Novartis’ Investments Evidencing the Shift from Volume to Value?

Swiss biopharmaceutical giant, Novartis, is the seventh largest pharmaceutical company by revenue, worldwide. The result of a series of mergers in the 1990’s, the company manufactures a portfolio of prominent commercial drugs and is approaching revenues of $52 billion with a market capitalization of $205 billion as of this report. Profits total approximately $14 billion, and the giant keeps about $14 billion cash on hand. Its share price 52 week high and low is $72.30 to $94.19 with its current price as of this report is $89.03.

As with all of “big pharma,” Novartis faces imminent threats from government and commercial payer pressure, emerging value-based care models, to intense competition from other large branded biopharmaceuticals, to generic and biosimilar players. CEO, Vasant Narasimhan, has made considerable changes and is positioning the company to be a considerable head in advanced precision medicine platforms. In September 2018 he led a restructuring where the company planned to lay off up to 2000 employees as part of a broader ongoing restructuring plan through 2022. With Narasimhan at the helm, the company seeks to move from traditional high-volume blockbuster model to more precision-targeted medicines representing higher-value markets.

It maintains a considerable portfolio of products including the summary below:


Brand Revenue/Growth Therapeutic Area
Gilenya $3.185 billion 2% Neuroscience
Cosentyx $2.1 billion 82% Immunology & Dermatology
Gleevac/Glivec $1.94 billion -41% Oncology
Lucentis $1.8 billion 4% Ophthalmology
Tasiqna $1.8 billion 9% Oncology
Sandostatin $1.61 billion -1% Oncology
Afinitor/Votubia $1.52 billion 2% Oncology
Galvus $1.23 billion 5% Established Medicines
Exjade/Jadenu $1.05 billion 11% Oncology
Exforge $960 million 4% Established Medicines
Diovan/Co-Diovan $957 million -9% Established Medicines
Xolair $920 million 11% Respiratory
Tafinlar/Mekinist $873 million 29% Oncology
Promacta/Revolade $867 million 37% Oncology
Votrient $808 million 10% Oncology
Jakavi $777 million 32% Oncology
Travoprost Group $589 million -5% Ophthalmology
Entresto $507 million 195% Cardio-Matabolic
Neoral/Sandimmun(e) $488 million -4% Immunology & Dermatology
Voltaren/Cataflam $465 million -4% Established Medicines


Out of its 20 top selling products, nine (45 percent) are focused on oncology; four (20 percent) established medicines; two (10 percent) immunology & dermatology and two (10 percent) ophthalmology. In the existing product portfolio, one has triple digit growth (Entresto)—at a staggering 195 percent. There is also a robust 82 percent growth for $2.1 billion Cosentyx (autoimmune disorders-think Humira market), and a few products growing over 20 percent, including: Promacta/Revolade 37 percent; Jakavi 32 percent and Taniflar/Mekinist at 29 percent. Several in its portfolio have nominal growth and a few are losing ground including Gleevac/Glivec shrinking by a considerable 41 percent.

Novartis’ leading therapeutic areas include oncology, immunology/dermatology and the notable heart failure treatment Entresto with 195 percent growth. To maintain market capitalization at approximately 4X+ revenues, CEO Vasant Narasimhan has made some bold bets on transforming the R&D and ultimate commercial direction of the company. Narasimhan now makes big moves to pivot from traditional volume-based drug business to a high-value, targeted, precision drug product model. Novartis has been on an acquisitive spree to “pivot” the global clinical sponsor to A) gene therapy treatments and B) radiopharmaceuticals. These represent cutting-edge areas and essentially large gambles into the future. At stake is Novartis’ standing in the global top ten pharma. The status quo would only get the company so far and, in our opinion, cannot justify such a high market capitalization moving forward. As a result of this, we believe that Narasimhan made the right calls, but the execution will be more difficult than spending billions of dollars.

The Novartis Pivot—Acquisitions

Who has Novartis acquired in the past few years? We provide a table summarizing the core acquisitions associated with “the pivot” followed by an analysis of two of the assets including an overview of clinical trials ongoing.


