Novartis Stumbles in Alcon Acquisition as Positive Regulatory Developments are Announced

Novartis Hits Stumbling Block in Quest to Fully Acquire Alcon

Swiss pharma major Novartis has hit a stumbling block in its quest to complete the full acquisition of U.S. eyecare giant Alcon Inc. Having acquired a 25% stake in the company in 2008, at a price of US$143.18 per share, on 4 January 2010, Novartis announced that it would buy compatriot company Nestlé's outstanding 52% stake in Alcon, at a price of US$180 per share, thereby increasing its stake in the company to 77%. The Swiss giant then announced that it would place a merger proposal for the remaining minority shares at a price of US$151.43 per share. Alcon's independent director committee has harshly criticised Novartis' offer for full acquisition of the minority share, describing it as "grossly inadequate", and its financial analysis as "fundamentally flawed". The committee is even more dissatisfied with the handling of the proposed merger, especially after it was reported that Novartis implied it can force the merger upon the minority shareholders, under Swiss merger law. Alcon has responded to this with harsh words. Novartis' behaviour has been described as offensive and disrespectful.

Novartis Edges Closer to Marketing Approval for FTY720

On a more positive note, Novartis has announced the full results of two Phase III trials for its novel multiple sclerosis (MS) drug FTY720 (fingolimod). The studies, known as TRANSFORMS and FREEDOMS, studied the drug in two doses—0.5mg and 1.25mg. In the TRANSFORMS study, FTY720 0.5 mg was shown to reduce relapses by 52% in comparison with current standard of care Avonex (interferon beta-1a; Biogen Idec, U.S.) whereas the 1.25mg dose led to a 38% reduction in relapses. The FREEDOMS study, which compared FTY720 with placebo, showed that the relapse rate reduced by 54% and 60% for the 0.5mg and 1.25mg doses, respectively. In addition, the 1.25mg dose of FTY720 also reduced the risk of disability progression at three months and six months by 32% and 40%, respectively (see Switzerland: 1 October 2009: Novartis Releases Positive Clinical Results for FTY720). Novartis also noted that regulatory filings have been submitted in the United States and European Union for the 0.5mg dosage. The 0.5mg dosage was selected because of the fewer side effects reported for patients taking that dose. The results have been published in the New England Journal of Medicine.

Regulatory Nods in Japan for Three New Drugs

Meanwhile, on the approvals front, the Japanese ministry of health has approved three Novartis drugs. These include dipeptidyl peptidase-4 inhibitor Equa/Galvus (vildagliptin), which is a Type 2 diabetes treatment; high blood pressure treatment Exforge (amlodipine and valsartan); and Afinitor (everolimus), for the treatment of advanced kidney cancer.

Outlook and Implications

Judging by the reaction of Alcon's minority shareholders, the road to full acquisition of Alcon may not be as smooth as Novartis would have hoped. The main sticking point is the price Novartis is offering for the remaining 23% stake in Alcon. Essentially, Novartis is seeking to pay almost 16% less to minority shareholders in comparison with what it paid Nestlé for its 52% stake. Novartis asserts that a Swiss merger allows it to do this, in contrast with laws in countries such as the United Kingdom and United States; however, Alcon's committee of independent directors has asserted that it will not be coerced into selling shares at a price that it feels undervalues the company. As IHS Global Insight noted in its earlier analysis of the proposed deal, Novartis can be expected to increase its bid for Alcon in order to please the minority shareholders, which consist primarily of Alcon employees, who will have to put the final stamp of approval on the deal. Whether or not Novartis will match the price paid to Nestlé remains to be seen, but what does remain certain is that the process is likely to be dragged out, given this initial hostility. In any case, the Novartis/Alcon merger looks set to make European history, as the final price tag could be in excess of US$50 billion (see Switzerland: 4 January 2010: Novartis Increases Stake in Alcon to 77%).

If the regulatory fillings for FTY720 are successful, it could potentially become a first-in-class treatment, winning the race to become the first oral therapy for MS; the market is currently dominated by injectables and infusions. The most successful MS treatment on the market is currently Tysabri (natalizumab; Biogen/Elan, U.S./Ireland), which clocked sales of over US$1 billion in 2009. Despite its commercial success, it has been linked to a risk of progressive multifocal leukoencephalopathy (PML), a potentially deadly brain infection that is said to affect 1 in 1000 users (see United States: January 7 2010: Total Number of Tysabri-Related PML Cases Hits 28). The drug's long-term use (beyond 36 months) further increases the risk of PML, and doctors and patients are being warned of this. According to Novartis, an estimated 2.5 million people suffer from MS, and there are few treatment options. The clinical profile of FTY720, coupled with the fact that it offers a more convenient mode of administration, may prove to be a winner. According to the United Kingdom's Financial Times, the market is worth up to US$7 billion; however, Reuters estimates it as closer to US$8.6 billion. With top selling drugs like Diovan (valsartan) and Glivec/Gleevec (imatinib) due to lose patent protection in the next few years, FTY720 could potentially absorb some of the hits Novartis is likely to take from the generic competition. On a more cautionary note, German drug maker Merck KGaA is also seeking regulatory approval for its oral MS treatment Cladribine. Even though its application was initially rejected by the U.S. FDA, it is still a potential competitor in the oral MS race, as the European regulatory process is ongoing.