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A Shot in the Arm for Novartis' Pipeline

By Brian Orelli, PhD - Updated Apr 5, 2017 at 7:51PM

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The company picks up the rights to a vaccine that fights a virus.

Vaccines may not be as sexy as cures for major diseases, but they're still big business for big pharma.

On Monday, Novartis (NYSE:NVS) added to its collection a license for privately held AlphaVax's cytomegalovirus (CMV) vaccine for $20 million, plus potential milestone payments. CMV, a member of the herpes virus family, affects people with weakened immune systems, like infants and people with AIDS, and can lead to several things, such as gastrointestinal disease in adults or mental retardation in newborns.

Novartis will take over the development of the vaccine next year when it enters phase 2 trials. At the end of that, Novartis will have an option to buy 4 million shares in AlphaVax. Not a big surprise that the company threw in the option, given its propensity to own parts of companies -- Roche and Alcon (NYSE:ACL), for example.

The $20 million up front seems like a cheap bet for Novartis, given that the potential for vaccines is pretty large. Wyeth's (NYSE:WYE) pneumonia vaccine, Prevnar, had $2.1 billion in sales during the first nine months of the year, and GlaxoSmithKline's (NYSE:GSK) combination vaccines Infanrix and Pediarix registered $952 million in sales over that time.

While the risk of failure for vaccines during clinical trials is probably lower than that of drugs that treat diseases, vaccines aren't immune to failure. Last week, for instance, Merck (NYSE:MRK) dropped its support for Dynavax Technologies' hepatitis C vaccine after the Food and Drug Administration put a clinical hold on the trials because of the occurrence of a rare blood vessel disease earlier this year.

Vaccines are unsung heroes of pharmaceutical companies. They contribute nicely to the revenue stream: Novartis' vaccines and diagnostic business posted a 20% year-over-year increase in revenue to $1.27 billion during the first nine months of the year, for instance. But, because they prevent diseases rather than cure them, vaccines aren't as sexy and don't garner as much attention as they probably should. It might be time for Foolish investors to take a second look.

Glaxo is an Income Investor recommendation. To see how dividend-paying stocks can offer both secure income and the opportunity for growth, take a free look at this newsletter with a 30-day trial.

Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. The Fool has a disclosure policy.

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Novartis AG Stock Quote
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