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Novartis Purchases Emeryville-based Chiron

Written by on Wednesday, November 2nd, 2005

The Chiron board has accepted a $5.1 billion purchase offer from Novartis AG. Novartis already owned 42% of Chiron’s shares, and was unhappy with the recent direction of the company, following a string of manufacturing problems, including the contamination of last year’s supply of flu vaccines. Despite these recent problems, however, Novartis saw the potential for the vaccines business. As the San Francisco Chronicle reported:

Novartis sees Chiron as a springboard into an expanding international market, not only for next-generation flu vaccines, but inoculations for other illnesses like meningitis and even cancer.

Chiron is one of the manufacturers trying to sidestep the process of producing flu vaccines in live chicken eggs, an arduous and time-consuming method that makes it hard to adapt vaccines quickly as flu viruses mutate into different strains. Chiron is developing vaccines produced in cell culture, which may produce higher yields in less time, and thus higher profits. . . .

The move by Novartis, as the San Francisco Chronicle noted, is similar to the move taken by Roche Holdings, Inc., another Swiss pharmaceutical giant, which has held a majority share in Genentech, Inc. since 1990. Genentech and Chiron are two of the three oldest companies in the biotech industry.

This acquistion highlights how Novartis has taken the unusual step of positioning itself as both a brand-name and generics pharmaceutical company, having just recently purchased generics drugs makers Hexal in Germany and Eon Labs in the U.S. In Vivo wrote about the Hexal/Eon Labs purchase as follows:

[T]he significance of this proposed transaction extends beyond the generics sector. Novartis, whose core focus remains on patented drugs, is thereby making a statement about the role of generics in a wider environment where both pricing pressures and the hurdles to proving innovation are increasing. It’s also making a statement about pharma firms’ perceived image and credibility among payers, governments and patients.

It’s not clear whether Novartis will achieve the stated objectives of this deal, either on the credibility front, or financially. The Swiss giant paid a healthy price for businesses in two large, but tricky markets. It also faces the ongoing challenge of successfully managing the very different businesses of branded and generic drugs. . . .Whatever the outcome, Novartis’s move is bold, and it demonstrates this firm’s belief that Big Pharma needs to make some radical changes to its model in order to return to historical growth rates.

It is evident that Novartis is continuing to make bold moves in the biotech/pharmaceutical industry. We will just have to wait and see whether those bold moves reap the big benefits that Novartis is counting on.

Category: Biotech Deals

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