Morningstar | Novartis Acquires Rights for Dry-Eye Drug Xiidra at Fair Price
Novartis has announced the acquisition of rights to dry-eye drug Xiidra from Takeda. We don't expect any changes to our fair value estimate, as the price of deal looks fairly balanced with the future sales potential of the drug. Strategically, we view the deal as helpful for Novartis to leverage its sales and marketing efforts with other eye drugs, especially the upcoming launch of age-related macular degeneration drug brolucizumab. Even though Novartis spun off its eyecare medical product group Alcon earlier in the year, it still has a strong entrenchment with eyecare drugs. While we don't view this deal as having a major impact on Novartis' moat, the broadening of the company's solid drug portfolio helps reinforce the company's wide moat.The deal terms struck for the drug seem fair, with Novartis paying $3.4 billion up front and potential milestone payments of $1.9 billion in the future. We expect peak annual Xiidra sales to approach $1 billion, so future contingent payments may not be required, as the first contingent payment would be due once annual sales of the drug reach $1.2 billion. While generic competition is probably coming soon for competing dry-eye drug Restasis (from Allergan), the dry-eye patient population doesn't all respond to Restasis, which provides a major opening for Xiidra. Also, Xiidra is approved for both signs and symptoms of dry-eye disease while Restasis doesn't treat the symptoms. However, due to low expected generic pricing, we expect payers to largely relegate Xiidra to therapy following generic Restasis once generics launch. Additionally, the majority of potential competition for dry-eye disease drugs under development are largely coming from smaller drug firms with fewer resources to take market share.
For a complete review of Novartis' pipeline and currently marketed portfolio, please see our Healthcare Observer, "Annual Drug Pipeline Report: Moats Remain Secure as Innovation Counters Pricing and Generic Headwinds, but M&A Accelerating."
Novartis is a multinational healthcare group based in Switzerland. Co. provides healthcare solutions that address the evolving needs of patients and societies worldwide. Co.'s broad portfolio includes innovative medicines, eye care products and cost-saving generic pharmaceuticals. Co.'s operations are organized along three operating divisions: Innovative Medicines Division; Sandoz Division; and Alcon Division. Co.'s operations are supported by the Novartis Institutes for BioMedical Research and Novartis Business Services.
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