Novo Nordisk Acquisition of Conova
By: Koel Jelfs, Ivar Johann Lassesen, Stephanie George, Louis Matovu
Overview of the deal
Novo Nordisk, the Danish multinational pharmaceutical company acquired Corvidia Therapeutics for an upfront payment of $725m from seller Medimmune ventures. Headquartered in Denmark, Novo Nordisk's core competencies are in the treatment of diabetes and obesity, they were, in fact, founded in the merging of two smaller Danish companies producing insulin for diabetes.
Corvidia is a boston based spin-out of AstraZeneca and specialises in research and development of transformative therapies for cardio-renal diseases. Their lead candidate at Phase II clinical trials is ziltivekimab, a monoclonal antibody which inhibits Interleukin-6. (IL)-6 is the pro inflammatory cytokine produced by a variety of cell types, including lymphocytes, monocytes, and fibroblasts. Inhibition of (IL-6) reduces risk of major adverse cardiovascular events in chronic kidney disease in patients with atheroscelerotic cardiovascular disease and inflammation. Data from the phase 2a trial of Ziltivekimab indicated substantially reduced markers of inflammation without adversely affecting lipoprotein lipids, neutrophils or platelets.
The acquisition supports Novo Nordisk’s ambition to diversify its portfolio into cardiovascular, a disease that is closely linked to their core therapeutic areas of diabetes and obesity; 70% of diabetes patients die from atherosclerotic CVD and most recent in-house R&D of Novo has been in conducting CV outcomes trials with it’s diabetes drugs semaglutide and liraglutide. NN’s ambition is for at least one product to be launched between 2024-2028 targeting atherosclerotic cardiovascular disease or heart failure making Corvidia one of their two bets alongside acquisition of mid-stage Staten biotechnology.
There are currently no approved therapies for reducing major adverse cardiovascular events using target anti-inflammatory modalities, and so there is a patient population (An estimated 5 million patients with ASCVD have CKD and inflammation) with a huge unmet need. Novo Nordisk has experience in conducting cardiovascular outcomes trials and thus the infrastructure to accelerate development of ziltivekimab, andit’s potential to become a best and first-in-class treatment.
Company Details: Novo Nordisk
Founded in 1923, headquartered in Bagsværd, Denmark
CEO: Lars Fruergaard Jørgensen
Number of employees: 44,326
Market Cap: 988.517B DKK
EV: 955.68B DKK
LTM Revenue: 126.575B DKK
LTM EBITDA: 57.045B DKK
LTM EV/Revenue: 7.55
LTM EV/EBITDA: 16.75
Company Details: Corvidia Therapeutics
Founded in 2014, headquartered in Massachusetts, US
CEO: Marc de Garidel
Number of employees: 25
This Acquisition will give Novo Nordisk immediate control over the drug trialling process for Ziltivekimab which is looking promising at present, passing half the stages required for commercial distribution. The drug is covering a gap in the market, which as it is, comprises of a fully human monoclonal antibody which is directed against Interleukin-6 and this has previously not been addressed by other medications. The current market is heavily saturated by statins and stents but the research from Corvidia and consequent acquisition by Novo Nordisk has been received positively as an 11.3% share price increase of Novo Nordisk over this year has been observed- compared to the average 5.2% industry decline.
Novo Nordisk has the equipment and staffing to accelerate the trialling of this pivotal medication which is consequently reducing costs for outsourcing. As the deal will only be fully paid at the end of the clinical trials in 2021, the upfront cost of $725M in cash from Novo Nordisk means there will be available cash to propel the drug research to ensure successful trialling.
Moreover, the Corvidia headquarters is based in Massachusetts where there are higher rates of obesity and cardiovascular fatality; Novo Nordisk will have access to this larger client base and have the potential to increase the consumer relationship timeframe with existing customers as successful distribution of Ziltivekimab will mean treatment for diabetes can be offered for longer and more severe cases. This may also see a short term increase in revenue as their client base increases across the United States. However the healthcare industry in the US is heavily crowded and therefore for the acquisition of Corvidia to be financially beneficial, Novo Nordisk will be heavily reliant on a successful outcome of the drug trialling process and further to this, Novo Nordisk will have to compete with pharmaceutical giants such as Astrazeneca.