Novartis Pivot Acquisitions

Target/Focus Date Amount Target Size, Focus Summary of Products


Oct 2018 $2.1 billion Accelerate the development of innovative radioligand technology for treating cancer. Endocyte has little revenues; it was losing approximately $42 million annually and had approximately $344 million cash. Like many biotech stocks it was valued purely on its potential and clearly didn’t have the financial wherewithal to go it alone.  It had two platforms including 1) Radioligand Therapy (RLT) and 2) CAR-T. For RLT it had a couple critical trials it the pipeline including its’ VISION trial ready for phase 3 initiation and a phase 2 trial both with partner ANZUP. Endocyte uses drug conjugation technology to develop targeted therapies with companion imaging agents, including 177Lu-PSMA-617, a potential first-in-class investigational radioligand therapy (RLT) for treating metastatic castration-resistant prostate cancer (mCRPC). 177Lu-PSMA-617 targets the prostate-specific membrane antigen (PSMA) present in the majority of patients with mCRPC. It has shown promising Phase II data, the company reports. 177Lu-PSMA-617 is currently being investigated in a global Phase III clinical trial in men with mCRPC.

Gene Therapy

April 2018 $8.7 billion Novartis acquires for its pivot toward gene therapy.  AveXis was in clinical stage. It has several SMA clinical trials-SMA is an inherited neurodegenerative disease caused by a single gene—the survival motor neuron (SMN1). AveXis was a pre-revenue company. It has floated an IPO in 2016 raising approximately $95 million.  It continuously lost money with an $83 million loss in 2016 based on its last 10K with the SEC. Taking away other costs its latest R&D costs totaled approximately $60 million per year. Novartis executives have been quoted that they can potentially charge up to $4 million per treatment making it the most expensive drug in the world should it be approved for therapy to treat spinal muscular atrophy. SMA is an inherited neurodegenerative disease caused by a single gene—the survival motor neuron (SMN1). AveXis has a leading gene therapy candidate AVXS-101. SMA Type 1 is number on genetic cause of infant death—9 out of 10 infants do not live to their second birthday or are permanently ventilator dependent. One out of every 6K-10K children born is affected by some form of SMA.
Advanced Accelerator Applications Oct 2017 $3.9 billion Founded in France in 2002, AAA specialized in nuclear medicine with three (3) nuclear medicine segments including PET, SPECT and therapy. The goal was to boost its’ oncology business by acquiring and expanding its neuroendocrine tumor (NET) pipeline with radiopharmaceutical candidates led by RLT LUTATHERA. The company’s lead product was LUTATHERA, a Lutetium Lu 177 dotatate labeled somatostatin analogue peptide, a theragnostic cancer product being developed to treat certain gastro-entero pancreatic neuroendocrine tumors (GEP-NETS). It selectively targets over-expressed somatostatin receptors while also giving off gamma emissions to allow physicians to visualize in the body where both the drug and the tumor are. It was approved by the FDA in January 2018 for GEP-NET.


A brief overview of the most recent acquisitions of Endocyte and AveXis followed by the conclusion.


Endocyte was a successful Purdue University start-up which was then acquired as part of Novartis’ pivot toward precision medicine. Launched in the Purdue Research Park, the venture licensed its technology through the Purdue Office of Technology Commercialization. Novartis now controls several technologies created at Purdue—most originating from Philip Lowwhose work in the Purdue Institute for Drug Discovery focuses on creating small molecules, such as folate, that attach to chemotherapy or radioactive isotopes providing direct-targeted treatment to diseased cells.

The biotech venture licenses underlying technology from Purdue University. With the acquisition, Novartis was able to buy 67 issued patents and nearly 200 patent applications worldwide covering their core technology, SMDCs and companion diagnostics. Their core U.S. patent associated with core technology and lead SMDC, EC145, expires 2026 and their patent covering the EC145 companion imaging diagnostic, EC20 expires 2024. Additionally, they entered into exclusive, worldwide licenses that cover 33 issued patients and over 80 patent applications for select folate-targeted technology and for select technology related to PSMA owned by Purdue Research Foundation—a non-profit that manages the intellectual property of Purdue University. Novartis has inherited the royalty arrangements between Endocyte and Purdue Research Foundation based on product sales.

A core assumption in Endocyte’s R&D model was a belief that the future of medicine includes the ability to identify the appropriate therapy for a particular patient—a move toward targeted, precision medicine, and ultimately part of a broader move toward personalization. Their technology platform affords the new Swiss owners an ability to create companion imaging agents intended for with their therapeutics. Their portfolio includes:

Receptor Targets.  Novartis now controls their novel therapeutics and companion imaging agents to identify cancer disease receptor targets, including PSMA (prostate) receptor targets, which are over-expressed on disease cells. Novartis can now build from the intellectual property in its grip—targeted therapeutics and companion imaging agents that bind to these receptors, and are internalized through a process known as endocytosis. According to company documentation, Novartis will deliver potent therapy to diseased cells while reducing risk of impact on healthy cells. Undoubtedly, they will seek to leverage this foundational capability across therapeutic areas.

