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A technician handles a sample at a Prenetics Inc. laboratory in Hong Kong, China, on Friday, Jan. 26, 2018. Prenetics, a Hong Kong-based biotechnology company, sold more than 100,000 DNA testing kits last year, five times more than in 2016, and aims to double sales volumes this year as it starts selling directly to consumers as well as insurers.

(bloomberg)

(Bloomberg) -- Novartis AG agreed to acquire AveXis Inc. for $8.7 billion to gain a promising drug to treat a rare disease that afflicts infants, hastening a shift toward gene therapy and precision medicines.

Shareholders of the Bannockburn, Illinois-based company will receive $218 a share in cash in a tender offer, Novartis said in a statement Monday. The price is 88 percent above where AveXis closed Friday.

The transaction is Novartis’s second deal to advance in gene therapy this year -- and the first led by new Chief Executive Officer Vas Narasimhan. The Swiss drugmaker is redeploying some of the $13 billion in proceeds from the sale of its stake in a consumer-health joint venture to partner GlaxoSmithKline Plc to gain more firepower in prescription medicines before some of its existing best-sellers lose patent protection.

“Our goal is to build on a core of medicines as a medicines company powered by data and digital,” Narasimhan said in a conference call with investors. “A deal like this fits right in that sweet spot.”

AveXis is developing a product to treat spinal muscular atrophy, an inherited neurodegenerative disease caused by a defect in a single gene, which shows the potential to become a blockbuster, according to Novartis.

Rare Diseases

AveXis soared 87 percent to $216.50 at 6:10 a.m. New York time in trading before U.S. exchanges opened. Novartis shares rose 0.7 percent to 78.24 Swiss francs in Zurich trading. Roche Holding AG and Biogen Inc. are other drugmakers that may be interested in acquiring the U.S. company, Biren Amin, an analyst for Jefferies in New York, said in a report.

In buying AveXis, the Swiss drugmaker is also gaining a product to address a rare disease. Like gene therapies, such treatments command high prices that have sparked interest even from unexpected players in the industry. Last month, Takeda Pharmaceutical Co. said it was considering a bid for Shire Plc, a leader in rare diseases, which would rank as the Japanese company’s biggest takeover ever.

AveXis also has valuable manufacturing and research capabilities that would give its Swiss buyer a platform alongside its CAR-T research in cancer “to advance a growing pipeline of gene therapies across therapeutic areas,” according to Narasimhan.

Used Once

Novartis’s Kymriah won U.S. regulatory approval in August, making it the first drug approved from a new class of treatments called CAR-Ts that have been heralded as a promising approach to treating and potentially curing cancers as well as genetic conditions such as blindness. Like other gene therapies, it’s used only once on a patient, and thus carries a high price tag -- $475,000, in the case of Kymriah.

The acquisition was unanimously approved by the boards of both companies. Novartis will continue to assess potential options for bolt-on acquisitions to build its portfolio, Narasimhan said.

AVXS-101 helped a small group of babies with spinal muscular atrophy hit development milestones at a rate previously unseen, a study showed in November. The first medication for the disease, Biogen Inc.’s Spinraza, won approval less than a year ago. Babies with the most severe form of the disease typically die before age two.

‘Strategic Sense’

AveXis expects to file in the second half of this year for approval from U.S. regulators, with marketing of AVXS-101 expected in 2019, according to Novartis’s statement.

“This acquisition makes strategic sense,” Stefan Schneider, an analyst at Vontobel AG in Zurich, wrote in a note to clients. Novartis’s drugs Gilenya and Afinitor will probably face competition from cheaper generics in 2019 -- about the same time that AveXis’s first experimental drug may reach the market, Schneider said.

AveXis, incorporated in 2010, sold shares in an initial public offering in 2016 at $20 a share. Chief Executive Officer Sean Nolan is a former executive at InterMune Inc. and Ovation Pharmaceuticals Inc.

The first gene therapy approved in Western Europe, UniQure NV’s Glybera, turned out to be a flop. The company withdrew it from the market last year and is shifting its focus to hemophilia treatments.

(Updates with AveXis shares in sixth paragraph.)

--With assistance from Jeff Sutherland and Albertina Torsoli

To contact the reporters on this story: Naomi Kresge in Berlin at nkresge@bloomberg.net, Phil Serafino in Paris at pserafino@bloomberg.net.

To contact the editors responsible for this story: Phil Serafino at pserafino@bloomberg.net, Marthe Fourcade, John Lauerman

©2018 Bloomberg L.P.

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