How the European Commission's Approval of Entresto Affects Novartis
European Commission approval
The European Commission’s (or EC) approval of Entresto (sacubitril/valsartan) on November 24, 2015, for symptomatic chronic heart failure with reduced ejection fraction (or HFrEF) is considered to be a major milestone for Novartis (NVS). Entresto is the first angiotensin receptor neprilysin inhibitor therapy (or ARNI) to be approved in Europe. It targets heart failure, which affects approximately 15 million people in Europe.
Market response
Despite approval of Entresto by the EC and the subsequent expansion of geographic markets, Novartis’s share price dropped from $86.6 on November 23 to $86.4 on November 24. The decline in share price began on November 20 after the company issued the press release where it has agreed to pay $390 million as a settlement to the federal government as well as state Medicaid programs. This payment is related to allegations made against the company regarding kickbacks paid by Novartis to three specialty pharmacies since 2004. Novartis is charged for increasing its drug sales through these pharmacies who influenced patients to opt for prescription refills of the company’s drugs.
Novartis share price has also suffered as Genmab announced that it would halt the Phase 3 study of Arzerra (Ofatumumab) for follicular lymphoma. Genmab and Novartis have been marketing Arzerra through a collaboration agreement.
Though Amgen’s (AMGN) heart failure drug, Corlanor, directly competes with Entresto, the company’s share price remained mostly unaffected by the latter’s EC approval. This can be attributed to the positive impact from the EC’s approval of Amgen’s Blincyto on November 24, 2015. On November 25, Amgen also submitted the first biosimilar biologics license application (or BLA) for Humira to the U.S. Food and Drug Administration (or FDA).
Both Regeneron (REGN) and Sanofi (SNY), however, witnessed a drop in share price on November 24, 2015. An increase in competition for its cardiovascular drug, Praluent, could be one of the major reasons for the share price decline.
Investors can invest in Entresto through Novartis, yet reduce excessive exposure to company-specific risks by investing in the Pharmaceutical ETF (PPH). Novartis accounts for about 7.1% of PPH’s total holdings.
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