Why The Novartis-AveXis Deal Is Good News For The Gene Therapy Space

AveXis Inc AVXS announced Monday its sale to Novartis AG (ADR) NVS for $8.7 billion, or $218 per share.

The deal didn’t come as a complete surprise.

The Rating

Chardan analyst Gbola Amusa maintained a Buy rating on AveXis and increased the price target from $140 to $218.

The Thesis

Amusa previously predicted AveXis’ acquisition on the basis of faith in the firm’s lead candidate, AVXS-101, the analyst said. Separately, he anticipated Novartis’ emergence as a consolidator in the AAV-based gene therapy space.

The combined prophecies are expected to merge with the deal’s closure in mid-2018, and Amusa forecast a couple implications for the industry.

For one, Novartis will have proven its position as a consolidator in genetic medicine, the analyst said. 

“We expect Novartis to acquire or partner further in AAV-based ophthalmology gene therapy," Amusa said in a Monday note. He mentioned Spark Therapeutics Inc ONCE, Nightstar Therapeutics PLC NITE or Regenxbio Inc RGNX as potential targets.

At the same time, the process and final price to secure AveXis is considered an industry positive.

“An 88-percent premium to us suggests other parties were bidding on AveXis, which to us means unfulfilled demand for GT assets,” the analyst said. “We believe the price paid also reflects a supportive view by Novartis on the risk of systemic toxicity for AAV-based gene therapies.”

Novartis plans to issue a tender offer by April 17.

Price Action

AveXis popped after hours on the news and, at time of publication, traded up 82 percent off Friday’s close to $209.60 a share.

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