Novartis Wager on AveXis Shows Rare Diseases Command Mega Prices

(Bloomberg) -- Novartis AG’s $8.7 billion acquisition of AveXis Inc. is Big Pharma’s latest bet that rare-disease treatments are worth the money.

Novartis will get an experimental drug for a rare, often-fatal disease in children at time when competition is picking up to get therapies for uncommon illnesses: Takeda Pharmaceutical Co. is pursuing Shire Plc in a deal that could approach $50 billion, Sanofi agreed in January to a 64 percent premium in its $11.6 billion deal for Bioverativ Inc. and Johnson & Johnson outmaneuvered Sanofi to rope in Actelion last year for $30 billion.

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, according to analysts at Jefferies Group LLC. Takeda could also be forced to fend off other suitors for Shire. All are vying for therapies with potential to deliver returns on billions of development dollars -- when they work -- like Actelion’s treatments for a rare type of blood pressure.

“You can’t just come and say, ‘My product works slightly better than what’s on the market, please pay me,”’ said Michael Leuchten, a UBS AG analyst in London. “You need to look for something more disruptive.”

Correcting the Cause

The payoff can be significant. AveXis’s most advanced experimental drug is for an uncommon disorder called spinal muscular atrophy that’s caused by a defect in a unit of DNA code. In severe cases, it can kill babies before their second birthday. Less than a year ago, Biogen won approval for a treatment called Spinraza that costs $750,000 in the first year of therapy and $375,000 each year thereafter.

Unlike Biogen’s therapy, AveXis’s would repair the gene that’s the cause of the disease with a single treatment. Novartis said it would be priced according to value, noting that the disease currently costs the U.S. medical system about $150,000 per year, per patient.

The AveXis therapy, AVXS-101, is still in clinical trials. The company expects to seek U.S. regulatory approval in the second half of this year, with marketing expected in 2019, Novartis said in a statement. Roche declined to comment on potential interest in AveXis, while Cambridge, Massachusetts-based Biogen didn’t return a call.

Many rare diseases are genetic in nature, and the AveXis deal is Novartis’s second in gene therapy this year. Vas Narasimhan, who rose to chief executive officer in February after heading up drug research, is using some of the $13 billion from selling its stake in a consumer-health joint venture to partner GlaxoSmithKline Plc. The Swiss company will continue looking for additions to its portfolio, he said.

“In certain areas such as neuroscience and opthalmology, there will be a pivot to rare diseases and gene therapies,” Narasimhan said in a conference call with investors on Monday. Licensing Luxturna, Spark Therapeutics Inc.’s gene therapy for blindness, in January followed the same rationale, he said. “The science is very practical. The efficacy is quite significant.”

While the excitement over gene treatments is evident, marketability still remains unproven for treatments for extremely uncommon conditions. Few patients have received GlaxoSmithKline Plc’s Strimvelis for a rare immune disorder, and UniQure NV pulled Glybera, priced at about $1 million per treatment, from the market after sales languished. The drug was designed to treat an inherited disorder of high blood fats. Still, UniQure and other companies are forging ahead with products offering more bigger, more lucrative markets.

Meanwhile, Novartis’s eagerness to expand the field will offer a windfall to some current and former AveXis executives and board members. Chief Scientific Officer Brian Kaspar is the fourth-biggest shareholder, according to data compiled by Bloomberg, and his 4.8 percent stake is worth about $383 million at the takeover price. Board member Paul Manning is the sixth-biggest owner, while co-founder John Carbona, who stepped down as CEO in 2015, is ninth-biggest.

U.S. mutual-fund giant Fidelity Investments is the largest owner of AveXis with a 13 percent stake, the data show.

--With assistance from Phil Serafino

To contact the reporter on this story: Naomi Kresge in Berlin at nkresge@bloomberg.net.

To contact the editors responsible for this story: Eric Pfanner at epfanner1@bloomberg.net, John Lauerman, Marthe Fourcade

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