Yesterday, Obagi Medical Products (OMPI) was acquired by Valeant Pharmaceuticals (VRX) for $19.75 a share in an all cash deal.
Last summer I covered in depth, acquisition rumors regarding Obagi. At the time, good private sources of mine confirmed that companies were interested in Obagi. I was informed by these sources that a well-known large cosmetic company was very interested in acquiring the company for up to $22.50 a share.
Based on the available information I had to work with at the time, I predicted that Obagi would see an acquisition soon.
However, as I found out after there was no acquisition, the Obagi Board of Directors (BOD) was continuing to entrench themselves, refusing to open up the books to the potential suitor.
Needless to say at the time, I was very frustrated with the events that were taking place with Obagi, as I strongly felt the BOD was neglecting its fiduciary duties. I was not alone in my frustrations.
Enter in activist shareholder David Callan, who up to yesterday was a large block private shareholder of Obagi. I had the pleasure of meeting David both via a mutual acquaintance and speaking with him on the phone about the situation at Obagi. David was very upset with the company's BOD, and was prepared to take whatever legal steps he deemed necessary to see Obagi sold.
With yesterday's acquisition now firmly in place, the Obagi acquisition story is for all-intensive-purposes, over.
Because of the delay in the Obagi Acquisition, I have been hesitant to write on other companies I have heard through various sources have acquisition interest. However, in this article I will mention companies I believe will be acquired this year, based on my own speculation and some of the same chatter from the same sources who originally brought Obagi to my attention.
Antares Pharma (ATRS) focuses on developing self-administered parenteral pharmaceutical products (injectors). The company currently has an NDA pending with the FDA for OTREXUP, which is a self-injector product for the delivery of methotrexate using Medi-Jet technology for the treatment of rheumatoid arthritis, poly-articular-course juvenile rheumatoid arthritis, and psoriasis. An approval decision from the FDA is expected in October of this year.
Many who follow me both on Seeking Alpha and twitter know that I used to own a good size block of shares in Antares, which I originally purchased in the summer of 2011. In December of the same year, I began to hear chatter than Pfizer (PFE) was interested in acquiring Antares. I did not think much of it at the time, until I saw a short time later that the company made a deal with Pfizer to partner on an unknown over-the-counter drug. I inquired back with my source at the time to ask him how solid the rumor was, and he felt it was "very solid." A few months later, the company "appointed" Jack Howarth, a former King-Pfizer executive, as Vice President of Corporate Affairs.
Additionally, I had a few conversations with Jack, where he said he owned over 400k shares of Antares, but was not "an official insider."
I then speculated that Jack was appointed by Antares at the request of Pfizer, to in essence, "bird dog" the company.
- Oct 2007 Alphapharma hires Howarth VP of Investor Relations
- Nov 2008 King acquires Alphapharma
- June 2009 King hires Howarth VP of Investor Relations
- Oct 2010 Pfizer acquires King
- Feb 2011 Antares appoints Howarth VP of Corportate Affairs/ Investor Relations
Based on Jack's above history and timeframe, and with Antares virtually assured approval of its current NDA in submission to the FDA, notwithstanding what sources have informed me in the past, I speculate that Antares will be acquired sometime this summer/early fall.
The main reason I believe Pfizer will acquire Antares is for its patent profile it holds in regards to biosimilars.
Biosimilars/biobetters, or follow-on biologics, are terms used to describe officially approved subsequent versions of innovator biopharmaceutical products made by a different sponsor following patent and exclusivity expiry on the innovator product (biosimilars being "similar," biobetters being "better").
Follow-on manufacturers do not have access to the originator's molecular clone and original cell bank, the exact fermentation and purification process, or to the active drug substance.
In other words, companies do not need to wait for patent expiration of a biologic to get its hands on the exact formulation. In fact, because biosimilars/biobetters do not use the exact composition of the biologic drug it is "following after", it is not considered a "copy," therefore, it is not a generic, but a new composition capable of its own unique patent protection. Many large pharmas are gearing up for what I believe to be the wave of the future in biopharmas, biosimilars and biobetters.
For those of you wonder how Pfizer might have got wind of Antares' patent profile, I would point out that Pfizer had a lawsuit engaged against Teva over epipen which was settled late last year. While I will not go into the exact details of this lawsuit, it's entirely possible that during the discovery phase of the litigation, Pfizer's lawyers might have seen something in Teva/Antares patent profile that may have sparked Pfizer to approach Antares with an "unknown product" which subsequently led to a partnership deal with Antares for the product.
A little more than 2 months afterwards, Antares "appointed" the former Pfizer/King Corporate Affairs VP Jack Howarth to be its VP of Corporate Affairs -- strange coincidence, or something more?
As stated, I believe Antares will be acquired by Pfizer by the end of Summer/ early Fall, for a price range between $6.50 and $9, and I plan to buy back in at some point before Summer of this year. AcelRx (ACRX)
AcelRx focuses on therapies for the treatment of acute and breakthrough pain. The company's principal product candidate is ARX-01, a Sufentanil NanoTab PCA system, which has completed two
successful Phase III (a 3rd Phase III data release is set for release in June of this year) clinical trials for acute post-operative pain in patients in the hospital setting.
AcelRx has basically up to this point been under my radar. That was until a source informed me that he was hearing strong back chatter about the company shopping itself around, along with institutions showing interest to purchase shares in the company. I decided to take a look at AcelRx to see if the rumor might hold any water.
The "rumor" focuses on Adrian Adams who is Chairman of The Board (COB), just appointed recently in February. Adams is also the current CEO and President of Auxilium Pharmaceuticals (AUXL), joining that company in December, 2011.
