A logo sits outside the headquarters of Novartis AG in Basel, Switzerland. (Photographer: Gianluca Colla/Bloomberg)

Novartis to Buy Takeda Eye Drug Assets in $5.3 Billion Deal

(Bloomberg) -- Novartis AG agreed to buy eye-disease medicines from Takeda Pharmaceutical Co. for as much as $5.3 billion as the Japanese company moves to shed debt after its acquisition of Shire Plc.

The main product in the deal is Xiidra, prescription drops that compete with Allergan Plc’s blockbuster Restasis to relieve dry-eye disease, a common condition that can hinder daily activities ranging from reading to driving. Along with $3.4 billion in cash upfront, Novartis agreed to provide as much as $1.9 billion in milestone payments.

Novartis to Buy Takeda Eye Drug Assets in $5.3 Billion Deal

The deal gives Chief Executive Officer Vas Narasimhan, who is working to reshape the Swiss drugmaker, a simple new medicine with blockbuster potential as he expands into less certain fields such as gene therapy. Under Narasimhan, Novartis is narrowing its focus on cutting-edge drugs for cancer and rare illnesses. In his first year at the helm, the new chief split with the eye-care division Alcon, ditched a stake in a consumer-health venture and carried out three crucial acquisitions.

Blockbuster Potential

Xiidra had about $400 million in sales last year, Novartis said. It expects the deal to close in the second half of the year and plans to bring over about 400 employees. The drug could generate peak sales of as much as $1.4 billion, according to Elizabeth Krutoholow, a Bloomberg Intelligence analyst. Bloomberg reported the potential sale earlier Wednesday.

Novartis has just spun off its Alcon contact-lens and surgical-products division but previously transferred eye drugs from the unit to the main pharma business. Xiidra’s previous owner, Shire, tangled with Allergan in the U.S. in an effort to gain greater market access for the drug.

Novartis shares fell 0.4 percent in Zurich trading. Takeda shares rose as much as 3.3 percent in early Tokyo trading Thursday, before giving up gains to close mostly unchanged.

What Bloomberg Intelligence Says

“Ignoring $1.9 billion of future sales milestones, cash of $3.4 billion values Takeda’s dry-eye drug Xiidra at 8.5x 2018 sales, which is a big price tag, given market dynamics.”

-- Sam Fazeli, pharma analyst
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The transaction is the first major deal for Takeda since Chief Executive Officer Christophe Weber said in January that the Japanese company plans to move quickly on disposals to reduce debt after its $62 billion takeover of Shire.

Takeda took on around $31 billion of debt for the Shire takeover, boosting its net debt ratio to five times earnings, compared to an industry average of one. The company has said that its medium-term debt target is around two times earnings. The company has laid out a scenario of a potential $10 billion in divestments. Besides the eye-care deal with Novartis, it agreed to sell Tachosil, a surgical patch, to Ethicon Inc. for $400 million.

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