AveXis’ Share Price Soars with Acquisition Announcement

Global big pharma company Novartis (NYSE:NVS) started the week off on the right foot with its announced acquisition to acquire gene therapy company AveXis (NASDAQ:AVXS) on Monday (April 6).

The acquisition, worth $8.7 billion was unanimously approved by board of directors of both companies and is expected to complete mid-2018. Novartis will use AveXis to improve its position as a gene therapy and neuroscience leader.

As a result, share prices of Novartis responded favorably, increasing 81.57 percent on Monday.

AveXis’s lead candidate AVXS-101 in development to treat spinal muscular atrophy types (SMA) 1, 2, and 3. The release states that AVXS-101 has already been granted orphan drug designation by the US Food and Drug Administration (FDA) and the type 1 received fast track designation—which is the leading genetic cause of infant mortality. The candidate is meant to replace the defective SMN1 gene which is the cause of SMA.

“The commitment, drive and expertise of the entire AveXis team has created significant stockholder value, and we are pleased that Novartis recognizes that value in the potential of AVXS-101, our first in class manufacturing capabilities and our gene therapy pipeline,” Sean Nolan, AveXis CEO said in the press release.

As part of the deal, Novartis has formed an acquisition subsidiary called Novartis AM Merger Corporation and will start a tender offer by April 17, 2018 to  purchase all of the issued and outstanding shares of AveXis share for $218.

Although Novartis is  headquartered in Switzerland, the company boasts a diversified portfolio of biosimilars, generic, and eye care drugs with products sold in 155 countries. CEO Paul Hudson said strengthening the company’s position in devastating pediatric neurological diseases such as SMA align with its “heritage in neuroscience.”

Investor takeaway

This acquisition gave AveXis investors a huge boost on Monday from Friday’s share price of $115.92 to $210.46 as of market close Monday—representing a 81.57 percent increase. Novartis’s share price stayed steady with just a 0.13 percent decrease.

From the six analysts that released financial reports, five issued a “hold” rating while one issued a “buy” rating. Mizuho Securities analyst Difei Yang said in his report the firm believes the acquisition offer gives AveXis a proper value, explaining why the analyst downgraded to a hold.

Gbola Amusa, an analyst with Chardan, increased the price target for the company from $140 to $218 and said, “an 88-percent premium to us suggests other parties were bidding on AveXis, which to us means unfulfilled demand for GT assets.”

In terms of the acquisition impacting financial results, Novartis anticipates core operating income in 2018 and 2019 will be affected negatively while the income in 2020 will be positive to the same, with an increase in sales. Investors can look forward to the mid-2018 completion of the acquisition along with future news from both companies updating AveXis’s pipeline details.

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Securities Disclosure: I, Gabrielle Lakusta, hold no direct investment interest in any company mentioned in this article.