Companion Imaging Agents.  Novartis now possesses the technology designed to target the same diseased cells as the therapy, and is easily seen with widely available nuclear imaging equipment. The companion imaging agent allows for a real-time, full body assessment of the receptor target without requiring an invasive tissue biopsy. Now with full-body imaging, the receptor expression can be measured in every tumor and monitored throughout a treatment. Key advantages Novartis now possesses:

    • Minimally invasive (no biopsy)
    • Real time assessment of tumor receptor expression (as compared to analysis based on archived tissue
    • Greater sensitivity as the companion imaging agent blinds to all forms of the receptor
    • Superior specificity (tissue sample analysis may overstate receptor expression)
    • Full-body evaluation (as opposed to tumor samples)

Novartis (Endocyte) Pipeline

Endocyte either owned or licensed worldwide commercial rights to a radioligand therapy platform and an adaptor-controlled CAR-T cell therapy platform with the potential for treating cancer and selecting patients who would likely benefit from the treatment.   The core focus of the Novartis acquisition is the radioligand technology platform-Lu-PMSA-617. According to, there are presently five ongoing clinical trials associated with Lu-PSMA-617 treatment.

Their phase 3 is for Radioligand Therapy (RLT)—the VISION trial design for Lu-PSMA-617. The clinical trial will include two interim assessments of efficacy which could possibly lead to an early approval for Lu-PSMA-617. The trial is presently recruiting; they are targeting 750 participants and have a projected completion date of May 2021. Novartis is now in control of four other key Lu-PSMA-617 trials the rest in either phase 1 or 2.

AveXis (Gene Therapy Platform)

Novartis recently bought clinical stage AveXis for a whopping $8.7 billion. A pre-revenue research and development (R&D) focused company, it had never achieved profitability and has operated at a loss since its inception in 2010. Based in Bannockburn Illinois, it is a clinical-state gene therapy venture focusing on developing and commercializing novel treatments for patients suffering from rare and life-threatening neurological genetic diseases. The acquired target had strategic collaborations in place as well as license agreements with Nationwide Children’s Hospital, the Research Institute at Nationwide Children’s Hospital, REGENXBIO Inc. and Asklepios. Originally called BioLife Cell Bank, Inc. it changed name to AveXis in 2014.

A brief aside on the founding of AveXis: Co-Founder John Carbona, an exceptional character, merits a digression. He graduated pre-medical science degree, but decided not to pursue a dental career.

Rather, Carbona taught high school biology before moving into a business career in pharma. After various sales positions in healthcare and pharma, his interest in manufacturing led him to a CEO position of a small one product venture. Carbona accumulated patients and trademarks and sold them to an industry roll-up led by Bruckmann, Rosser, Sherrill & Co in 1998 accumulating wealth along the way. Mr. Carbona went on to earn fortunes in the public utility privatization space in the late 1990’s.

Carbona was a factor in the emergence of cross-marketing alliances, shared revenue agreements and direct healthcare advertising. AveXis was incorporated in 2013, based on ideas from founders, Mr. Carbona and John D Harkey Jr., to build synergistic industry alliances that could lead to treatments for the Spinal Muscular Atrophy industry. Eventually, the company took, and of course the rest is history with an M&A transaction worth $8.7 billion in just five years.

Back to the present, now firmly within Novartis’ control, the primary product candidate—AVXS-101-represents a proprietary gene therapy product. In the press, some writers have called it “the $4 million drug.” The U.S. Food and Drug Administration, (FDA) has granted AVXS-101 orphan drug designation for the treatment of all types of SMA and fast track designation for the treatment of SMA Type 1. In addition to developing AVXS-101 to treat SMA Type 1, they sought to develop AVXS-101 to treat additional SMA types and develop other novel treatments for rare neurological genetic diseases.

Novartis paid what would appear to be a notable premium for the underlying technology and of course future scientific monopoly position. We highlight the risks AveXis itself disclosed during Securities and Exchange Commission (SEC) filings.

