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Novartis' Acquisition of AveXis Takes Aim at Biogen

Todd Campbell, The Motley Fool

Biogen's (NASDAQ: BIIB) Spinraza has been one of the fastest drugs to reach billion-dollar blockbuster territory in recent memory, but its sales could slow as soon as next year because of new competition from Novartis (NYSE: NVS). On Monday, Novartis announced it's spending $8.7 billion to get its hands on a gene therapy developed by AveXis (NASDAQ: AVXS) that targets Spinraza's addressable market. Will Novartis topple Biogen in this indication?

The backstory

Spinraza, which is licensed to Biogen by Ionis Pharmaceuticals (NASDAQ: IONS), is used to treat spinal muscular atrophy (SMA), a rare and life-threatening genetic disease.

An arrow in the bulls eye of a target.

Image source: Getty Images.

In SMA, patients produce inadequate levels of a protein called SMN that's crucial to motor neuron survival. SMA is usually diagnosed in infancy, and absent treatment, 90% of children who have it will fail to live longer than two years or will become dependent on a ventilator.

While Spinraza isn't a cure for SMA, it tinkers with a patient's genes to boost SMN production and, thus, motor neuron survival. In trials, 40% of Spinraza patients saw an improvement in motor milestones, compared to none of the patients in the control arm seeing an improvement.

The drug's efficacy and a dire need for new treatment options have resulted in Spinraza's rapid adoption. And with a price of $750,000 in year one and $375,000 per year thereafter, Spinraza's become a major source of revenue for Biogen and Ionis. In 2017, Spinraza's sales totaled $884 million, including $363 million in the fourth quarter; last year, Ionis received $113 million in royalties on Spinraza's sales.

A big challenge coming

Spinraza treatment includes four loading doses and then maintenance treatment every four months. That presents a big burden to patients and payers that AveXis hopes to overcome.

AveXis is developing a one-and-done gene therapy that inserts a functioning copy of the missing or mutated SMA gene to restore normal SMN production. This therapy, AVXS-101, is already producing some remarkable results in early stage studies. For instance, in April 2017, management reported results showing that 12 of 12 patients were event-free at age 13.6 months and that most of these patients were able to sit unassisted. Historically, only 25% of SMA type 1 patients are event-free at the 13.6-month mark. AveXis also recently reported that 15 of 15 patients were event-free at 20 months. Historically, that happens only 8% of the time.

If those results are confirmed in the ongoing phase 3 study, then it could represent a major shift in how patients with this genetic disease are treated. Given its willingness to spend $8.7 billion for AveXis, Novartis appears pretty confident that this pivotal study will hit its mark.

We should find out soon if that confidence is well placed, because in announcing its acquisition of AveXis, Novartis said it wants to file for a Food and Drug Administration OK later this year. If regulators cooperate, that could mean AVXS-101 secures approval at some point in 2019, and according to Novartis, that timeline would result in this acquisition being accretive to its core EPS as early as 2020.

It's hard to imagine Spinraza will remain the go-to option if AVXS-101's phase 3 trial is a success, so assuming Novartis figures out pricing and there aren't any new safety concerns, Spinraza revenue for Biogen and Ionis could be about to plateau. For this reason, it may be best to hold off on buying shares in Biogen and Ionis Pharmaceuticals based on Spinraza until we have AVXS-101's phase 3 results in hand.

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Todd Campbell has no position in any of the stocks mentioned. His clients may have positions in the companies mentioned.The Motley Fool owns shares of and recommends Ionis Pharmaceuticals. The Motley Fool recommends Biogen. The Motley Fool has a disclosure policy.