Novartis puts a €2.7bn BET on MorphoSys

Novartis’s €2.7bn acquisition of MorphoSys will give the Swiss group ownership of the BET inhibitor pelabresib, a potential combo partner for the myelofibrosis drug Jakafi to which Novartis has rights, at a price that doesn’t break the bank. That’s a reasonable takeover rationale – up to a point.

The big unknown is whether pelabresib is approvable and, if so, in how broad a population. The project’s Manifest-2 study, presented at last year’s ASH meeting, scored only a partial win, and while doctors have been upbeat the regulators’ views can only be guessed at. Novartis clearly thinks that at MorphoSys’s current valuation the risk is worth taking.

The long-term chart does make MorphoSys look like a bargain: three years ago the target company’s stock was changing hands at double the €68 per share that Novartis has put up. That was before several high-profile R&D disappointments, of which perhaps the Alzheimer’s project gantenerumab was the most prominent.

Turbulent

As such, MorphoSys should count its blessings. Given the company’s turbulent history the fact a takeover has happened at all is a result, even if the price is lower than some will have hoped for in the heady days of the biotech bull market.

MorphoSys started out with a fee-for-service antibody discovery business – Novartis itself was an early customer – and only later took the plunge into in-house drug development.

But the going here was tough: the once highly touted anti-CD38 MAb MOR202/felzartamab failed to progress as Darzalex devoured this market, and MorphoSys’s key regulatory success, the anti-CD19 MAb Monjuvi for lymphoma, always looked like it was going to play second fiddle to Car-T therapies and an emerging class of anti-CD20 T-cell engagers.

Perhaps this prompted MorphoSys to strike an unusual deal in 2021, where with the backing of Royalty Pharma it mortgaged a number of partnered assets and acquired Constellation Pharmaceuticals for $1.7bn. With Constellation came pelabresib, the BET inhibitor that Novartis now reckons can become part of a Jakafi combo in front-line meylofibrosis.

Jakafi, a drug originated by Incyte, is a key front-line myelofibrosis standard, but its patents could start expiring after 2028. The addition of pelabresib could protect and extend this franchise, as long as regulators and doctors are convinced of the added benefit.

That’s the big question. The Manifest-2 trial at ASH showed the combo beating Jakafi alone on spleen volume reduction, but crucially this is just a marker of the disease; the key secondary endpoint of ≥50% symptom score improvement, which MorphoSys itself had earlier insisted was key for approval, was missed, though an amended version of it arguably looked positive.

What happened after ASH is interesting: while the markets received the toplining of Manifest-2 very negatively, once the results were presented, revealing nothing new of note, MorphoSys shares more than made up the losses. Investigators and key opinion leaders talked up the benefit, MorphoSys reiterated its 2024 filing plans, and other BET inhibitor players struggled.

This is what Novartis has now bought into. The Swiss group recently outlined its deal strategy – a focus on key therapy areas, and bolt-ons worth $5bn or less – and MorphoSys falls right into this sweet spot.

And Incyte?

If pelabresib works out then the resulting franchise extension will be great not only for Novartis but also for Jakafi’s originator, Incyte. But there’s one way in which Incyte could suffer: that company is developing its own BET inhibitor, INCB057643, which now faces a significant competitor.

A separate part of the deal has Incyte taking Monjuvi off MorphoSys/Novartis’s hands. Incyte licensed Monjuvi from MorphoSys for a scarcely believable $750m in 2020 but, as Novartis sells the CD19-directed Kymriah, owning Monjuvi too could trigger antitrust issues. Incyte is paying $25m for full rights, and absolving itself of all milestone obligations; the price points to Monjuvi’s irrelevance.

That’s now a side issue, and the MorphoSys acquisition is really all about pelabresib. Before handing over €2.7bn Novartis will have scrutinised Manifest-2 at length, consulted KOLs, and decided that approval was indeed likely.