pSivida Corporation And Trius Therapeutics: Takeover Targets In 2013

| About: pSivida Corp. (PSDV)

Investing in stocks with reasonable valuations, strong management teams and with solid business models always makes sense, but if you want to put some extraordinary potential in your portfolio, it's worthwhile to consider companies that could be takeover targets.

I have researched these two biotech names that fit the criteria for a takeover, and are therefore more likely to be looked at as a buyout target. Some of these names have been considered to be buyout targets by multiple sources or analysts in the past. These are solid companies that appear undervalued and will rise over the next few months whether or not they are acquired due to some big catalysts. Here they are:

pSidiva Corporation

pSivida (NASDAQ:PSDV) is a leading provider of miniaturized, sustained-release drug delivery products, and is continuing the evolution of these systems. The company has developed three of only four products approved by either the U.S. or EU for long-term, sustained-release delivery of medication to treat chronic eye disease. It currently has 13.7 million in cash and no debt. The company expects to have enough cash to fund its operations until the fourth fiscal quarter of 2014 (stated here at 9:20 of Conference call).

The Iluvien intravitreal insert to treat Chronic diabetic macular edema (DME), made by pSivida, is a tiny cylindrical polyimide tube. The device is a mere 3.5mm in length, 0.37mm in diameter, and contains 180 μg of fluocinolone acetonide. It is one quarter the size of a grain of rice, and is designed to provide a low daily dose of Fluocinolone, a non-proprietary corticosteroid with a history of treating ocular disease. Iluvien is inserted into the patient's eye using a proprietary inserter with a 25 gauge needle, which allows for a self-sealing wound. Iluvien is inserted into the back of the eye, in the vitreous humor, to take advantage of the eye's natural fluid dynamics for delivery of the drug to the retina. A single Iluvien insert is designed to provide sustained therapy for 24 to 36 months.

Iluvien compared to a grain of rice

Insertion into the Vitreous Humor

Iluvien for DME has received marketing authorization (approval) in the U.K., Austria, France, Germany, Portugal, and Spain with an approval in Italy anticipated in the coming months. Revenue from the six European countries will start to roll in the remainder of 2013.

On May 7th, it announced that ILUVIEN, the first sustained release pharmaceutical product for the treatment of DME, is now commercially available in Germany. On the same day, it was also announced that they had treated the world's first patient with the implant injection since the product had become commercially available.

Here is a breakdown of the potential revenue for Iluvien, which I discussed in a previous article. To read this article in full, click here.

Approximately 10% of diabetics will develop Diabetic Macular Edema. The proposed price for Iluvien in Europe will be somewhere between $5,500 to $8,800. For the purpose of this article I will use the average, which is $7150.


Has approximately 400,000 diabetics

400,000 * 0.10 = 40,000 potential patients

40,000 * $7150 = $286,000,000 sales


Has approximately 900,000 diabetics

900,000 * 0.10 = 90,000 potential patients

90,000 * $7150 = $643,500,000 sales


Has approximately 3,945,753 diabetics

3,945,753 * 0.10 = 394,575 potential patients

394,575 * $7150 = $2,821,211,250 sales


Has approximately 3,635,946 diabetics

3,635,946 * 0.10 = 363,594 potential patients

363,594 * $7150 = $2,599,697,100 sales


Has approximately 7,372,226 diabetics

7,372,226 * 0.10 = 737,222 potential patients

737,222 * $7150 = $5,271,137,300 sales

United Kingdom (I will use a cost of $5500 for the U.K. since it is most likely to be lower in the U.K.):

Has approximately 3,636,375 diabetics

3,636,375 * 0.10 = 363,637 potential patients

363,637 * $5500 = $2,000,003,500 sales

Approximately 10% of diabetics will develop Diabetic Macular Edema. The proposed price for Iluvien in Europe is between $5,500 and $8,800. For the purposes of this article I will use the average, which is $7150.

Using these conservative estimates, the potential revenue possibilities are enormous. pSivida fully diluted share count is 23,297,011. At today's price per share value of $3.37, it would have a market capitalization of $78 million. If the company produces even 15% of the above projected revenues, this would equate to $2.1 billion. This is excluding the U.S. market, which I feel will be a slam dunk approval later this year.

