Biotech Stock Draws Skeptics as M&A-Fueled Rally Sets New Highs

(Bloomberg) -- Biotechnology company AveXis Inc. is drawing attention from skeptics and short sellers as the stock price has almost doubled over the past 12 months.

Bullish investors and analysts say they expect the company to draw takeover interest for its experimental gene therapy that is targeting a market valued at up to $10 billion. Critics, meanwhile, say the precipitous rise in the drugmaker's shares ignores several questions about the data and overestimates the chances that the treatment will be successful.

AveXis's drug aims to treat spinal muscular atrophy, a rare disease that causes progressive muscle weakness and paralysis and is the number one genetic cause of infant death. Increasing signs of renewed deal-making interest in biotech have helped push AveXis shares near record highs, or more than 500 percent above their February 2016 listing price.

“The stock is priced for perfection and beyond,” Nomura Instinet analyst Christopher Marai, the only sell-rated analyst on Wall Street, said by phone. Investors buying at these levels are “neglecting several risks including a market size that is not well defined and potential gene therapy competition.”

The drug, known as AVXS-101, could be approved for Type 1 spinal muscular atrophy by the end of this year, according to Wells Fargo's Jim Birchenough, whose price target of $171 implies another 34 percent upside for the shares. He estimates the recurring patient population is around 5,000 and the market opportunity is about $10 billion.

Wall Street is overestimating the potential price of AVXS-101, said a hedge fund manager, who asked not to be named because the fund recently began shorting the stock and doesn't comment publicly on its bearish bets. Many patients will want to also try Biogen Inc. and Ionis Pharmaceuticals Inc.'s Spinraza, the first U.S.-approved treatment for spinal muscular atrophy, and the two drugs should have similar price tags given the available data, the short seller said.

Short interest in AveXis is about 13 percent of float, according to financial analytics firm S3 Partners.

Mizuho Securities analyst Difei Yang isn't as concerned about the cost of AVXS-101, saying in a telephone interview that AveXis is “a takeout target with a price that could be well over $200 and getting close to $250 a share given the recent biopharma deals.”

Yang isn't alone in that bet. Many sell-side analysts have AveXis near the top of their list of takeout targets with an average price above $200 per share in the cards, according to a straw poll by Bloomberg News.

To contact the reporter on this story: Bailey Lipschultz in New York at blipschultz@bloomberg.net.

To contact the editors responsible for this story: Arie Shapira at ashapira3@bloomberg.net, Catherine Larkin, Courtney Dentch

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