British drug maker AstraZeneca PLC. (AZN) plans to spend around $443 million to acquire Omthera Pharmaceuticals Inc. (OMTH), a specialty drug developer based in Princeton, New Jersey. According to the agreement, AstraZeneca will pay $12.70 per share, or $323 million. This represents a premium of 88 percent on Omthera's closing price on May 24, 2013. In addition to the cash payment, each Omthera shareholder will get contingent value rights (CVRs) of up to $4.70 per share, or $120 million in total.
AstraZeneca's first quarter profit fell 31 percent as generic competition for its bipolar medication Seroquel IR, high blood pressure drug Atacand and cholesterol drug Crestor drove revenues down.
About Omthera Pharmaceuticals:
Omthera Pharmaceuticals is a specialty pharmaceuticals company that is focused on the clinical development of new therapies for abnormalities in blood fats called "Triglycerides" and the treatment of cardiovascular disease. The company has completed late-stage testing on Epanova, a fish oil-based treatment. In 2012, Omthera reported positive results from two Phase III trials (EVOLVE and ESPRIT). The company will submit the drugs to US regulators for approval by the middle of the year.
Omthera reported its first-quarter results that ended on March 31, 2013. According to the company earnings report, its first quarter losses tightened to $7.3 million, or $ 3.08 per share, compared to losses of around $10.1 million, or $6.18 per share a year ago. The company said its research and development (R&D) expenses fell to $357,000 as compared to $8 million a year ago, due to the completion of late-stage research on Epanova.
Historic Performance of AstraZeneca:
The above chart shows the historic stock price performance of AstraZeneca with respect to its competitors - GlaxoSmithKline (GSM) and Pfizer (PFE), as well as the S&P 500, in a three-month period. You can clearly see that the company's stock price outperformed Pfizer's stock price and the S&P 500 with a price appreciation of 16.17 percent, respectively. The rise in stock price reflects its acquisition annulment of Alpha Core Pharma, a biotechnology company focused on the development of ACP-501, a recombinant human lecithin-cholesterol Acyltransferase (LCAT) enzyme.
Valuation using multiples gives you a better understanding of the company's performance with respect to its major competitors and the industry, respectively.
The above chart shows a comparison among valuation metrics of AstraZeneca compared to its competitors, the respective industry and the S&P 500. You can clearly see that the price of AstraZeneca's stock remains undervalued across every measure. The company has been paying a higher dividend yield relative to its competitors and industry regarding the fact that the company is undervalued.
Another important point to be noted here is that AstraZeneca's stock is a growth stock, as it pays smaller dividends and the company typically reinvests retained earnings in capital projects. And being a growth stock, its revenues and earnings are expected to increase at a faster rate than the average company within the same industry. This analysis currently shows that the stock is undervalued and has a huge growth potential in the near future.
On March 21, 2013, the company announced an exclusive agreement with Moderna Therapeutics to discover, develop and commercialize pioneering messenger RNA therapeutics for the treatment of serious cardiovascular, metabolic and renal diseases as well as cancer.
AstraZeneca and the Swedish medical university KarolinskaInstitutet announced their intention to create an Integrated Translational Research Center (ITRC) for cardiovascular and metabolic disease and regenerative medicine located at KarolinskaInstitutet's site in Stockholm, Sweden. The purpose of this center will be to conduct preclinical and clinical studies for advancing the understanding of cardiovascular and metabolic disease pathophysiology and assessing new drug targets.
As I mentioned earlier, AstraZeneca (ARN) stock is a growth stock and the acquisition of Omthera Pharmaceuticals (OHTM) will give the company the sort of competitive advantage that will allow it to repel competition. Secondly, the acquisitions will not only strengthen the company's product portfolio, but will also create synergy benefits for the company as well. And most importantly, the company outperformed its competitors despite the fact it is undervalued. The above-mentioned points are signs of strong growth in the long term. My advice for long-term investors is to invest in this stock, as this company will bring huge revenues and profits in the near future.