Did Novartis Overpay for AveXis?

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Last week, Novartis (NYSE: NVS) paid a huge premium for gene therapy company AveXis. Of course, it's impossible to say for sure whether Novartis overpaid until more time passes, but there are still some signs that might hint to the answer now.

In this clip from Industry Focus: Healthcare, host Michael Douglass and Motley Fool contributor Shannon Jones talk about what we do know so far and what that says about the $9.8 billion Novartis paid to tuck this one under its belt.

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A full transcript follows the video.

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This video was recorded on April 11, 2018.

Michael Douglass: So, the final question for us, then, is, did Novartis overpay? $9.8 billion, not cheap.

Shannon Jones: Yeah, not cheap at all. When we're looking just at AVX-101, right now, analysts are pegging peak sales in about the $2.4 billion range. So, we're looking at about 3.5-4X sales right now. Which is not terrible. This is certainly within its range. But, I think with an 88% premium for a company that has no approved drugs, gene therapy is still pretty novel and unproven for the most part, I think time will tell. I don't want to automatically say they've overpaid. I know AVX-101 will be filed later this year, so we'll get the data, hopefully, right before that. We'll have to see if they overpaid. I don't know.

Douglass: Yeah. And of course, no one can know. To be honest, I'm of the opinion that Novartis paid a pretty good price because it's getting that platform. That's the thing, if you're able to get that 3-5X just with the lead candidate, everything else is gravy, I start getting pretty interested. And as you pointed out earlier, Novartis is making some smart moves. Increasingly, my view on companies is that those that allocate capital most efficiently and most effectively tend to really be your big winners. And, well, basically, this means that Novartis is going to have to get a second look from me, after I had largely written off big pharma, as I think you have. So, that'll be certainly a long conversation for us to have in the future.

Jones: Absolutely. And of course, just to underscore the fact -- this is assuming the drug works, right?

Douglass: [laughs] Right.

Jones: Really, I think the theme of this entire Industry Focus has been, be very careful with Phase II, because Phase III can come up and blow things away. But, I do think it presents some really compelling investment opportunities long-term.

Michael Douglass has no position in any of the stocks mentioned. Shannon Jones has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.