Economy Novartis bets big on gene therapy with $8.7 billion AveXis deal

Novartis bets big on gene therapy with $8.7 billion AveXis deal

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Logo of Swiss drugmaker Novartis is seen at its branch in Schweizerhalle near Basel, Switzerland, March 29, 2018.

Novartis (NOVN.S) is moving further into gene therapy with a $8.7 billion deal for AveXis (AVXS.O) that gives the Swiss drugmaker a rare-disease treatment seen reaping billions in sales and bolsters its technology base.

The acquisition is the latest example of a surge of interest in biotech deal-making this year as large pharmaceutical companies seek promising new assets to boost their pipelines.

The $218-per-share cash deal announced on Monday represents a 72 percent premium to AveXis’s 30-day volume-weighted average stock price. The transaction is seen closing in mid-2018.

Novartis Chief Executive Vas Narasimhan, who took over on Feb. 1, is flush with cash, having just agreed to sell his company’s stake in a consumer healthcare joint venture for $13 billion to GlaxoSmithKline (GSK.L).

Narasimhan is counting on AveXis’s main drug, AVXS-101, for deadly spinal muscular atrophy (SMA), as well as the Illinois-based company’s gene therapy expertise and manufacturing capabilities, to bolster Novartis’s neuroscience business, one of the Swiss company’s main focus areas.

This is Novartis’s second notable gene therapy deal this year after it agreed to pay $105 million upfront and up to another $65 million in milestone payments for rights to Spark’s blindness treatment Luxturna outside the United States.

“We believe the medicine would have a multi-billion dollar peak sales potential,” Narasimhan said, on a conference call with reporters, of AVXS-101, which has so-called breakthrough therapy designation in the United States and is expected to be submitted to regulators this year.

“It also provides us capabilities in gene therapy,” he added. “We have a robust internal portfolio of gene therapies in ophthalmology and neuroscience in Novartis Institutes for Biomedical Research. And we look forward to using AveXis’s capabilities and technical development capabilities to be able to advance that portfolio.”

Novartis said the acquisition would slightly dent core operating income in 2018 and 2019, due to research and development costs, before it is expected to “strongly contribute” to profit and core earnings per share in 2020 as sales accelerate.

Adding promising drugs from outside to boost sales growth down the road is a strategy being pursued by several of Novartis’s rivals.

In recent months, France’s Sanofi (SASY.PA) agreed to buy U.S hemophilia specialist Bioverativ for $11.6 billion and Belgium’s Ablynx for 3.9 billion euros. Before that, U.S.-based Celgene (CELG.O) bagged cancer specialist Juno Therapeutics for $9 billion.

Japan’s Takeda Pharmaceutical (4502.T) is also considering a potential deal for London-listed Shire (SHP.L), which has a market value of about $47 billion.

Narasimhan, who said the total patient population for SMA was 23,500 people in established markets, plans to use proceeds from the GSK transaction to help pay for AveXis.

SMA is a genetic disease affecting the part of the nervous system that controls voluntary muscle movement, and commonly leads to death in young children.

Narasimhan said the transaction reflected Novartis’s strategy of hunting for new medicines and new technologies to buttress the portfolio of medicines it is developing in-house.

More acquisitions are possible as the company remains on the look-out for opportunities, he said.

“Our goal is to continue to build on our core medicines,” he said. “With the exit of the GSK stake, our intention was to re-deploy capital into our core.”

AveXis is also developing gene therapy candidates in Rett Syndrome and inherited amyotrophic lateral sclerosis (ALS).

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