Japanese drugmaker Otsuka Pharmaceutical Co. is buying US-based Avanir Pharmaceuticals (AVNR) for $3.5 billion, or $17/share, in a deal announced Tuesday morning.
Despite a tremendous run into year-end for large and mid-cap biotech stocks – the iShares NASDAQ Biotech index (IBB) is up 22% from mid-October – the Otsuka/Avanir deal may keep the sector in the spotlight. Avanir takes criticism from industry experts for a lack innovation: the active ingredients in both NUEDEXTA and AVP-923 have been around for years. Otsuka was still willing to pay nearly $4 billion. It appears the readthrough in the markets on Tuesday is that pharma’s appetite for M&A, even paying top dollar for incremental improvements in drug products, is still high. The small/mid cap-weighted XBI is up 2% on Tuesday, just shy of all-time highs.
Avanir sells NUEDEXTA, a combination of dextromethorphan and quinidine approved in 2010, as a treatment for pseudobulbar affect; the drug did $26.5 million in the third quarter of 2014. More importantly, a new version of this combination, dubbed AVP-923, demonstrated in a phase II trial two months ago a statistically significant improvement in agitation associated with Alzheimer’s disease. Since the trial results, AVNR has climbed more than 100%. Tuesday’s announced price is a 13% premium over Monday’s close.