  • The company had always incurred losses and will continue to represent a considerable investment till commercial breakthrough. It will not have that problem with Novartis now, but results must be produced at some point in the not too distant future
  • The R&D and commercialization behind AVXS-101 represents considerable risk at multiple levels
  • As AVXS-101 is based on a novel technology it is subject to great uncertainty when looking to predict the time and cost of development and of course the path to securing regulatory approval.
  • As the time of their initial public offering (IPO) S1 filing, there were not approved gene therapies in the US and only one such product in the EU. We are facing the uncharted unknown and risk rations get very high in these scenarios
  • As with most drug development but especially with novel technologies and platforms, any success in preclinical phase or early clinical trials doesn’t mean that positive results will ensue in late state trials
  • The AVXS-101 product may cause adverse effects or introduce other issues that may delay or prevent regulatory approval, limit commercial potential or end up adverse events during post marketing approval
  • Regulatory approval with FDA, EMA and others cannot be predicted with certainty
  • Any commercial success associated with AVXS-101 is contingent on market acceptance by physicians, patients, third-party payors and others in the medical community, which could be limited if genetic screening for SMA in newborns is not approved by authorities among other contingencies
  • By the time of their IPO, only a third-party had conducted the one clinical trial of AVXS-101 and their ability to influence the design and conduct of trials had been limited.
  • There are many risks associated with the manufacturing of AVXS-101
  • Considerable delays will adversely impact approvals and hence revenue models and valuation assumptions
  • Significant competition is on the horizon
  • The rights to commercialize AVXS-101 are subject to licensing agreements—an example would be the exclusive arrangement with Genethon (created and funded by French AFM-TELETHON) 
  • Existing and future patent protection rights are of paramount importance as to the business model and valuation

Novartis’ AVXS-101 Pipeline

As of October 2018 AveXis, was requesting that the FDA and EU to approve AVXS-101 as first gene therapy for SMA type 1.

A review of uncovers six existing clinical trials and listed with one of them being completed. The other existing five active trials include the following:


Trial Intervention Phase Planned Completion
SPR1NT AVXS-101 3 2023
STRIVE-EU AVXS-101 3 2020
START AVXS-101 Follow up 2033
STRONG AVXS-101 1 2019
STR1VE AVXS-101 3 2020



Novartis is one of the top ten biopharmaceutical companies as measured by annual revenues. Like many of the existing global giants, it faces an onslaught of challenges from growing payer pressure to expiring patents and transformative pressures forcing market pivots from traditional volume-based drug manufacturer to high-value precision medicine treatments. The transition will take many years. Novartis generates over $50 billion annually from its existing product portfolio and profits appear healthy. It has tremendous advantages from global scale, to access to an incredibly talented workforce. It is known to be a tough place to work (this author has worked on some projects at Novartis and can attest to this first hand), but as compared to some of the other giants, it truly represents an attempt to become an innovator. It does appear to nurture a culture of entrepreneurial experimentation perhaps more intensively than some of its global “pharma” peers.   

CEO Narasimhan has transitioned the company toward the new reality facing the industry faced with patent cliffs, value-based models and greater generic and biosimilar competition. The Swiss giant has made some bold bets centering on advanced technology platforms, therapeutic treatment approaches and modalities. As he is quoted in a recent Wall Street Journal article, “we thought if we could gain a leadership position it’d be harder for competition to take us on.” With its latest acquisitions, it seeks to become a global leader in targeted gene therapies and radiopharmaceuticals. Whether these bets pay off comes down to a number of factors, including the success of some foundational assets. These assets include ongoing clinical trials with Endocyte’s Lu-PSMA-617; AvXis’ AVXS 101 and core assets, namely LUTATHERA from Advanced Accelerator Application. Novartis paid handsomely for these technology platforms and assets, but should they successfully execute while protecting and mitigating against bad luck while seizing on any Fortune, they will propel themselves considerably ahead of many competitors in the highly complex and risky drug development and commercialization business.


Daniel O’Connor  

Mr. O’Connor has spent nearly 20 years providing technology and services to the clinical trials and health technology industry. An entrepreneur, he has been instrumental in building a few different ventures focusing on FDA 21 Part 11 enterprise document management, technology-enabled patient recruitment services, clinical document and safety data exchange, as well as population health and community care coordination for at-risk populations. Mr. O’Connor has built a comprehensive research site data base and intelligent clinical research site news curation engine with TrialSite News. He earned his combined MA and JD from the University of California (Los Angeles and Hastings College of the Law).