NEW YORK ( TheStreet) -- Otsuka is buying Avanir Pharmaceuticals ( AVNR) for $3.5 billion, proving once again the Japanese love to overpay for U.S. assets.
Avanir shareholders will receive $17 a share in cash from Otsuka, or a 13% premium to the stock's Monday close. Expect to hear some yelping from Avanir shareholders about management not fetching a higher takeout price. In reality, receiving $3.5 billion for what is essentially reformulated cough syrup is a gift-wrapped present delivered well before Christmas. Avanir shareholders should be thankful.
This is the second time in two years Otsuka has ventured into the U.S. to spend freely on small drug companies. The Japanese drugmaker is trying to shore up its product pipeline ahead of April 2015 when patents on its best-selling schizophrenia drug Abilify expire. In September 2013, Otsuka paid $886 million to acquire the small cancer drug maker Astex Pharmaceuticals.
By acquiring Avanir, Otsuka gets a co-formulation of two old, generic drugs -- the cough suppressant dextromethorphan and quinidine, commonly used to control heartbeats. Marketed as Neudexta, the combined drugs are used to dull episodes of uncontrolled laughing and crying in patients with the neurological disorder known as pseudobulbar affect (PBA.) Neudextra sales in the current fiscal year are expected to only reach about $112 million. Avanir is also developing the same combination under the name AVP-923 to soothe agitated Alzheimer's patients. The company's market value soared well above $2 billion in September after results from a phase II study of AVP-923 were released.
Avanir has struggled to convince insurance companies to cover the cost of reformulated cough syrup to treat the relatively small number of PBA patients, so would they consent to reimbursement for potentially millions of Alzheimer's patients? True drug development innovation this is not, but once the acquisition closes this is Otsuka's problem to deal with if it can design phase III studies and produce positive results sufficient for approval.
Merry Christmas, Avanir shareholders! Santa-san has brought a gift!