What happened

Shares of small-cap gene therapy company Akouos (AKUS) popped by as much as 87% in premarket trading Tuesday morning. The biotech's stock is racing higher this morning in response to an all-cash buyout agreement with pharma heavyweight Eli Lilly (LLY -6.26%)

Lilly and Akouos reportedly agreed to a $487 million buyout ($12.5 per share), plus a contingent value right (CVR) option worth another $123 million (an additional $3 per share). The upfront portion of this deal represents a 78% premium over Akouos' closing price Monday afternoon.  

Wooden blocks that spell M&A.

Image source: Getty Images.

So what

Through this deal, Lilly will gain access to an early-stage pipeline of gene therapies aimed at treating inner ear conditions. Akouos' most advanced candidate is known as AK-OTOF, an early-stage asset designed to treat hearing loss stemming from mutations in the otoferlin gene. AK-OTOF, an AAV vector-based gene therapy, is reportedly set to enter phase 1/2 testing.

This acquisition of Akouos marks Lilly's third deal in the gene therapy field in the past two years. In November 2020, Lilly inked a collaboration deal with Precision BioSciences to develop gene-edited therapies for the muscle-wasting disorder Duchenne muscular dystrophy, among other undisclosed targets. A month later, the drugmaker doled out approximately $1 billion to acquire Prevail for its AAV9-based gene therapies for patients with neurodegenerative diseases. 

Now what

Lilly has been a growth machine over the past few years, thanks mostly to its pivot to oncology. This trio of gene therapy deals could open up another major area of growth for the pharma titan in the years to come.