Clinical-stage migraine and neurological disorder focused biopharma Satsuma Pharmaceuticals Inc (US:STSA) surged 64% in trading on Monday after Shin Nippon Biomedical Laboratories (JP:2395) announced a takeover offer for the stock in a 13D/A filing.

The deal comes at a time when STSA stock was trading 72% lower on a one year view and down more than 90% on a five-year time horizon. The rally cooled slightly in extended trading on Monday evening and pared 3.7% in Tuesday’s pre-market trading, at last look.

The SNBL offer may serve as a lifeline for the company that has seen widening losses over the last few years with growing negative cash flows.

According to the filing, SNBL beneficially owns 8.4% of the STSA float. The deal will see Satsuma shareholders receive $0.91 per share in cash per share plus one non-tradeable contingent value right (CVR) of up to $5.77 per share. The CVR is payable pursuant to the future sale, license, or any other monetization events related to STS101 (dihydroergotamine (DHE) nasal powder), a novel investigational therapeutic product candidate for the acute treatment of migraine.

Exclusive License

Satsuma submitted a New Drug Application to the U.S. Food and Drug Administration in March 2023 for STS101, which incorporates nasal powder formulation and delivery device technologies developed by SNBL and exclusively licensed by the group.

The drug is unique in its delivery method, which allows it to be administered without water, enabling patients to take it anywhere. Satsuma believes that the drug has the potential to be a more efficient and effective treatment option for patients suffering from migraines compared to currently available drugs.

“We believe that STS101 will contribute to improving the quality of life of patients suffering from migraine. Consistent with SNBL’s corporate mission ‘to support drug discovery and the advancement of medical technology to relieve human suffering,’ we look forward to STS101 potentially becoming a treatment option for people with migraine as soon as possible,” said Dr. Ryoichi Nagata, chairman and president of SNBL.

Satsuma’s board of directors stated that they believe that the acquisition of Satsuma by SNBL is the best strategic alternative for Satsuma and that the transaction will maximize value for the company’s stockholders. The Board of Directors has recommended that Satsuma stockholders tender their shares in the Tender Offer. The deal is a significant step for Satsuma to bring STS101, a novel and promising drug candidate, to the market to address the unmet needs of many people with migraines.

The acquisition by SNBL will provide Satsuma with the resources and expertise required to launch STS101, which the company expects will be the first and only DHE nasal powder product to be approved by the FDA. The transaction will also enable Satsuma to leverage SNBL’s drug delivery platform to develop other products in the future.

If the tender process is successful, the transaction is expected to be completed in the next few weeks.

Arbitrage Opportunity

The cash consideration of $0.91 and the CVR right with a value of up to $5.77 represents total value for Satsuma Pharmaceuticals stock holders of $6.68, if fully maximized.

Shareholders could still gain 618% of capital upside based on a closing price of $1.08 on Monday.

Ladenburg Thalmann analyst Aydin Huseynov views the deal as “transitory” and thinks SNBL will not likely launch STS101 and will instead bridge the candidate until approval before selling to one of the larger biopharma companies with the proceeds of potential sales reflected in CVR’s face value.

The firm maintained its ‘buy’ call on the stock and $3 target price and said the target price would be revisited if the product is approved by FDA in January 2024.

Fintel’s consensus target price of $2.30 per share suggests analysts think the stock is significantly undervalued at current levels and could rise around 250% over the next year.

Interesting Options Trades

Fintel’s options data for STSA yesterday revealed a large chunk of net premium that was sold in the stock. This was primarily driven by a significant number of put options purchased by investors, indicating that they think there is a chance the deal could fall through.

This article originally appeared on Fintel

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