Apellis Pharmaceuticals (NASDAQ:APLS) declined Monday morning, sinking as much as 8% in early trading after its rival Iveric Bio (NASDAQ:ISEE) entered an agreement to be acquired by Astellas Pharma (OTC:ALPMY) for approximately $5.9 billion.
Apellis Pharmaceuticals and Iveric Bio both make treatments that target eye diseases, including geographic atrophy, an advanced form of dry age-related macular degeneration.
In early April, a rumor surfaced that Apellis Pharmaceuticals was drawing takeover interest from larger drugmakers and was also seeking partnerships. The speculation, which was first reported by Bloomberg, sent shares of Apellis Pharmaceuticals sharply higher and also lifted shares of Iveric Bio.
Around the time that the Apellis takeover rumor surfaced, there was a belief among some investors that Iveric Bio’s valuation discount made it a more attractive target. Today’s deal appears to validate that idea.
"We expect unusual pressure on APLS shares this morning, on the back of ISEE's acquisition by Astellas at a seemingly modest premium at $40/share (25% over Friday's closing, 75% over the 30-day moving average)," said Stifel analysts.
They added, "ISEE was the first target by a not-so-obvious player could be read as a disappointment on a couple of fronts 1) that the acquisition was not by those most deeply involved in the retinal space, and 2) that a potential premium could be dampened by recent stock moves. We think the speculation alone on what has transpired will inject some level of uncertainty and, consequently, some pressure on APLS shares in the coming days."
Not everyone agrees with this thesis.
Citi analysts explained, "We have also consistently heard the argument, which has now been borne out, that ISEE’s valuation discount would preferentially attract an M&A bid. The market may thus initially view the ISEE news as implying APLS’ probability of M&A is materially lower. We note, however, precedent where biotechs launching in close succession into the same indication were both acquired within <9 months of one another (e.g. ZSPH – Nov '15, RLYP – July '16). We also think news of the ISEE acquisition will accelerate Pharma’s interest in APLS as the only remaining independent – and notably more advanced – late-stage player in the GA space."
Ultimately, today’s selloff in Apellis Pharmaceuticals could be a buying opportunity, they concluded. "While we acknowledge APLS may face some early pressure Monday (perhaps down ~10-15%), we would approach any such weakness as a solid buying opportunity."