Expanding its position in the gene therapy and neuroscience space, Swiss pharmaceutical company Novartis AG (NVS, Financial) announced on Monday it is buying AveXis Inc. (AVXS, Financial) for $8.7 billion in cash.
According to the terms of the deal, Novartis will pay $218 per share for the Bannockburn, Illinois-based gene therapy company, a 72% premium to AveXis’ 30-day volume-weighted stock price.
The company’s main target in this acquisition is AveXis’ lead drug, AVXS-101, which has the potential to become the first one-time gene replacement therapy for spinal muscular atrophy. According to the Muscular Dystrophy Association, SMA is a genetic disease that affects the part of the nervous system that controls voluntary muscle movement. It is the No. 1 genetic cause of death for infants.
In a statement, Novartis CEO Vas Narasimhan said he sees the acquisition as an “extraordinary opportunity to transform the care of SMA.”
“We believe AVXS-101 could create a lifetime of possibilities for the children and families impacted by this devastating condition,” he said. “The acquisition would also accelerate our strategy to pursue high-efficacy, first-in-class therapies and broaden our leadership in neuroscience.”
According to Novartis, the drug has breakthrough therapy designation in the U.S., prime designation in Europe and Sakigake in Japan. It is expected to generate billions in annual sales.
If the deal is approved, the company would also gain a valuable gene therapy platform and manufacturing capabilities that, according to Novartis Pharmaceuticals CEO Paul Hudson, would “support [its] ambition to be a leader in neurodegenerative diseases.”
Novartis said the acquisition is expected to dent core operating income in 2018 and 2019 due to research and development costs, but, as sales accelerate, is projected to “strongly contribute” to profit and core earnings per share in 2020.
In a separate statement, AveXis President and CEO Sean Nolan expressed his excitement for the deal, saying it will help the company serve people with “rare and life-threatening neurological diseases such as SMA, Rett syndrome and genetic ALS.”
“With worldwide reach and extensive resources, Novartis should expedite our shared vision of bringing gene therapy to these patient communities across the globe as quickly and safely as possible,” he said.
According to CNBC, Novartis plans to use some of the proceeds from the sale of its stake in a consumer health care joint venture to GlaxoSmithKline (GSK, Financial) to fund the acquisition. It sold the stake for $13 billion in late March.
The deal is expected to close in mid-2018.
Following the announcement, Novartis’ American-listed shares rose 0.81% to $80.85 Monday morning. AveXis’ shares jumped over 70% to $205.28.
Year to date, GuruFocus estimates Novartis’ stock has declined 4%, while AveXis has gained 86%.
Disclosure: No positions.
