Why KYTHERA Biopharmaceuticals Inc. Shares Shot Higher

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of KYTHERA Biopharmaceuticals (NASDAQ: KYTH  ) , a clinical-stage biopharmaceutical company developing prescription products targeted at the aesthetic medicine market, jumped by as much as 12% after the company announced it had acquired all rights to ATX-101 outside the United States and Canada.

So what: According to KYHTERA's press release, the company has acquired all rights to ATX-101, its submental fat (i.e., unwanted fat under a patient's chin) reduction drug, outside of the U.S. and Canada from its development partner, Bayer (NASDAQOTH: BAYRY  ) . Under the terms of the agreement, Bayer will receive $33 million in KYTHERA common stock, plus a $51 million note that KYTHERA must pay no later than 2024. Bayer remains eligible to receive long-term sales milestone for ATX-101 as well. KYTHERA also notes that it's on track to file for a new drug application for ATX-101 in the second quarter.

Now what: Anytime a wholly clinical-stage company can reacquire the rights to a promising compound outside the U.S. for what is basically the equivalent of a common stock issuance and a 10-year loan I'd say they've done a pretty good job. The market for aesthetic medicines is huge because economic fluctuations tend to take a backseat to consumers' self-confidence, so with that respect ATX-101 future sales look promising. Current peak annual sales estimates, assuming approval, vary wildly, but sit most commonly around $500 million. While KYTHERA's current value of $1 billion may seem reasonable, consider that it's splitting that revenue in the U.S. and Canada with Bayer. Given that, I believe much of ATX-101's catalysts, including its possible approval and launch, may have already been priced into KYHTERA's shares.

KYTHERA shares have soared over the past year, but even it may find difficulty in keeping pace with this top stock in 2014
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  • Report this Comment On March 12, 2014, at 8:19 AM, wrenhill wrote:

    Bayer has decided to dump this product back on the partner for the same price they paid 4 years earlier. After spending 4 years and millions of $$ in development, they looked at the results of the Phase III studies, spoke to the regulatory agencies, and then decided they should cut their losses and dump the product.

    Kythera has done a good job of papering over bad news by paying millions for something Bayer was going to dump in the trash.

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BAYRY $131.59 Down -1.39 -1.05%
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