Investment View of the Proposed Acquisition
Cubist (CBST) announced today that it had signed a definitive agreement to acquire Adolor (ADLR).
Adolor has been one of my four current recommendations. My price target was $4.50 in 2013, based on sales and earnings of Entereg alone and before taking into account the potential for ADL5945. This acquisition gives current shareholders $4.25 immediately and the potential to participate in the possible success of ADL5945 through a Contingent Payment Right (CPR) that could provide an additional payout of up to $4.50. While this deal does not provide the upside that might have come with Adolor going it alone with ADL 5945, it substantially reduces the risk for shareholders of going through the development process. On balance, I think this is a fair deal.
The CPR will not be publicly traded. In going over the terms of the CPR, it appears that if ADL5945 is approved with a clean, non-restrictive label in both the US and Europe, there is a good chance that shareholders could receive the full $4.50 value of the CPR in the 2015 to 2016 time frame.
Each share of Adolor will be acquired for $4.25 per share in cash. In addition, for each share of Adolor, a CPR will be issued which, could be worth up to $4.50 contingent on achieving certain regulatory and commercial milestones for AD5945.
In connection with the CPR, the Company will enter into a Contingent Payment Rights Agreement with a rights agent governing the terms of the CPR. The terms of the CPR agreement call for additional potential cash payments up to a maximum of $4.50 per CPR. The CPRs will be nontransferable. Each CPR will entitle its holder to a series of potential payments based on the achievement of certain milestones, which can be summarized as follows:
- $1.25 per CPR payable if ADL5945 receives FDA approval for the treatment of chronic opioid induced constipation on or before July 1, 2019.
- An additional $1.75 per CPR payable if such FDA approval meets certain safety, efficacy and timing criteria. This relates principally to ADL5945 having a clean, non-restrictive label.
- $0.50 payable if ADL5945 receives centralized EU approval for the treatment of OIC on or before July 1, 2019.
- An additional $1.00 per CPR payable if such centralized EU approval meets certain safety, efficacy and timing criteria. This relates principally to ADL5945 having a clean, non-restrictive label.
- If, as of July 1, 2019, the Additional FDA Payment has not been earned, up to $1.75 per CPR payable if certain commercial milestones for ADL5495 are reached; and
- If, as of July 1, 2019, the Additional EMA Payment has not been earned, up to $1.00 per CPR payable if certain commercial milestones for ADL5495 are reached.
Disclosure: I am long ADLR.