Are Avanir Shareholders Getting Enough in the Buyout?

After the transaction is completed, Avanir will continue to operate under its current structure as an independent subsidiary of Otsuka America.

Earlier in September, Avanir announced positive Phase 2 results for its drug candidate AVP-923, a new potential therapy for agitation and aggression in patients with Alzheimer’s disease. It is highly likely that Avanir was acquired specifically for this drug candidate and potential applications that it might have in the area of mental illnesses.

Otsuka Pharmaceutical president and representative director Taro Iwamoto said in the press release:

As we bring together Otsuka’s experience and business track record in the area of mental illnesses with Avanir’s strengths in neurologic diseases, we believe that we can evolve into a truly global CNS pharmaceutical company. Avanir’s creativity and proven execution on drug discovery and development for largely unexplored medical indications, typified by PBA, represents a hand-in-glove fit with Otsuka’s culture. We admire and respect Avanir’s innovation, vision, and execution and want to continue to grow together.

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In line with what Iwamoto said, the drug candidate helps by alleviating dementia-related neuropsychiatric symptoms such as agitation and aggression, and there can be a broader impact for other mental illnesses as well. The potential impact that AVP-923 could be significant in terms of improving not only the patient’s life but also that of the caregiver.

As a reminder, Alzheimer’s disease is one of those indications for which there are no cures, and the treatments on the market today mostly target detection and delaying the onset of symptoms. Any drug that makes major headway against Alzheimer’s disease has mega-blockbuster potential in the United States alone.

The Alzheimer’s Foundation of America lists a very scary statistic: it is estimated that as many as 5.1 million Americans may have Alzheimer’s disease, and an estimated half-million or so Americans under 65 have some form of dementia.

Since mid-September, Avanir stock has risen 122% to Monday’s close of $15.00. Note that Avanir has been public for roughly 20 years. This stock reached more than $15 in 2006 and was above $20 and even $25 in parts of 2000 to 2001.

Shares of Avanir responded to news of the buyout by reaching $17.13, up 14.2% from Monday’s close. The stock has a consensus analyst price target $17.71 and a 52-week trading range of $2.62 to $15.34. The company’s market cap prior to the buyout was $2.58 billion.

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