- Thomson Reuters
Allergan, the pharmaceutical giant, is purchasing tiny Tobira Therapeutics in an interesting acquisition.
The deal is initially for $28.35 per share in cash; however, according to the statement from Allergan, the deal could balloon to much more.
Tobira, which closed trading on Monday at $4.74 a share and with a market cap of just $89 million, is developing two drugs to treat NASH disease. According to the Allergan statement, NASH is a buildup of fat in the liver for unknown reasons that can eventually lead to liver failure.
Tobira has two drugs under development that, used together, could help to treat NASH – Cenicriviroc and Evogliptin – and this is where the big payday for Tobira comes in. In the event that the drugs meet certain thresholds, Tobira’s purchase price could get much larger.
“Allergan will acquire Tobira for an upfront payment of $28.35 per share, in cash, and up to $49.84 per share in Contingent Value Rights (CVRs) that may be payable based on the successful completion of certain development, regulatory and commercial milestones, for a total potential consideration of up to $1.695 billion,” the Allergan release said.
Thus if the drugs end up making it to market, the acquisition price doubles, and the company is acquired for a total over 1,800% above its closing market cap on Monday.
The move by Allergan, according to the release, is a bet that the drugs will not only be successful, but also will address a growing need.
“With the increasing rates of diabetes, obesity, and other metabolic conditions in the US and in developed nations globally, NASH is set to become one of the next epidemic-level chronic diseases we face as a society,” Allergan CEO Brent Saunders said in the statement announcing the move.
“It is important that we invest in new treatments today so that healthcare systems, providers, and patients have treatment options to face this challenge in the coming years.”
It’s not uncommon for a pharma company’s stock to skyrocket following the approval of a new drug. Shares of Sarepta Therapeutics surged as much as 86% on Monday after the Food and Drug Administration approved its Exondys 51 drug.
Thus Allergan is betting that the development of Tobira’s drugs will similarly add value to its portfolio.
In premarket trading, shares of Tobira surged to $31.85 per share, a 572% increase from Monday’s close. Shares of Allergan were down slightly following the news, down 0.3%, to $244.50 per share, as of 8:34 a.m. ET.