Alimera Sciences (NASDAQ:ALIM) shares the revenue with pSivida Corporation, in which 80% goes to ALIM and 20% goes to pSivida. Therefore, based on the above projections, presuming that pSivida will get 315 million in revenue, the share price target of pSivida should be way north of $15.00. pSidiva is definitely under the radar at the moment, with a ridiculous valuation (78 million market cap), but will definitely be gaining steam as it marches towards its Prescription Drug User Fee Act (PDUFA) hearing in October. pSidiva's PDUFA has a targeted date of October 17, 2013. This will be its third try at approval in the United States, which should be successful with the new indication of Chronic Diabetic Macular Edema. Adding Chronic to DME, and further clinical data is the key to success. Approval will add a significant amount of revenue, which was not included in the above calculations.

The following is a question and answer session with pSidiva's CEO Dr. Paul Ashton, questioned by the great SA biotech analyst Scott Matusow:

Do you feel your company has what it takes to eventually market your top line products on your own, is that your ultimate goal; using royalty revenue to eventually attempt to become a top line company?

We have the best technology and we are fortunate in that we are going after a new area (diseases of the back of the eye) where none of the big guys has a dominant position in the market. Also the back of the eye space can be addressed with a small sales force, there are only 1,500 retina specialists in the US. However this space now has the attention of a lot of the big players - Merck (NYSE:MRK), Roche (OTCQX:RHHBY), Glaxo Smith Kline (NYSE:GSK), etc. - and there is a lot of consolidation, so I'd imagine that we'd likely be acquired before we get there. We are not planning this, but it seems to be the way things sometimes work.

pSidiva as a Takeover Target

The lack of ample eye care investment options is definitely a problem in biotech. There are simply not any options to invest in back of the eye disease devices. Therefore, making it a very valuable biotech, which deserves a high valuation based on this. pSidiva is a huge takeover target for big pharma who want to dominate the ocular market. Pfizer (NYSE: PFE) and Bausch & Lomb come to mind, as Pfizer owns over 10% of pSidiva already, and pSidiva is licensing Vitrasert and Durasert to Bausch & Lomb. It would be in both companies interest to buyout pSidiva to dominate the ocular market.

Trius Therapeutics

Trius Therapeutics (TSRX) is a biopharmaceutical company focused on the discovery, development and commercialization of innovative antibiotics for serious, life-threatening infections.

Tedizolid phosphate (TR-701) is an IV and orally administered second generation oxazolidinone for the treatment of serious gram-positive infections, including methicillin-resistance Staphylococcus aureus (MRSA).

Acute bacterial skin and skin structure infections (ABSSSI), a new FDA classification for complicated skin and skin structure infections (cSSSI), are a significant and growing problem throughout the world.

ABSSSI are infections that involve deeper tissue or require surgical intervention (e.g. cellulitis, major cutaneous abscesses, and infected wounds) or are associated with a significant underlying disease (e.g., diabetes or systemic immunosuppression) that complicates response to therapy. A variety of pathogens may be identified in ABSSSI but the two most common Gram-positive pathogens are Staphylococcus aureus and Streptococcus pyogenes. The significant increase in the incidence of MRSA in community as well as hospital acquired infections has resulted in a need for therapy of ABSSSI that is effective against MRSA.

Tedizolid phosphate is a novel prodrug that is cleaved in the blood stream to the active compound from Tedizolid phosphate to Tedizolid. As a second generation oxazolidinone, Tedizolid is chemically different from, and designed for improved potency, resistance and spectrum of activity over, the first generation oxasolidinones such as Pfizer's lizenolid (Zyvox). There is only one approved first generation oxazolidinone, linezolid, which is currently the leading branded antibiotic for serious gram-positive infections, with reported worldwide sales of $1.3 billion in 2011.

Trius' Tedizolid phosphate offers a number of important potential advantages over linezolid, including greater potency, once daily dosing, predictable drug exposure, a shorter course of therapy, in vivo bactericidal (i.e., bacterial killing) activity, lower frequency of resistance, activity against linezolid-resistant bacterial strains and an improved safety profile. TSRX is planning to develop this drug to treat multiple clinical indications, such as infections of the lung and blood, such as, hospital acquired pneumonia (HAP), ventilator acquired pneumonia (VAP) and bacteremia.

