On Monday Novartis AG (NVS) announced that it will acquire Chicago-based AveXis Inc (AVXS). Novartis is a pharmaceutical company based in Switzerland, and AveXis Inc. is a gene-therapy company based in Chicago, Illinois. Amid the news, AVXS stock is soaring over 77% at $205 per share in early morning trading, and NVS stock is up roughly 0.85%. When a publicly traded company is being acquired, it will often be quoted higher than its current stock price—a premium. This premium can be industry and deal-specific, but it is typically around 15-30%. It is often used to encourage the consideration of an acquisition as no company will be willing to sell at or near its current stock price. Novartis’s $8.7 billion offer quotes AXVS at $218 per share—an 88% premium.

This acquisition follows recent news that GlaxoSmithKline PLC, a British pharmaceutical company, agreed to pay Novartis AG $13 billion for its 36.5% stake in their health-care joint venture. Novartis CEO Vasant Narasimhan claimed that the proceeds of the joint venture sale will be used to fund returns for shareholders and acquisitions. True to his strategy, Mr. Narasimhan will be using partial amounts of the GSK deal to pay for the acquisition of AveXis Inc. More importantly, the nature of the deal announced today is Novartis’ refocus on drug development. Novartis hopes that there is at least one promising drug that this gene-therapy company is developing for spinal muscular atrophy (SMA). This neurodegenerative disease is derived from a defect from a single gene and affects some 6,000 to 10,000 newborns each year. This deal also expands the Swiss pharmaceutical’s gene-therapy specialization as it already has the CAR-T platform. The CAR-T is an innovative form of cancer treatment that involves extracting the patient’s disease-fighting blood cells, altering it to attack cancer cells more aggressively, and then reinjecting them with the modified blood sample. Of the gene-therapy candidates in AveXis’ pipeline, there is one with promising potential—AVXS-101. This candidate could be the first one-time gene-replacement therapy for SMA, which could translate to multibillion-dollar sales. AveXis is expected to file this drug for FDA approval in the second half of the year. Of all the drugs in the pipeline for this Chicago-based company, the deal is, nonetheless, a big ($8.7 billion) bet.

Although AveXis has many drugs in the pipeline and even though some drugs may reach the final stages of FDA approval, drugs can still be denied. Fortunately for Novartis, AveXis has many therapies under development, and all it takes is one drug. Given that SMA treatments are minimal, that one drug approval could translate into a lucrative, niche product in the pharmaceutical industry—take Gilead’s cure for hepatitis C for example. The nature of this deal is of proprietary. A buyer can be interested in an acquisition for a few reasons, but having proprietary assets can be a huge effect. Most acquisitions are strategic whether that is to establish a distribution network or to form a larger client base or to acquire proprietary assets. Nonetheless, it may be necessary for businesses to undergo an acquisition to increase productivity and to outweigh their competition.