One long-term upside is the increase in revenues and the size of the tangible accessible market (TAM). Simply, through acquiring Corvidia, the TAM of Novo Nordisk’s business has incorporated the market for CVD therapeutic remedies. Indeed, the Cardiovascular Device market is estimated to be $69bn by 2026 with a CAGR of 6.8%. More crudely too, the market size for Novo Nordisk’s treatments for diabetes and obesity will also be increased though greater survival rates of diabetics against CVD. Assuming that the increased revenues created through the aforementioned means prompts further increases in RnD (and thus a better CVD treatment), an increase in the life expectancy of diabetics will increase the demand for diabetic treatments. In turn, this will further drive revenue growth over the long-term.
Another potential upside in the longer-term is risk mitigation once they release the new product (targeting between 2024-2028). Through Novo Nordisk’s acquisition of Corvidia, they will diversify the range of products that they offer. Instead of only offering products involved with the direct treatment of diabetes and obesity, the conglomerate will also be producing treatments for CVD. While demand for both of these product areas is very un-cyclical, Novo Nordisk could potentially face issues regarding competition entering the industry, or changes to their costs (such as increases in regulation, or raw materials becoming more expensive). It is these risks that will be minimised through the diversification of their product. Should CVD become less profitable, then they still have their initial venture as a reliable revenue stream, and vice versa.
Although this is by no means an exhaustive summation of the long-term upsides, the potential technical economies of scale are certainly significant. Due to the notable scientific overlap between the two companies, RnD expenses (a very large cost in the pharmaceutical industry) can be cut through the sharing of expertise and data. There will also be a degree to which economies of scale apply in the manufacturing and distribution processes too. This, alongside RnD costs, currently accounts for 67% of Novo Nordisk’s costs Any reduction here will significantly increase their bottom line in the long-term.
Risks and uncertainties
One of the key risks associated with this deal is the uncertainty around Corvidia’s ziltivekimab - a fully human monoclonal antibody directed against Interleukin-6 (IL-6) currently in phase 2B clinical trials. If effective, the antibody may significantly reduce the risk of major adverse cardiovascular events (MACE) in chronic kidney disease patients with atherosclerotic cardiovascular disease and inflammation, and could potentially become the world’s first approved therapy for reducing MACE using a targeted anti-inflammatory modality. Novo Nordisk Executive Vice President and Chief Science Officer Mads Krogsgaard Thomsen has emphasized the potential ziltivekimab holds in becoming a best-in-class treatment for cardiovascular disease, with Corvidia CEO Marc de Garidel highlighting Novo Nordisk’s strong infrastructure capabilities to help accelerate its development.
Although the potential upsides from this transaction are clear, there is still the question of whether the firms will be able to fully integrate in order to realize these benefits. While Novo Nordisk is no stranger to conducting cardiovascular outcome trials and has strong expertise in the development of drugs and antibodies, Ziltivekimab will be its first late-stage cardiovascular disease treatment. This risk has been duly noted by Novo Nordisk, who intend to hire key personnel from Corvidia to ensure a smooth transition of data and expertise. Considering the deal is centered around the antibody candidate, there is uncertainty around whether ziltivekimab will be able to live up to the managements’ lofty ambitions and meet stringent regulatory standards.
Notably, Swiss pharmaceutical company Norvatis ran a 10,000-patient trial in 2018 for a similar antibody canakinumab, which failed to show benefit across all patients. The antibody was studied and developed for six years only to be denied approval by the FDA, emphasizing the significant risk in the development of such treatments. Furthermore, with Novo Nordisk funding the upfront $725m payment through its financial reserves, R&D expenditure across other areas may see a reduction, although the company’s financial outlook for the year and share buyback programme will be unaffected.