Written by Scott Matusow. Scott has long positions in 3 companies mentioned in this article.
Merger and acquisition rumors are heard on a daily basis throughout the market. Some have merit and turn out to be true, while others turn out to be false and without merit. Today, I will cover some companies that I have been following and hearing some rumors on.
Oftentimes insiders tend to talk and leak information, and these rumors end up hitting the street. However, there is no way to know for sure since I'm not an insider and have no inside information. Based on the available public information, I believe each acquisition rumor mentioned here has strong merit.
Antares Pharma (ATRS). We first began to hear acquisition rumors in Antares in late 2011. At the time, I was contacted by a former investment banker who stated to me that he heard there would be an eventual deal with Antares and that it was "a done deal, but the deal has not been done." The rumor involved Pfizer (PFE) being the acquirer. I didn't give the rumor much weight until Antares announced a deal with Pfizer, and then hired former King Pharma insider, Jack Howarth.
I took a look at Jack's history as an executive and found some interesting information;
- 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 2012 Antares hires Howarth VP of Investor Relations
It seems to me that Jack was hired as a "bird dog" so to speak - to help develop the company and get it ready for an acquisition at some point. Furthermore, Antares and Pfizer entered into a collaboration in December 2011 for a yet still undisclosed product. Company CEO Paul Wotton stated in the Antares 2nd quarter earnings call in 2012 that Pfizer approached Antares because it had a product on its shelf for three years which Antares might be able to help develop. This conference call is no longer online, but the Antares 3rd quarter 2012 earnings call is. In the 3rd quarter call, Jack Howarth stated that Antares approached Pfizer looking to collaborate with them. Someone is "mistaken" here.
Additionally, Pfizer has registered a website, Otrexyo.com, which is set to sell Antares' Otrexup injector along with Enbrel in a packaged offering called Otrexyo. Otrexyo is a registered trademark of Pfizer.
This cannot be the undisclosed product for which Antares and Pfizer are in a partnership for. The reason is that their deal is for an over the counter product that Pfizer has in its inventory. Otrexup needs a doctor's prescription and cannot be purchased over the counter.
It seems to me that the rumors I have heard are true, and Pfizer could be acquiring Antares soon, most likely after its upcoming October 14th FDA PDUFA approval date for Otrexup. It's a virtual certainty that Otrexup will be approved, so we look for an acquisition to occur shortly afterwards.
AcelRx (ACRX). We have been hearing some strong acquisition rumors concerning AcelRx, much like we heard about Obagi last year. The rumors on Obagi turned out to be correct, as the company was sold last year to Valeant (NYSE:VRX) for $24 a share. We believe there is merit to the current rumors surrounding AcelRx.
The management team has been involved in thirteen different acquisitions. Below are the most notable members and their respective acquisition activity:
- Adrian Adams, Chairman of the Board
1. Sold Inspire Pharmaceuticals to Merck & Co. (NYSE:MRK): Mr. Adams served as President and Chief Executive Officer of Inspire Pharmaceuticals, Inc. Merck bought out Inspire for $430M, or a 26% premium over the current share price.
2. Sold Sepracor to Dainippon Sumitomo: Mr. Adams served as President and Chief Executive Officer of Sepracor Inc. Dainippon Sumitomo bought out Sepracor for $2.6B, or a 48% premium over the current share price.
3. Sold Kos Pharmaceuticals to Abbott Laboratories (NYSE:ABT): Mr. Adams served as the President and Chief Executive Officer of Kos Pharmaceuticals, Inc. Abbott Laboratories bought out Kos Pharmaceuticals for $78 a share, or a 56% premium over the current share price.
- Richard King, President And CEO
4. Sold Tercica to Ipsen: Mr. King served as President and General Manager of Tercica. Ipsen bought out Tercica for $404M, or a 104% premium over the current stock price.
5. Sold Kos Pharmaceuticals to Abbott Laboratories: Mr. King served as Executive Vice President of Commercial Operations of Kos Pharmaceuticals, Inc. See above section for details on that buyout.
6. Sold Solvay Pharmaceuticals to Abbott Laboratories: Mr. King served as Senior Vice President of Commercial Operations at Solvay Pharmaceuticals. Abbott Laboratories bought out Solvay Pharmaceuticals for $6.1B.
- Steven J. Hoffman, Skyline Ventures
7. Sold Somatogen to Baxter International (BAX): Dr. Hoffman was the scientific founder of Somatogen Inc. Baxter bought out Somatogen for $189M.
- Guy Nohra, Alta Partners
8. Sold ATS Medical, Inc. to Medronics Inc. (NYSE:MDT): Mr. Nohra served on the Board of Directors of ATS Medical, Inc. Medronics bought out ATS Medical for $370M.
