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Does Somaxon’s new stock offering fit in the picture of a potential buy-out?

|Includes: Somaxon Pharmaceuticals, Inc. (SOMX)
At this stage it was expected for Somaxon to go ahead with such stock offering as it will not only put the company into a better bargaining position towards multiple potential buyers, but simultaneously allow the company to proceed with its plan for commercialization of Silenor and to strengthen the company’s organization, which also makes it a more attractive target for the buy-out.  

More time is needed to obtain the best deal with the potential buyers and funds are necessary for:

  • Initial implementation of marketing and commercialization plans
  • Continuation of R&D and trials requested by the FDA
  • Continued efforts to achieve better patent protection in the US and abroad.

Somaxon’s management has a pragmatic approach towards it goals and remains very realistic to what it can achieve alone, or as part of a team. In this context it was interesting to read in the latest annual report “Compared to us, many of our potential competitors have substantially greater”:

  • capital resources;
  • research and development resources, including personnel and technology;
  • regulatory experience;
  • experience conducting non-clinical studies and clinical trials, and related resources;
  • expertise in prosecution of intellectual property rights; and
  • manufacturing, distribution and sales and marketing resources and experience.


There are a number of elements that may hint towards a potential sale:

The shuffling of the BOD, see page 51 item 9B in the latest annual report:

On March 18, 2010, Jesse I. Treu, Ph.D. informed us that he does not intend to stand for re-election as a director at our2010 annual meeting of stockholders, but he will continue his service as a director until such meeting. In addition, on March 18, 2010, Kurt C. Wheeler resigned from our BOD and the compensation and nominating/corporate governance committees thereof effective as of such date. Neither Dr. Treu’s decision to not stand for re-election nor Mr. Wheeler’s resignation resulted from any disagreement with us concerning any matter relating to our operations, policies or practices.

There is a whole lot of outstanding options and warrants that are now exercisable within 60 days of March 18, 2010,
This timing was triggered by the latest events. By May 18, 2010 we should be close to the date of the next annual meeting and it should give enough time to come to conclusions with one of the potential suitors.

Over more, we have seen that there is also a shuffling of the Beneficial Shareholders:
Boxer Capital, LLC and Millennium Management, LLC are back as share holders and Montreux Equity Partners LLC, is partially out. As from today I calculated that the complete group of venture capitalist is holding 53.5% of the current beneficial shares and most probably the new offering of 4 to 4.6 million shares will also go to these or other venture capitalist. It is my opinion that these venture capitalists as a group will be most seduced towards a buy-out. 
And as Somaxon Management wrote themselves in that latest annual report: “As a result, these stockholders, acting together, would be able to control all matters requiring approval by our stockholders, including the election of directors and the approval of mergers or other business combination transactions”


Disclosure: Long