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Novartis's Bold Move: Acquiring Avidity Biosciences for a Neuroscience Boost

Avidity Biosciences Experiences Significant Stock Appreciation Post-Acquisition Announcement

Avidity Biosciences Inc. witnessed a considerable jump in its share price following the announcement of its acquisition by Novartis AG. This all-cash deal, valued at an impressive $12 billion, stands out as one of the most substantial biotech transactions recorded this year.

Analyst Adjusts Rating to Reflect the Takeover Price

Following the acquisition news, analysts at H.C. Wainwright, under the leadership of Ananda Ghosh, revised their recommendation for Avidity Biosciences. The rating was downgraded from 'Buy' to 'Neutral,' with a new price target of $72 per share, aligning perfectly with the offer from Novartis AG. This adjustment reflects the analysts' view that the acquisition price sets the definitive valuation for Avidity's shares.

Deal Structure and the Premium Offered to Shareholders

The acquisition terms present a substantial premium to Avidity's shareholders, with the offer price representing a 46% increase over its closing price on October 24 and a 62% premium compared to its 30-day volume-weighted average price (VWAP). A unique aspect of the agreement is the plan to spin off Avidity's early-stage precision cardiology initiatives into a newly formed, publicly traded entity, referred to as SpinCo. This new company will be endowed with $270 million in cash, and Avidity shareholders will receive equity in SpinCo in addition to the cash payout from Novartis.

Strategic Drivers Behind Novartis's Acquisition

Industry observers note that Novartis's decision to acquire Avidity is a strategic maneuver aimed at bolstering its neuroscience and rare disease pipeline. Avidity's advanced oligonucleotide conjugate (AOC) platform is particularly attractive, featuring promising candidates such as del-zota for Duchenne muscular dystrophy (DMD), del-desiran for myotonic dystrophy type 1 (DM1), and del-brax for facioscapulohumeral muscular dystrophy (FSHD). These assets are seen as crucial for strengthening Novartis's position in the treatment of muscle and neuromuscular disorders. The analytical firm indicated that they anticipate no rival bids, cementing their 'Neutral' stance.

Financial Valuation and Recent Performance Analysis

H.C. Wainwright's $72 price target is derived from a blended valuation approach. It incorporates a 25x multiple on estimated 2034 earnings of $10 per share, discounted back to 2025 at a 12% rate, alongside a discounted cash flow valuation of $51 per share, utilizing an 11% discount rate and a 2% growth rate. These valuation metrics are consistent with those typically applied to early-stage biopharmaceutical firms. In its second-quarter report released in August, Avidity disclosed a loss of $1.21 per share, exceeding analysts' predictions of a $1.00 loss and marking an increase from the 65 cents loss reported in the prior year. Despite the wider loss, the company's sales surged to $3.85 million, an 88% year-over-year increase, significantly surpassing the consensus estimate of $1.46 million.