Several days ago, Avenue Therapeutics (OTC:ATXI) announced an acquisition agreement with InvaGen (a subsidiary of Cipla, one of the larger pharmaceutical companies in India), whereby InvaGen will acquire via the offering of about 5.8M shares of Avenue (33.3% of the company) for about $35M or $6 per share.
Upon closing, InvaGen will then spend another $180M to buy the reaming shares of Avenue at about $13.92 per share, subject to conditions. Conditions being that the FDA approves Avenues' IV Tramadol drug in the future.
Avenue was trading about $3 a share at the time of the announcement and closed about $5.47 on Friday.
Is Avenue a buy?
The answer is yes. While Friday's close in not that far from the $6 handle that InvaGen will be buying the freshly minted shares, receiving $14 a share, assuming IV Tramadol is approved by the FDA, is not a bad deal.
Yes, there is always the risk that the FDA does not approve IV Tramadol; however, InvaGen is making a $30M bet it will. The fact that another pharmaceutical company is doing this deal probably means they spent a lot of money doing their due diligence on the drug and feel comfortable the drug will be approved.
While it is not a guarantee for approval, nevertheless, I feel more comfortable with the idea they feel comfortable approval will happen.
So, for those looking for a biotech trade with a relative margin of safety, I think Avenue is a buy.
Is Fortress Biotech a buy?
An interesting twist in this deal is that Fortress Biotech (NASDAQ:FBIO) owns 34% of Avenue and the majority of voting shares (via preferred Class A Shares which provide super-majority voting rights). And while Avenue's stock jumped on the news, to my surprise Fortress barely moved (so far). So, let's investigate how much money Fortress might make
