What happened
Shares of the autoimmune specialist Aurinia Pharmaceuticals (AUPH 0.82%) rose by as much as 13.2% in early morning trading Friday. The biotech's shares cooled off after their hot start and are up by 8.6% on heavy volume as of 1:41 p.m. ET Friday.
The stock is marching higher today in response to the board of directors' decision to explore strategic alternatives, including a possible buyout, to boost shareholder value. The decision was announced yesterday afternoon via a press release.
So what
Aurinia's stock has plummeted by a remarkable 72% from its 2021 peak. The biotech's shares have declined despite a strong commercial launch for its lupus nephritis medication Lupkynis. This year, for example, Lupkynis' sales are expected to grow by up to 15.6%, according to the company's high-end sales guidance.
The shares have suffered lately due to the company's failure to attract a buyout offer. Although the biotech has been rumored to be a target for several potential buyers, such as Bristol-Myers Squibb and Novartis, a formal offer has never emerged.
At their peak, Aurinia's shares were trading at a high premium, based on the expectation that a deal was near. When no buyer came forward and other competitive challenges emerged, the shares lost their premium valuation.
Now what
Is the stock a buy on this latest development? The company's decision to explore a sale might be good news for many shareholders who are currently upside down. Lupkynis' sales are respectable but not spectacularly so. As a result, Aurinia is likely to remain cash flow negative until perhaps mid-2025.
But there is no guarantee that the company will find a buyer willing to pay a worthwhile premium. Moreover, the drugmaker could choose a less shareholder-friendly option in its strategic review, such as merging with a developmental-stage company. Therefore, this news doesn't stand out as a solid reason to buy the biotech's shares.
