May 8, 2019 / 11:39 PM / 15 days ago

UPDATE 3-Novartis buys dry eye drug from Takeda for up to $5.3 bln

* Acquisition bolsters Novartis' eye drug portfolio

* Takeda looks to sell $10 bln in non-core assets

* Deal for Shire-developed drug includes 400 Takeda staff (Adds details, comment from analyst)

By Takashi Umekawa and John Miller

TOKYO/ZURICH, May 9 (Reuters) - Novartis is buying dry-eye drug Xiidra from Takeda Pharmaceutical Co for up to $5.3 billion as the Swiss drugmaker refreshes its ophthalmic medicines portfolio with a potential blockbuster.

The deal, announced early on Thursday, calls for $3.4 billion up front and milestone payments up to $1.9 billion, Novartis said.

The acquisition from Takeda, which is jettisoning the medicine to reduce debt, adds to several big Novartis transactions over the last year as the Basel-based company both beefs up its portfolio and sheds non-core assets to focus on prescription drugs.

It is also the latest Japanese-European deal in the pharmaceutical sector following British drugmaker Astrazeneca's $6.9 billion agreement in January to work with Daiichi Sankyo on an experimental breast cancer drug.

Expected to close after July, the transaction includes 400 Takeda employees, which analysts from Bank Vontobel in Zurich said gives Novartis a marketing team to sell not only Xiidra but another prospective eye drug entrant, RTH258 for macular degeneration, now awaiting regulatory approval.

"Despite generic competition...we think that Xiidra is sufficiently differentiated," Vontobel analyst Stefan Schneider said. "The market (is) big enough for it to reach blockbuster status, justifying the price."

Xiidra, with $400 million in 2018 sales and approval in markets including the United States, Canada and Australia, competes with Allergan's older Restasis.

Generics maker Teva has a generic version of Restasis in Canada and is planning a launch in the United States, as is Mylan, pending resolution of legal disputes.

Xiidra has yet to get European regulatory approval.

"Following closing, we will explore the opportunity for the other territories acquired," a Novartis spokesman told Reuters.

BLOCKBUSTER BOUND?

For Takeda, this is its first divestment since its leveraged takeover of Shire in January, part of a flurry of multibillion-dollar pharmaceutical deals as drugmakers seek to buy other companies to combat expiring patents on their blockbuster medicines and renew their drug pipelines.

Japan's biggest drugmaker aims to dispose of $10 billion worth of assets to cut debt, and also said it is selling TachoSil, a surgical patch for bleeding control, to Johnson & Johnson's Ethicon for $400 million.

"We are working to strategically simplify and optimize our portfolio, while also rapidly deleveraging," Takeda CEO Christophe Weber said in a statement.

For roughly 34 million U.S. dry eye sufferers, tears fail to adequately lubricate their eyes, and the condition can become painful, potentially leading to eye damage, Novartis said.

Xiidra, which treats signs and symptoms of dry eye by controlling inflammation, won U.S. regulatory approval in 2016 under Shire's watch and was considered then its most important new medicine.

"We look forward to leveraging our well-established commercial infrastructure to bring this medicine to more patients," said Paul Hudson, who heads Novartis's drugs business, adding the company sees Xiidra "well positioned for blockbuster potential" topping $1 billion annual sales.

Novartis just shed its eyecare division Alcon into a separate publicly listed company in a $30 billion shareholder spin-off, but only after moving Alcon's prescription eye drugs into Novartis's main pharmaceuticals business.

Novartis shares were down 0.7 percent at 0812 GMT. Takeda shares closed up 0.2 percent in Tokyo. (Reporting by Takashi Umekawa in Tokyo, Silke Koltrowitz and John Miller in Zurich, Tamara Mathias and Arundhati Sarkar in Bengaluru; Editing by Sonali Paul and Emelia Sithole-Matarise)

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