- Howard B. Rosen, Director
9. Merged ALZA Corporation to Johnson & Johnson (NYSE:JNJ): Mr. Rosen served as the President of ALZA Corporation. Johnson & Johnson merged with ALZA Corporation for a $10.5B stock for stock transaction.
10. Sold GenPharm International, Inc. to Medarex, which was then acquired by Bristol-Myers Squibb (NYSE:BMY): Mr. Rosen served as Director of Corporate Development at GenPharm International. Medarex bought out GenPharm for $65M. Later, Bristol-Myers Squibb for $2.4B.
11. Sold Pharsight Corporation to Tripos International: Mr. Rosen served on the Board of Directors of Pharsight Corporation. Tripos International bought out Pharsight for $57M.
12. Sold CoTherix, Inc. to Actelion Pharmaceuticals Ltd.: Mr. Rosen served on the Board of Directors of CoTherix, Inc. Actelion Pharmaceuticals bought out CoTherix for $420M.
- David H. Chung, Chief Commercial Officer
13. Sold Conceptus to Bayer: Mr. Chung served as the Chief Commercial Officer at Conceptus. Just recently, Bayer bought out Conceptus for $1.1B.
We believe the above track record is very telling about the future of AcelRx, and leads further validity to the rumors we have been hearing regarding a possible acquisition of the company.
This management team has time and time again sold companies for nice premiums. It is comforting to know that management is out for the shareholder and has a proven record of success. Many members of the management came from ALZA Corporation, which was one of the most successful mergers in the above list. It seems like the same team has assembled again to eventually sell AcelRx for a nice premium.
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. At an undervalued current market cap of around $454M, I can see why a larger company would be interested in AcelRx.
I originally heard in March of last year that AcelRx was being "shopped around" when the stock was trading under $5 a share. Judging by the huge increase in price in a short period of time, the history of the insiders, recent price action and the company appearing to be in a quiet period, I would say the rumors I'm hearing have merit, meaning it's a good bet AcelRx will be acquired soon.
Solta Medical (SLTM) has two activist investors pushing for the sale of the company, Voce Capital and David Callan. Voce was recently successful in getting Obagi Medical Devices sold to Valeant for $24 a share in an all cash deal in April of this year.
Beginning on February 10, 2012, Voce Capital sent a letter to the Obagi Board of Directors criticizing the Board's adoption of a poison pill and demanding immediate action to address the company's corporate governance failures. Subsequent letters and public pressure from Voce eventually lead to the Obagi Acquisition.
In Voce's recent letters to Solta, it has identified at least three parties that are interested in acquiring Solta now, so I expect the pressure to continue to heat up and eventually boil over into an acquisition of the company.
David Callan was actively involved SRI Surgical (Formerly Nasdaq listed STRC) unsolicited offer bid and eventual sale of the company.
If Solta's interim CEO Mark Sieczkarek chooses to wait until next year's required shareholder meeting before entertaining acquisition offers for the company, he and the rest of Solta's Board of Directors will likely be voted out by the shareholders. This would be a similar strategy Voce followed with Obagi.
Acadia (NASDAQ:ACAD) is one company we have heard some acquisition interest and that makes sense to us. Its lead product candidate, pimavanserin, designed to treat Parkinson's Disease Psychosis (PDP) has completed a sucessfull phase III trial in November of last year. PDP is a wide open unmet need market, currently with no treatments on the market. Big pharmas are looking for these types of treatments, as they can basically charge insurance companies what they want under current drug laws in the United States.
A Roth Capital Partners analyst remarked in May of this year that he believes ACAD is on big pharmas' radar as an acquisition target.
Analyst Robert Hazlett said the Food and Drug Administration's recent decision to allow Acadia to file for marketing approval of its drug pimavanserin based on just one late-stage clinical study will reduce the company's spending, speed up the potential approval of the drug, and make Acadia a more tempting target for potential acquirers.
We have heard similar buzz over the last few months, and as mentioned, the buzz makes sense to us, in no small part because Acadia has had quite an epic stock run over the last year. The stock has rallied from a little over $1 a share to a current price of $28.84, which represents an increase of over 2800% - a staggering number. Even with a market cap of over $2B, we feel Acadia could fetch as much as $6B if the FDA approves pimavanserin, which could happen in the next 6 to 8 months.
Disclosure: I am long ATRS, SLTM, ACRX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: Disclaimer: This article is intended for informational and entertainment use only, and should not be construed as professional investment advice. They are my opinions only. Trading stocks is risky -- always be sure to know and understand your risk tolerance. You can incur substantial financial losses in any trade or investment. Always do your own due diligence before buying and selling any stock, and/or consult with a licensed financial adviser.