Takeda’s 2,025% Return in Novartis Deal Shows Pharma’s Upside

(Bloomberg) -- For a masterclass in the upside potential of pharma M&A, look no further than Takeda Pharmaceutical Co.’s sale of an eye drug to Novartis AG this week.

By one measure, the deal represents a 2,025% return.

Shire Plc, which Takeda bought in January, obtained the assets through a 2013 acquisition. It paid $160 million upfront to gain the late-stage experimental drug, now sold as Xiidra, and agreed to potential undisclosed future payments.

Novartis is paying Takeda at least $3.4 billion for the treatment, plus as much as $1.9 billion more in milestone payments. Based on agreed upfront cash portions of the two deals, that’s quite a return for a bet on any development-stage drug made just six years ago.

While Novartis probably doesn’t expect to sell the drug again for such a windfall, blockbuster sales from Xiidra would give it more cash to pursue development in riskier areas like cell and gene therapy. The drug could generate as much as $1.4 billion in annual revenue, according to Elizabeth Krutoholow, a Bloomberg Intelligence analyst.

A lot happened in Shire’s favor since it bought Xiidra’s owner under the leadership of Flemming Ornskov, who later built the drugmaker into a leader in the rare diseases field. After the drug received U.S. regulatory approval in 2016, it helped drive drive a 50% increase in Shire sales related to eye care. And that was all before Takeda bought the company in a $62 billion deal.

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