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Tiny Incyte Gets Boost From Novartis Deal


The giant Swiss pharmaceutical company continues it slow and steady expansion.

'Tis the season for pharmaceutical deals as drug-makers try to pad their pipeline with promising compounds.

Wednesday morning, Novartis (NVS) penned a deal with Delaware-based Incyte (INCY) for two drugs in the hematology and oncology space. The deal could be worth $1 billion to Incyte if all regulatory, development, and sales milestones are met. The total value of the deal is a small chunk of change for Novartis, which had $14.2 billion in cash, short-term deposits, and marketable securities as of the end of the third quarter.

Under terms of the agreement, Incyte will retain the development and commercialization rights of its Janus kinase (JAK) inhibitor, INCB18424, inside the US, while Novartis will have responsibility for the blood disorder treatment outside the US. INCB18424 is in late-stage phase-3 trials and is for the treatment of myelofibrosis, a life-threatening neoplastic condition that has no effective medical treatment.

"Novartis knows the blood disorder sector very well," said Miller Tabak analyst Les Funtleyder. The Swiss company already makes Gleevec for certain types of leukemia and Exjade for patients with chronic iron overload due to blood transfusions. "This is a real endorsement for Incyte's compound."

Novartis will pay $210 million upfront to the smaller drug company. "Terms of the deal are lucrative and perfectly in keeping with the framework Incyte had been seeking," wrote Robert W. Baird analyst Tom Russo in a note to investors.

Shares of Incyte, which has a market cap of less than $1 billion, soared 10% on the news Wednesday.

"This agreement reflects our objective to retain US rights to INCB18424 and puts us in a strong position to transition Incyte into a successful commercial company with sufficient resources to continue to advance other promising compounds in our pipeline," said Incyte Chief Executive Paul A. Friedman.

The deal also gives Novartis access to a very-early-stage oncology drug. It will have worldwide rights, while Incyte will be eligible for royalty payments on the drug. "It's a phase 1 cancer drug, so the chances of success are low," said Funtleyder.

Funtleyder added, "This is the template for Novartis' strategy over the next 12 to 18 months until the company decides whether it will acquire the other half of Alcon next year. This is in real contrast to the mega-mergers other companies like Merck (MRK) and Pfizer (PFE) are doing."

Big Pharma has closed some major deals in recent months, but Novartis has been taking a softer approach to the diversification of its business. It bought a 25% stake in the Texas-based Alcon (ACL), an eye-care company, in April. The deal gives the Swiss drugmaker the option to buy 52% more of the company in 2010. Novartis Chief Executive Daniel Vasella has been pushing a strategy of diversification over the last year. The company recently increased its investment in R&D in China by $1 billion.
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