Avanir Pharmaceuticals, Inc.’s (AVNR) shares jumped 12.8% on a buyout offer from Japan-based Otsuka Pharmaceutical Co., Ltd. The companies have signed a definitive agreement under which Otsuka will acquire Avanir in a cash transaction valued at $3.5 billion or $17 per share. The deal is slated to close in the first quarter of 2015.
Following the acquisition, Avanir will operate as an independent subsidiary of Otsuka America, Inc. with an unchanged operating structure.
How Will Otsuka Benefit?
Otsuka’s acquisition of Avanir will provide a three-fold benefit to the former. Firstly, Otsuka will have access to Avanir’s expertise (both clinical and commercial) in the field of central nervous system (CNS) diseases. Given Avanir’s specialization in this field, the acquisition will help Otsuka gain full-scale entry in the area of neurological diseases which will facilitate the company’s expansion in this sector.
Moreover, the Avanir acquisition will add Nuedexta (approved for the treatment of pseudobulbar affect (PBA)) to Otsuka’s portfolio. In the first nine months of 2014, Nuedexta achieved total sales of $74.2 million, up 47.1% year over year. We believe there is ample scope for the drug to increase revenues. Otsuka expects Nuedexta revenues to contribute to its top-line starting 2015. Additionally, Otsuka expects to benefit from Avanir’s cash flow starting 2016.
With this acquisition, Otsuka will also gain late-stage candidate, AVP-786, which is being developed as an adjunctive therapy for major depressive disorder. Avanir’s pipeline program on AVP-923 in different mood/behavior disorders including agitation related to Alzheimer’s disease and levodopa-induced dyskinesia in Parkinson’s disease may further foster Otsuka’s R&D activities.
Our Take
We believe that the Avanir acquisition will enhance Otsuka’s CNS portfolio and boost both short- and medium-term growth trajectories. The offer price represents a premium of 13.3% over Avanir’s Dec 1 closing price of $15 per share.
Avanir currently carries a Zacks Rank #2 (Buy). Investors looking for better-ranked stocks in the health care sector may consider Lannett Company, Inc. (LCI), Sucampo Pharmaceuticals, Inc. (SCMP) and Valeant Pharmaceuticals International, Inc. (VRX). All these stocks carry a Zacks Rank #1 (Strong Buy).
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