Novartis-AveXis : A ‘gene’-ius deal?

Novartis AG is wagering high on gene therapy with its proposed acquisition of AveXis Inc. valued at $8.7 billion or $218 per share. The high-premium deal has been approved by both companies’ boards and is expected to be completed in mid-2018.

AveXis has a drug named AVXS-101 intended for the treatment of the neurodegenerative disease, spinal muscular atrophy. This drug was given breakthrough therapy status in the U.S. and is believed to have a sales potential of billions of dollars. And now it seems to be of particular interest to Novartis.

Novartis expects AveXis’ product line to boost its gene therapy portfolio in areas such as neuroscience and ophthalmology where there is a significant scope for rare disease treatments. Novartis recently sold its stake in its consumer health joint venture to its partner GlaxoSmithKline Plc for $13 billion. The Swiss company plans to use part of this cash to fund the AveXis transaction.

Novartis expects a slight negative impact to operating income from the AveXis deal during 2018 to 2019 as a result of R&D costs. As sales begin to pick up from 2020, the deal is expected to contribute positively to earnings and profits. Novartis is likely to explore other deals in the near future and enter into value-enhancing transactions wherever possible.

The pharmaceutical sector is witnessing many interesting deals as companies look to partner with each other to expand their portfolios and bolster their capabilities. Japanese pharma company Takeda Pharmaceuticals is looking to make a bid for London’s Shire plc. Sanofi agreed to pick up Bioverativ Inc. for more than $11 billion which too is at a high premium.

The pharma industry sees significant potential in rare diseases and gene therapy as these drugs, if viable, could bring in billions of dollars in sales along with significant growth for the companies.