- Novartis’ PDUFA date is May 2019
- While approval may not have a significant impact on Novartis’ price, a patterns suggests there may be money to be made on Ionis’ stock
The time is drawing nearer to see if Novartis’ $8.7 billion bet on AveXis will pay off. Novartis (NVS) acquired AveXis in early 2018, whose lead product AVXS-101 was touted to have the potential to be the “first-ever one-time gene replacement therapy for spinal muscular atrophy (SMA).” In early December of 2018, Novartis announced that the FDA had accepted the BLA filed for AVXS-101 and granted priority review for the treatment of spinal muscle atrophy (SMA) type 1. As such, the PDUFA date for regulatory action was announced to be in May of 2019. Now occasionally companies will release the exact action date, but Novartis did not in this instance. As such, all we know is to expect an announcement between now and the end of the month.
I, along with most analysts, believe there is a high likelihood that Zolgensma will get a thumbs up from the FDA. With that being said, I do not think the approval will have a large impact on Novartis’s stock price. Remember, Novartis raked in $11.1 billion in revenue for the first quarter of 2019. At this time, a Jefferies analyst expects peak sales of Zolgensma to be around $2.6 billion annually.
Conversely, if someone is looking to make a play on this regulatory action, I see downside risk in Ionis Pharmaceuticals (IONS). Why is that? For a more in-depth discussion, I recommend reading one of my previous articles on Ionis here. In brief, currently Biogen’s (BIIB) Spinraza has a strong foothold on the market. Biogen licensed Spinraza and pays Ionis royalties on net sales. Ionis is still in its commercial infancy, thus these royalty revenues represent a large portion of their annual revenue. Thus, competition for Spinraza in the SMA space can adversely effect Ionis in the near term.
Thus far in 2019, we have two examples of how this has played out (see chart below). First, on April 7th, Ionis traded down nearly 13% in apparent response to Novartis’ positive Phase 3 results from the STRIVE trial. Then again on May 7th, Roche’s announced positive results for its SMA candidate risdiplam, which were presented at the AAN conference. In an apparent response to this, Ionis fell another 7% during the trading session.
(1) Repeating .707 retracement.
(2) Previous new highs have had similar 9 wave up pattern (highlighted in blue) before sharp moves to the downside, further emphasizing the pattern/ retracement inbound.
(Zoom out to see previous levels)
While this is a small sample size, these are two recent occurrences that seem to show Ionis investor are quite jumpy in response to SMA competition. Should this pattern continue, the impending approval of Zolgensma could provide traders looking for a small short sided trade the opportunity to turn a quick profit, however this would be foiled should the FDA deny Novartis’ BLA. I would be remiss if failed to point out that Zolgensma news may continue to be the torn in Ionis’ side through 2019. Not only is Zolgensma going to be potentially approved in the US, but Novartis expects marketing decisions in Japan during the first half of 2019 and in Europe around mid-2019. While I am long Ionis for its long term prospects, I have lightened holdings going into the potential Zolgensma approval and plan to add on sell off.
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