Mr. Adam's pattern of joining companies and engaging in selling them is clear from what we read from Auxilium's website:
“Prior to joining Auxilium, Mr. Adams served as Chairman and Chief Executive Officer of Neurologix, a Company focused on development of multiple innovative gene therapy development programs. Before Neurologix, Mr. Adams served as President and Chief Executive Officer of Inspire Pharmaceuticals, Inc., where he oversaw the commercialization and development of prescription pharmaceutical products and led the company through a strategic acquisition by global pharmaceutical leader Merck & Co (MRK)., Inc. in May 2011.
Prior to Inspire, Mr. Adams served as President and Chief Executive Officer of Sepracor Inc. from December 2006 until February 2010. Under his leadership, Sepracor conducted multiple strategic corporate development activities, including the in-licensing of seven products and out-licensing deals with two major pharmaceutical companies, prior to its acquisition by Dainippon Sumitomo Pharma Co.
Before Sepracor, Mr. Adams was President and Chief Executive Officer of Kos Pharmaceuticals, Inc. from 2002 until the acquisition of the company by Abbott Laboratories (ABT) in December 2006.
During his tenure he led the transformation of Kos into a fully integrated and profitable pharmaceutical company with annual revenues approaching $1 billion. Mr. Adams graduated from the Royal Institute of Chemistry at Salford University in the U.K.”
My source informs me that the company is being shopped around, and that there might be an interested party at this time. Considering Mr. Adams executive history from above, I give the rumor relayed to me a lot of credit. As mentioned, AcelRx has had two recent successful Phase III data releases, with a 3rd upcoming Phase III data release in June, which is expected to produce positive results. Because of this, the company has become considerably de-risked.
The post-operative pain market in the United States, Europe, and Japan has been growing steadily over the last few years and is expected to reach $6.5 billion by 2018. Acelrx's Nanotab tech could potentially grab a significant piece of this market, especially in the hands of a larger pharma that could leverage it with substantial capital to introduce the product correctly to the market. With Obama-care basically subsidizing healthcare as we know it, there will be more incentive for companies to produce new and innovative drugs and treatments, with a design to offer care to most people at an affordable price. With insurance companies receiving more government money/subsidy under Obama care, there should be more patient coverage which would support and pay for new products and treatments as well.
Nanotab, if introduced correctly to market, should be a product that benefits from Obama-care.
AcelRx's market cap of $106.44M is a dirt-cheap for a company that is significantly de-risked. I would expect an acquisition price at a minimum premium of 70% of its current market cap.
With the first two companies, I have the same source that introduced me to Obagi's potential buy-out. The following two companies have no solid rumors that I am aware of connected to them, but do have some buy-out buzz associated with them, and make for attractive acquisitions. Sarepta (SRPT)
Sarepta focuses on the discovery and development of RNA-based therapeutics for the treatment of rare and infectious diseases. Its lead product candidate is eteplirsen, designed to treat Duchene muscular dystrophy (DMD). The drug is currently under review by the FDA for accelerated approval, and a decision is expected by the middle of this year.
Valuation is the name of the game in speculative Biotech, and finding companies that have high upside as well as mitigated risk is not only a challenge for investors, but big pharma as well.
One such company is Sarepta, and many reading this article are undoubtedly familiar with its lead drug eteplirsen and its clinical success treating DMD. The drug alone makes Sarepta a very attractive candidate to be bought out. Recent struggles by Glaxo-Smith Kline's (GSK) drug drisapersen highlight both the desire and difficulty that big pharma is having trying to enter this space. One additional caveat to consider is that most Americans have some knowledge of DMD as a disease, if treated, would garner a tremendous amount of positive Press coverage. Companies like Pfizer and Bristol-Meyers Squib (BMY) could see eteplirsen as a way to bolster their reputations as well as their bottom line.
Another reason that I think an acquisition bid could be in order for Sarepta is because when a company has tremendous stock appreciation in a short amount of time or a dramatically positive event, sometimes management does not have experience in executing the "next step". Sarepta's management was previously operating as a developmental company versus one ready to go to the next level. At minimum, bringing in some high profile resume's or the completion of a partnership would seem reasonable, if not a full buyout. Acadia Pharmaceuticals (ACAD)
Acadia is a developmental biopharma that focuses on the development of drugs for central nervous system disorders. Acadia shares have been on the rise from the $1.50 range to a close of $6.65 (on 3/20/13). Acadia has drug candidates for the treatment of Parkinson's disease, Alzheimers, schizophrenia, and glaucoma. These conditions are all connected with large market size and present significant opportunities for big pharma. Acadia has shown ability in the past to partner or collaborate with larger companies such as Biovail, Allergan, and Meija Seika Kaisha, LTD. It is not being overly presumptive to assume that big pharma would have interest in Acadia for its lead drug pimavanserin, which possess potential for massive revenue in multiple applications.
On Tuesday of this week, Acadia received new coverage from Jefferies who initiated the company as a "Buy" with a $13 price target. The firm says notes that pimavanserin is a drug for which there is currently no FDA-approved counterpart. Jefferies also commented on Acadia being a highly attractive licensing/acquisition target for big pharma companies.
I will be interested in seeing what happens this year regarding the companies listed. My source(s) ultimately proved to be correct regarding Obagi, and I believe he/they will be right about Antares and AcelRx.
Certainly, the condition of The United States economy along with anticipated health care measures should have an effect on big pharma's appetite for acquisitions -- something we all should watch closely. Disclosure: I am long ACRX.