Why AveXis Inc(NASDAQ: AVXS) stock turned bullish

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AveXis Inc(NASDAQ: AVXS) stock rallied over 81% on April 9th, 2018. The group was being acquired by Novartis AG’s for $8.7 billion. Novartis has agreed to pay $218 a share for AveXis (AVXS), which is an 88% premium above AveXis’ closing price on Friday. AveXis has the highest-profile treatment in the field with its gene therapy for the most severe form of spinal muscular atrophy. That inherited condition, known as SMA 1, affects an estimated 250 to 300 babies in the U.S. annually and usually lead to death by age 2. The disease is a leading cause of infant mortality. Novartis is paying a high price considering that the AveXis treatment, while showing very promising results in an early-stage clinical trial involving 15 babies, has not yet been approved by the Food and Drug Administration. Even if the treatment is approved, there are questions about pricing, which could be over $1 million per patient, as well as the competitive landscape, with Biogen (BIIB) already on the market with a competing SMA treatment, Spinraza. The Biogen drug needs to be taken on a regular basis every four months after the initial doses, while the AveXis gene therapy is designed to be administered in a single dose.

Moreover, the analyst are bullish on AVXS and have estimated AveXis’s potential revenue reaching around $1 billion annually by the early 2020s, assuming FDA approval of its SMA treatment. An upbeat Novartis sees the deal as being “significantly accretive” to core earnings per share in 2020.

As per the analysts at Jefferies Group LLC, the 88 percent premium Novartis is paying offers a windfall for shareholders including AveXis executives, and the company may also draw interest from Biogen Inc. and Roche Holding AG.

Additionaly, AveXis is starting a clinical trial for its gene therapy in a less severe form of spinal muscular atrophy, SMA2, which is a potentially larger market than SMA 1. There have been concerns lately about replacement gene therapy because of the potential side effects of the treatments, which use neutered viruses to delivery healthy genes to cells. The treatments are designed to stimulate the production of proteins otherwise absent or present in minute levels in patients with the inherited diseases.

Meanwhile, one of the biggest winners in the strong group of gene therapy companies is RegenxBio. Regenex receives $180 million in payments from AveXis because of a change-of-control clause under an amended license agreement that the two companies signed earlier this year. Regenex has 32 million shares outstanding, giving it a current market value of $1 billion.


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