Novartis CEO defends $12 billion deal for Avidity as 'appropriate risk to take'

By Bhanvi Satija

LONDON, Oct 27 (Reuters) - Swiss drugmaker Novartis NOVN.S on Monday defended its $12 billion deal to acquire Avidity Biosciences ahead of the U.S. firm getting late-stage data for its muscle disorder treatment next year, saying it was "an appropriate risk to take".

On an investor call, Novartis CEO Vas Narasimhan said the deal size could have been "potentially twice as big" had the firm waited for the data to be released.

Novartis announced the cash deal for Avidity RNA.O at $72 per share on Sunday, representing a premium of 46% to the company's previous close. The drugmaker's shares slipped 1.5% on Monday, while Avidity's U.S. stock jumped more than 40%.

DEAL SPREE AIMED AT BOLSTERING PIPELINE

The Avidity acquisition is the second-largest biotech deal this year after Johnson & Johnson's JNJ.N $14.6 billion purchase of Intra-Cellular Therapies.

Analysts said it signalled a potential pickup in M&A in the biotech space, driven by lower valuations and recent drug pricing deals in the United States.

The deal is also the largest for Novartis under Narasimhan, who became CEO in 2018. It follows a $17 billion spree this year of acquisitions and licensing deals to bolster the firm's pipeline ahead of patent expirations for its top-selling heart treatment Entresto and asthma drug Xolair.

The deal will not include Avidity's early-stage cardiology programs, which are being spun off separately.

Avidity has three late-stage therapies targeting rare neuromuscular disorders. Its experimental therapy, Del-zota, for a form of Duchenne muscular dystrophy, is on track to seek FDA approval next year via an accelerated pathway.

Key data for another therapy, Del-diseran, for myotonic dystrophy, is also expected next year.

'A LITTLE BIT OUT OF THE ORDINARY'

Daniel Bolanowski, portfolio manager at Arctic Asset Management, which owns shares in both firms, said it was "a little bit out of the ordinary" for Novartis to move so early when they could have waited for the data.

"If you believe in the data so far, then the promise of these drug candidates is large enough that it absolutely makes sense," he said, however.

While analysts said Avidity's therapies are a natural fit for Novartis' rare disease portfolio, most said the price was higher than its usual bolt-on deals.

"I would still consider this to be a bolt-on for a company of our size and cash generation," outgoing CFO Harry Kirsch, who retires next year, told analysts. He said Novartis still had significant firepower for future deals.