(Bloomberg) -- Novartis AG agreed to buy the rights to a skin-disease drug from developers Galapagos NV and MorphoSys AG in a deal that could reach $1 billion as Chief Executive Officer Vas Narasimhan centers the Swiss drugmaker on developing innovative prescription medicines.

Novartis will pay 95 million euros ($111 million) upfront and later payments of up to 850 million euros based on the drug reaching certain regulatory, commercial and sales goals, MorphoSys said in a statement Thursday. The payments will be split 50-50 between Mechelen, Belgium-based Galapagos and Planegg, Germany-based MorphoSys.

Narasimhan needs new medicines to counter the impact of cheaper copycats on older products. The experimental antibody known as MOR106 targets a severe form of eczema and will join a portfolio for skin ailments that includes Cosentyx for psoriasis, on its way to becoming a blockbuster, and Xolair, an asthma drug also prescribed for chronic hives, bolstering Novartis’s dermatology business.

MorphoSys shares surged as much as 5.3 percent in Frankfurt trading, reaching the highest level in 18 years. Galapagos gained as much as 3.9 percent in Amsterdam. Novartis showed little change in Zurich, trading at 81.04 Swiss francs at 9:40 a.m.

Challenging Sanofi

“The financials look attractive” for the two biotech developers, Igor Kim, an analyst at Oddo BHF, wrote in a note to clients.

Novartis also agreed to pay royalties to Galapagos and MorphoSys in a range of up to low teens and low 20s as a percentage of sales. MorphoSys raised its 2018 forecasts, with a new sales range that’s about triple the old one and a smaller operating loss.

Atopic dermatitis, which MOR106 aims to treat, is a severe form of eczema that causes the skin to itch, flake, ooze or bleed. It affects an estimated 8 percent of adults and 14 percent of children worldwide, who have few treatment options, according to Novartis. The Swiss company already has an experimental medicine in mid-stage tests against the disease bought in 2016.

The deal means Novartis will be challenging Sanofi and Regeneron Pharmaceuticals Inc., whose drug Dupixent went on sale last year for atopic dermatitis. Novartis could explore the drug’s potential in other indications, a route already traveled by Sanofi and Regeneron, which tested Dupixent on nasal polyps and a form of inflammation of the esophagus, among others.

(Updates with MorphoSys, Galapagos shares in fourth paragraph.)

To contact the reporter on this story: Thomas Mulier in Geneva at tmulier@bloomberg.net

To contact the editors responsible for this story: Eric Pfanner at epfanner1@bloomberg.net, Marthe Fourcade, John J. Edwards III

©2018 Bloomberg L.P.

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