Specialty pharmaceutical company Assertio Holdings Inc (US:ASRT) announced Tuesday that it finalized an agreement to acquire all outstanding shares of Spectrum Pharmaceuticals Inc (US:SPPI) in an all-stock and contingent value rights (CVR) transaction worth up to $1.34 per share.

The news pushed SPPI stock 32.7% higher to 92 cents per share, while ASRT shares sank 16.1% on the deal. Spectrum’s shares are giving back a bit in Wednesday’s pre-market trading, off 6% at last look.

Under the terms of the deal, Spectrum stockholders will receive a fixed exchange ratio of 0.1783 shares of Assertio common stock for each share of Spectrum common stock they own, implying an upfront value of $1.14 per share (based on ASRT’s April 24 closing price).

Shareholders will also be entitled to receive an additional 20 cents per share payable in cash or stock. The CVR is contingent on chemotherapy treatment Rolvedon net sales reaching $175 million in 2024 and $225 million in 2025, with each year worth about 10 cents.

Implied Premium

The deal terms imply a premium of 65% or 94% including the CVR, but represents a price well below the company’s valuation five years ago. While the premium is significant, the acquisition comes after Spectrum Pharmaceuticals’ stock performance struggled in the past five years, with shares currently trading 80% lower.

The deal is expected to benefit Assertio’s digital non-personal platform, as Spectrum’s commercial infrastructure will complement it, aiding clinical messaging, reimbursement education and Rolvedon awareness to further accelerate its launch.

Dan Peisert, president and CEO of Assertio, said: “The addition of Spectrum’s commercial capabilities and Rolvedon… exemplifies Assertio’s attractiveness as an acquirer of new, accretive assets across diverse therapeutic categories, and ability to continue their growth and achieve profitable contributions faster and more efficiently than could be achieved on a standalone basis.”

The transaction will enable Assertio to retain the majority of Spectrum’s commercial team and add operating costs of approximately $60 million annually. However, cost synergies are expected to enhance the profit opportunities for the combined company and generate double-digit accretion to adjusted EPS and increased operating cash flows in 2024.

The deal will see Assertio stockholders will own about 65% of the combined company, while Spectrum stockholders will own about 35%, on a fully diluted basis. It is expected to close in the third quarter of 2023.

No Antitrust Issues

Cantor Fitzgerald analyst Prakhar Agrawal thinks the deal will not face any antitrust issues given that Assertio does not have an oncology product in this portfolio. The analyst also thinks that the odds of Roveldon achieving the CVR milestones are very low and so did not include it in his increased target price to $1.14 from $0.75. Cantor Fitzgerald has a ‘neutral’ view on the stock.

Fintel’s consensus forecast target price of $2.70 suggests the Street was forecasting for shares to triple in value this year. For some comparison, the consensus target price for ASRT is $8.54, also suggesting the market thinks the stock could see up to a 50% rise in the share price.

Traders Off Guard

SPPI options trade data compiled by Fintel highlights a significant level of net premium that was sold in the market on Monday prior to the announcement.

This article originally appeared on Fintel

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