On January 7th, Trius' Tedizolid received Qualified Infectious Disease Product (QIDP) designation from the FDA. The QIDP designation will enable Trius to benefit from certain incentives for the development of new antibiotics, including priority review and eligibility for fast-track status. The QIDP designation was created by the Generating Antibiotic Incentives Now (GAIN) Act, which was part of the FDA Safety and Innovation Act (FDASIA).

As of September 30, 2012, Trius reported approximately $70.9 million in cash and investments. Trius burned approximately $46.7 million in cash from operating and investing activities during the first 9 month of the year. Nevertheless, TSRX has offset this by raising proceeds totaling $48.9 million through financing activities. The company announced a public offering of 6.3M shares of its common stock $4.75 per share on January 17th. The company will generate approximately 30 million dollars from the offering. Overall, the company has close to 100 million dollars in cash which is more than sufficient to bring it through a potential PDUFA next year.

On June 12th, Trius announced that, Peer-Reviewed Results Suggest No Clinically Significant Interactions Between Trius' Experimental Antibiotic Tedizolid and a Commonly Used Class of Medications. This is just another hurdle that the company passed with flying colors. It brings Trius one step closer to filing their NDA (new drug application) to the FDA (Food & Drug Administration) in the second half of 2013.

Trius as a Takeover Target

This little tidbit is from SmithOnStocks (His articles are a must read, by the way.)

In December 2006, Forest Laboratories (NYSE:FRX) paid $594 million (including $494 million upfront) to acquire Cerexa Inc. The company was just about to enter Phase III trials for ceftaroline, an intravenous cephalosporin antibiotic for use against MRSA and certain gram-negative bacteria. Ceftaroline operates in a somewhat different setting than tedizolid; I consider tedizolid to have more commercial potential. A takeover value of $594 million for Trius translates into $15 per share.

Trius Therapeutics is a big takeover target. There are talks of this by many biotech analysts including this one at Motley Fool. Here he is talking about Cubist Pharmaceuticals (CBST) as a potential buyer. (Here, go to the 3 minute mark)

Trius is an undervalued stock with a market capitalization of around 416 million, with a price per share of 8.70. Potential sales in the United States alone is $600-$650 million. Trius has a commercialization deal with Bayer in the Asia which will provide the company with 100 million dollars in milestones. It will eventually move into Europe.

Based on the above information. I have a price per share target of $13.00 for 2013 and a price per share target of $24.00 for 2014. Although, due to the scarcity of new antibiotics, combined with the superior efficacy results of Tedizolid Phosphate (compared to possibly new antibiotics coming to market), I believe Trius Pharmaceuticals will be a big takeover target by big pharma and will be bought out by the end of 2013.

Addendum - June 27, 2013:

Per the company, please see the below clarification of the relationship between pSivida and Alimera

Licenses and Agreements

pSivida US, Inc.

We entered into an agreement with pSivida in February 2005, and a subsequent amendment in March 2008, to obtain a worldwide exclusive license to develop and sell ILUVIEN for delivery to the back of the eye for the treatment and prevention of eye diseases in humans (other than uveitis). This agreement also provides us with a worldwide non-exclusive license to develop and sell pSivida’s proprietary delivery device to deliver other corticosteroids to the back of the eye for the treatment and prevention of eye diseases in humans (other than uveitis) or to treat DME by delivering a compound to the back of the eye through a direct delivery method through an incision required for a 25-gauge or larger needle. We do not have the right to develop and sell pSivida’s proprietary delivery device in connection with indications for diseases outside of the eye or for the treatment of uveitis.

Our license rights to pSivida’s proprietary delivery device could revert to pSivida if we were to (i) fail twice to cure our breach of an obligation to make certain payments to pSivida following receipt of written notice thereof; (ii) fail to cure other breaches of material terms of our agreement with pSivida within 30 days after notice of such breaches or such longer period (up to 90 days) as may be reasonably necessary if the breach cannot be cured within such 30-day period; (iii) file for protection under the bankruptcy laws, make an assignment for the benefit of creditors, appoint or suffer appointment of a receiver or trustee over our property, file a petition under any bankruptcy or insolvency act or have any such petition filed against us and such proceeding remains undismissed or unstayed for a period of more than 60 days; or (iv) we notify pSivida in writing of our decision to abandon our license with respect to a certain product using pSivida’s proprietary delivery device. We were not in breach of our agreement with pSivida as of December 31, 2012.

Disclosure: I am long PSDV, TSRX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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