Novartis Acquires AveXis In $8.70 Billion Cash Deal

Novartis Acquires AveXis In $8.70 Billion Cash Deal

Swiss drug maker Novartis AG (NYSE: NVS) has announced that it is going to acquire gene therapy company AveXis in an all cash deal totalling $8.70 billion. With this acquisition, Novartis hopes to expand its position as a global leader in neuroscience and gene therapy. As competition in pharma sector intensifies, there is a surge in interest among pharmaceutical companies to acquire valuable assets that could boost their product pipelines in the long-term. As explained below, the buyout of AveXis will have a negative impact on the company, in the short-term. However, given the long-term benefits, we are expecting the stock to rally in the week ahead. Novartis closed Monday’s trading session at $81.07.

The Zurich-based company is conducting clinical studies for the treatment of SMA (Spinal Muscular Atrophy). SMA is a neurodegenerative disease, which affects the nervous system that controls voluntary muscle movement, leading to the death of young children. Nine out of 10 babies affected by this disease are either killed before their second birthday or left dependent on ventilators.

According to the acquisition agreement, Novartis will pay $218 for every share of AveXis, representing a premium of 72% over the latters 30-day volume-weighted average stock price. Dyal Co LLC acted as the financial adviser of Novartis, while Goldman Sachs advised AveXis. The acquisition is expected to be completed in mid 2018.

Vas Narasimhan, who took over as Novartis CEO on February 1, expects AVXS-101, main SMA drug of AveXis, to boost Novartis’ neuroscience business.  AveXis’ expertise in gene therapy and acclaimed manufacturing capabilities is also expected to improve the performance of Novartis.

Novartis recently agreed to sell its stake in the consumer healthcare joint venture for $13 billion to GlaxoSmithKline. So, Novartis will not face any problem in the acquisition of the Illinois-based company.

If the acquisition gets completed according to the plan, then the operating income is expected to dip in 2018 and 2019 due to an increase in research and development costs. However, the acquisition is expected to “strongly contribute” to earnings per share and net profit in 2020.

Narasimhan estimates the total number of patients suffering from SMA to be around 23,500 in established markets.

Narasimhan said “We believe the medicine would have a multi-billion dollar peak sales potential. We’ve been regularly scanning and looking for bolt-in acquisition candidates. We have a robust internal portfolio of gene therapies in ophthalmology and neuroscience in Novartis Institutes for Biomedical Research. And we look forward to using AveXis’s capabilities and technical development capabilities to be able to advance that portfolio.”

AveXis is also working on gene therapy drugs for rare diseases such as Rett Syndrome and inherited amyotrophic lateral sclerosis.  

Novartis revealed that the acquisition deal has received unanimous approval from the boards of both companies. This is the second noteworthy gene therapy deal of Novartis in 2018. Earlier this year, the company agreed to pay $105 million up front for the rights (outside the US) to Spark’s blindness treatment Luxturna. Novartis has also agreed to pay up to $65 million upon completion of certain milestones.

The stock is trading above the major support level of 80. Furthermore, the MACD histogram reading has turned positive. An impending uptrend is also confirmed by the rising Williams Percentage Range indicator. Therefore, an uptrend can be technically expected in the stock.

Novartis - Technical Analysis - 10th April 2018

As a binary options trader, we believe that investing in a call option would enable us to gain from the uptrend. However, to minimise risk, we prefer to invest only when the stock is trading near $80. Furthermore, we would certainly look for an option contract which remains valid for a period of one week.


Disclaimer: The trading analysis offered here is our opinion. It is not provided as trading advice, merely an indication of our trading plan. We cannot guarantee success and we encourage traders to incorporate a strong money management strategy to limit losses. Please use this article as part of your own research before formulating strategies prior to trading.

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