Shares of Acorda Therapeutics Inc. (ACOR) rose 3.62%, or 78 cents, to $22.20 Monday, August 7, after a long-term investor in the biotech called for the company "to pursue an immediate review" of its strategic options, including a sale of the entire company.
Scopia Capital Management LP, which owns roughly 7.7 million Acorda shares, or 17% of the outstanding stock, said the company in 2018 "will revert to burning cash with a levered balance sheet and no clear timeline to return to profitability" and needs a new strategy.
"Pursuing an independent strategy now is gambling with shareholder capital," wrote Scopia partner Ashu Tyagi. "Selling the company is being a responsible steward of capital. We expect the company to make the correct choice."
Acorda "crossed the Rubicon" earlier this year when its lost a court fight over patents protecting its top-selling multiple sclerosis drug Ampyra and was forced to fire roughly 100 employees, Tyagi said.
"We admire the business that you have built since founding the company over 20 years ago," Tyagi said. "The company raised $850 million in capital to develop Ampyra, add commercial infrastructure and acquire pipeline assets. Unfortunately, today the company is only valued at $1.2 billion by the public markets."
Tyagi said losing the court battle was a watershed moment for Acorda that demands a new strategy.
"Had the company prevailed in the Ampyra litigation, Acorda would have been a unique company with a path to $1 billion in revenue and significant standalone value. Unfortunately, the company was unsuccessful, and it has now crossed the Rubicon," he said.
Acorda is now adrift in "treacherous waters," Tyagi added.
He argued that recent acquisitions of both Cynapsus Therapeutics Inc. for $624 million and NeuroDerm Ltd. for $1.1 billion, two other companies focusing on treatments for Parkinson's disease and other central nervous system disorders, were a misuse of Acorda's resources. "Acorda is a more valuable acquisition candidate than either of these companies."
Although Inbrija, acquired with Civitas Therapeutics in 2014, "should launch next year and treat a real unmet need in advanced Parkinson's disease, will take time to launch and will likely only replace Ampyra revenues, Tyagi wrote.
Another drug, tozadenant, acquired last year from Biotie Therapies Corp. faces an uncertain fate in Phase 3 trials next year. "The path to a highly profitable, multi-product independent company will be solely determined by this binary event," the Scopia partner said. "That is a lot of development risk for shareholders to bear."
He added that Scopia is "highly confident that multiple qualified, potential buyers would be interested in engaging with Acorda at a significant premium to its present value."
Scopia is demanding that Acorda appoint a special committee of independent directors to oversee a review of all strategic alternatives. "At a minimum we believe it is the board's fiduciary responsibility to engage actively with any parties expressing an interest in discussions regarding a potential transaction," he Tyagi said.
In response to Scopia's letter, Acorda issued a statement defending its board's decision to remain independent.
"As part of its contingency planning related to the Ampyra patents, Acorda's board and management team thoroughly considered options to enhance shareholder value" and "unanimously determined" that focusing on Inbrija and tozadenant, two late-stage programs in Parkinson's disease "is the best path forward to create value for shareholders."
"A sale of the company at the present time would not adequately compensate shareholders for the potential benefits of the company's late-stage programs," according to Acorda's statement. Acorda added that initiating a sale process or a public review of strategic alternatives right now "would destabilize operations, hinder our ability to execute on the company's business plan and risk significantly devaluing the company."
Leerink analyst Paul Matteis said Acorda is right not to seek a sale now. "We tend to agree ... now is not the ideal time for M&A: the company is a mere 5-7 months away from major Phase 3 data [for tozadenant ] and will likely receive an appellate court ruling for Ampyra during the next 12 months."
A wiser approach would be to wait until the tozadenant data lands, he said. "If the company were to successfully transition into a multi-product story we'd see meaningful upside. Conversely, if the Phase 3 tozadenant study were to fail, we agree with commentary from Scopia that financing risk—ahead of the attainment of cashflow breakeven—would become more significant considering ACOR's negative net cash position today."
Acorda noted that members of its senior management team and board members have held numerous meetings with Scopia over the past two years, including the last several months and have "fully considered Scopia's proposals."
Acorda said its board is not only committed to carrying out its fiduciary duties to act in the best interests of shareholders, but also to meeting its responsibilities to all of its stakeholders, "including the many patients with debilitating neurological disorders who are served by the company's innovations, commitment and expertise."
Acorda's identified several initiatives underway to create value and maintain the financial position of the company:
- Portfolio diversification beyond MS, including Inbrija and tozadenant for Parkinson's disease. Acorda predicted Inbrija has peak sales potential of more than $500 million in the U.S. alone and tozadenant is potentially larger.
- Reducing operating expenses through corporate restructuring. Cuts of approximately $50 million in 2017 alone are allowing the Acorda to remain adequately capitalized to complete development of Inbrija and tozadenant. If the FDA approves Inbrija onto the market, the resulting positive cash flow will alleviate the need to raise additional capital.
- Operational execution that allowed the company to achieve positive results in the Inbrija Phase 3 program and filing of a New Drug Application to win FDA approval and has tozadenant on track to deliver Phase 3 data in the first quarter of 2018.