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 Furiex Pharmaceuticals (UNKNOWN:FURX.DX), a drug development company that holds a percentage of royalty rights on a handful of FDA-approved therapies, skyrocketed as much as 33% after Forest Laboratories (NYSE:FRX) announced it was purchasing the company in a deal worth $1.46 billion.
So what: Under the terms of the deal Furiex shareholders will receive $95 per share in cash and could receive up to $30 per share in contingent value depending on whether or not the company's lead experimental drug, eluxadoline, a treatment for diarrhea-predominant irritable bowel syndrome, is approved by the Food and Drug Administration. According to the press release, once the transaction is completed Forest Labs intends to sell Furiex's royalty rights to type 2 diabetes therapy Nesina and premature ejaculation treatment Priligy to Royalty Pharma for roughly $415 million. The deal is unique in that Actavis (NYSE:AGN) is also in the process of acquiring Forest Labs at the moment, but it, too, has given its full support for the buyout.
Now what: I can remember but an instance or two over the years of one company purchasing another while also in the process of getting purchased itself, so this is a bit weird to say the least. I can't say I'm particularly thrilled with the value of this transaction from the perspective of Actavis or Forest Labs. I understand that the company would be able to recoup some of its purchase price by jettisoning Furiex's royalty rights, but it's placing a monstrous valuation on eluxadoline. Even with the company's positive late-stage trial results on eluxadoline I see this huge premium as carrying quite a bit of risk. For Furiex shareholders, however, you should be breaking out the champagne.
Furiex shares may have soared today, but over the long run this stock may easily outpace its gains
Give me five minutes and I'll show how you could own the best stock for 2014. Every year, The Motley Fool's chief investment officer hand-picks 1 stock with amazing potential. But it's not just any run-of-the-mill company. It's a stock perfectly positioned to cash in on the upcoming year's most lucrative trends. Last year his pick skyrocketed 134%. And previous top picks have gained upwards of 908%, 1,252% and 1,303%! Believe me, you don't want to miss what could be his biggest winner yet! Just click here to download your free copy of "The Motley Fool's Top Stock for 2014" today.
Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.