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

AveXis Inc (NASDAQ: AVXS) announced Monday its sale to Novartis AG (ADR) (NYSE: 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 (NASDAQ: ONCE), Nightstar Therapeutics PLC (NASDAQ: NITE) or Regenxbio Inc (NASDAQ: 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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