What happened

Shares of the gene therapy company AveXis (NASDAQ: AVXS) are up by a whopping 78% on heavy volume, as of 10:14 a.m. EDT Monday.

AveXis' shares are ripping higher in response to an $8.7 buyout agreement with Swiss pharmaceuticals titan Novartis (NVS -0.64%). This all-cash deal represents a staggering 88% premium compared to AveXis' Friday closing price. Per the press release, the two companies expect the deal to close in mid-2018. 

Rocket taking off.

Image source: Getty Images.

So what

By acquiring AveXis, Novartis will gain access to the company's pipeline of therapies targeting the rare but often deadly infantile muscular disorder known as spinal muscular atrophy (SMA). Novartis' newly acquired SMA franchise is expected to compete directly against Biogen (BIIB -0.08%) and Ionis Pharmaceuticals' (IONS 1.10%) FDA-approved Spinraza.

In 2017, Spinraza generated a healthy $884 million in annual sales, and the drug is forecast to continue experiencing double-digit sales growth this year. Despite this emerging competitive threat, however, Biogen's and Ionis' shares are in the green this morning.   

Now what

Novartis' willingness to pay a sky-high premium for AveXis appears to be more about the company's growing interest in gene therapies for neurological disorders in general, and not just about SMA as a stand-alone indication. SMA, after all, is a relatively small market, and Biogen and Ionis already have a lengthy head start with Spinraza.

Novartis struck a licensing deal with Spark Therapeutics earlier this year for the biotech's gene therapy, Luxturna, that treats an inherited form of vision loss. So, the Swiss biopharma is clearly building up a broad library of gene therapies for high-value neurological diseases. 

Gene therapies come with several tangible benefits over traditional small-molecule drugs, or even other types of biologics. First off, gene therapies tend to be functional cures -- or come close -- for hard-to-treat diseases. They provide unique benefits to patients that should translate into less pushback from payers over their stately price tags. Equally important, gene therapies will probably prove to be immune to knock-offs due to their complex manufacturing processes that can't be easily replicated by competitors.

Given Novartis' sudden interest in all things gene therapy, it's not surprising that Sangamo Therapeutics (SGMO -7.97%) stock is taking flight today as well. Specifically, Sangamo's shares are up by 10% on the AveXis news.

This mid-cap gene therapy company is already partnered with two industry heavyweights to develop gene therapies for rare diseases and cancer. And with Novartis clearly on the hunt for similar companies, one of Sangamo's partners may feel compelled to make a tender offer sooner than expected. Stay tuned.