Novartis to Buy Genoptix - Analyst Blog

Novartis (NVS) recently announced that it has entered into a definitive agreement to acquire California based diagnostic laboratory, Genoptix Inc. (GXDX), for a cash consideration of $470 million. Genoptix is a specialist in providing personalized diagnostic services to community-based hematologists and oncologists.

Genoptix specializes in the diagnosis of cancers in bone marrow, blood and lymph nodes. The acquisition will be a good strategic fit for Novartis' Molecular Diagnostics business, in particular the companion diagnostic programs, especially oncology.

Novartis has offered to pay $25 per share for all outstanding shares of common stock of Genoptix, representing a total equity value to $470 million and an enterprise value of $330 million.

The offer price represents a premium of 27% over Genoptix' closing price of $19.76 on January 21, 2011. The board of directors of Genoptix has approved the deal and will recommend shareholders to accept the $25 per share offer. The transaction is expected to close in the first half of 2011.

Genoptix generated sales of $184 million in 2009.

Novartis also recently announced that it gained approval in Switzerland and Australia for Gilenya for the first-line treatment of relapsing-remitting multiple sclerosis (RRMS) patients.

Gilenya was also recommended for approval in the European Union by the European Medicines Agency's (EMEA) Committee for Medicinal Products for Human Use (CHMP) for the treatment of patients with highly active RRMS despite treatment with beta interferon, or in patients with rapidly evolving severe RRMS. Gilenya is already marketed for the first-line treatment of relapsing forms of multiple sclerosis in the US.

Our Recommendation

Currently, we have a Neutral recommendation on Novartis, which is supported by a Zacks #3 Rank. We are pleased with Novartis' wide range of products and its efforts to diversify further as is evident by the recent acquisition of a majority stake in Alcon (ACL).

Novartis is looking to acquire the remaining stake in the eye-care company.  However, we prefer to remain on the sidelines due to the imminent patent cliff faced by the company as a number of Novartis' drugs will face generic competition between 2011 and 2015.