Novartis inks $8.7B AveXis buyout to build gene therapy unit

Novartis
Novartis' headquarters. (Novartis)

Novartis has struck an $8.7 billion deal to buy AveXis. The move sees newly minted Novartis CEO Vas Narasimhan, M.D., pay a hefty premium to establish the company as a frontrunner in the emerging gene therapy sector.

Closing the all-cash deal will give Novartis control of a phase 3 gene therapy treatment of the rare neuromuscular disorder spinal muscular atrophy (SMA), plus the resources AveXis built up to support the lead candidate and discover future prospects. Novartis will emerge from the takeover as a leader in CAR-T and AAV9 gene therapies, two of the most promising fields in biotech.

The Swiss Big Pharma is betting big to secure that position. Novartis’ $218-a-share offer, which was approved unanimously by both boards, represents an 88% premium over AveXis’ closing price on Friday. That closing price was up more than 65% on 12 months earlier.

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AveXis’ rise was triggered by a series of increasingly encouraging data drops on lead SMA candidate AVXS-101. Most of the participants in a small, early-phase trial of the SMN1 gene therapy are talking and sitting unassisted. Seeing the potential of the one-shot treatment, regulators have presented AveXis with a truncated path to market, positioning it to file for FDA approval later this year if data from a 15-patient pivotal study look good.

SMA patients now have a treatment option in the form of Biogen’s Spinraza but data on AVX-101, plus the benefits of a one-time gene therapy over ongoing dosing, suggest AveXis’ product may be preferable for some people. Novartis thinks the drug can generate peak annual sales in the billions.

RELATED: Chasing Biogen, AveXis posts improved gene therapy data

That is the near-term motivation for Novartis’ big bid. In the longer term, AveXis will give Novartis a stronghold in AAV9 gene therapies. Novartis indicated its interest in one-shot gene therapies at the start of the year when it licensed Spark Therapeutics’ Luxturna. The AveXis takeover gives Novartis an AAV9 gene therapy manufacturing operation, R&D capabilities and pipeline of prospects to support its ambition to claim a sizable slice of the sector.

The nascent nature of the field and experimental status of AveXis‘ lead candidate means the bet may blow up in Novartis’ face, leaving it with an $8.7 billion albatross. Narasimhan’s willingness to take that risk suggests Novartis will diverge from past practices under his leadership.

At a time when many in Big Pharma are grumbling about inflated premiums, leaving leading biotechs to snaffle hot technologies in big-ticket deals, Narasimhan has paid a whopping sum for AveXis. Narasimhan's decisiveness has put Novartis in pole position to acquire a company that could interest several of its peers.

"There's been speculation that Biogen may need to evaluate Avexis at some point and may be this will be a trigger that forces it to do so. Biogen has indicated it has a SMA gene therapy in preclinical development, and plans to move into the clinic in 2018. Additionally, we've always felt Roche could have an interest in AveXis given its development program with RG7916 (another oral administered SMN2 splicing modifier) and the fact that AveXis chairman Dan Welch was the CEO of Intermune when Roche purchased Intermune in 2014," Jefferies analysts wrote in a note to investors.

If Narasimhan's bet pays off, Novartis will be uniquely well positioned to address cancer indications using CAR-Ts and treat neurological disorders with gene therapies.