase of KateTx ahead of its Meet Novartis Management event in London that was intended to reassure investors its pure-play strategy is bearing fruit now and in the next several years. A key part of its growth strategy is more M&A as “replacement power,” with the company facing the loss of exclusivity for key drugs such as Entresto, Kirsch said.

When asked if changes to the Federal Trade Commission could lead to Novartis raising its M&A budget, Narasimhan said the FTC is not a major driver of its decisions. As a part of its reorg, the company zeroed in on four therapeutic spaces: cardiovascular-renal-metabolic, immunology, neuroscience and oncology.

“Preclinical, Phase 1, Phase 2 area — that’s the opportunity where we can step in” and Novartis can add value to the acquired company, Narasimhan said, adding that it’s challenging to “find synergies, harder to justify” with later-stage candidates.

Narasimhan said that when it bought MorphoSys for $2.9 billion, its lead oncology candidate, pelabresib, was in an ongoing Phase 3 trial. “We saw the opportunity in an area of myelofibrosis that we’ve been in for a long period of time, and we took a bet on an ongoing clinical trial,” he said, adding that if it had waited for the late-stage readout, the purchase price would have been “double at least.”

But that bet on MorphoSys led to the company taking an $800 million impairment hit just months after the deal closed due to emergent malignancies. “In this case, it didn’t go our way,” he said, nonetheless noting the company’s overall M&A track record.

As for pelabresib, the company’s next update should come in the second half of next year. Narasimhan said it is monitoring patients until the middle of next year. “We are also planning to conduct additional studies to look at certain subpopulations of myelofibrosis patients where pelabresib could have a better benefit-risk profile. So I think all of that will take us at least until 2027 — it might take longer, depending on the safety topic,“ he added.

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