A Missed Boat on New River

When you pick stocks for a living, whether it's as a portfolio manager, trader, analyst or columnist, you're bound to end up with both winners and losers over time. Every so often, a stock will end up burned in your memory as an example of perfect execution or everything going wrong.

With the buyout Tuesday of New River Pharmaceuticals (NRPH) by Shire , the New River story will leave me shaking my head in bewilderment for years to come, wondering where my analysis went wrong.

Over the past several months, I detailed the biotech company's sky-high valuation, its insider sales, its hiring of an executive that signaled expectations of a tough regulatory environment and most of all my belief that Vyvanse, its attention deficit hyperactivity disorder drug, will not be as successful as the Street expects.

But despite my being a nattering nabob of negativity, Shire found value to the tune of $2.6 billion in New River's business. Along with Vyvanse, Shire also obtains NRP290 -- a drug currently in phase II trials that is intended to be a safer and abuse-resistant alternative to acute pain medications such as Vicodin, OxyContin and Percocet -- and NRP409, a treatment for hypothyroidism that could enter clinical trials this year.

Price Points

The takeout premium is less than 10%, which leads me to believe that perhaps the parties involved in the negotiations realized the stock was fully valued. Biotech acquisitions have sported some large premiums over the past few months, including the 100% premium Merck (MRK) paid for Sirna Therapeutics last year. Genentech (DNA) is in the process of acquiring Tanox (TNOX), for which it will pay a 47% premium.

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