Barrier Taken Down

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Proving that even the smallest drugmakers can sometimes find a buyer, Barrier Therapeutics (Nasdaq: BTRX) announced yesterday that Stiefel Labs would buy the company for $148 million.

In a few short months, Barrier has gone from looking to pick up new compounds itself to entering the fold of privately held Stiefel. At $4.15 a share, the nearly 136% premium Stiefel is offering beyond Friday's closing price may seem like a great deal for Barrier shareholders, but remember that Barrier commanded more than $8 a share less than two years ago.

Both Stiefel and Barrier focus on marketing drugs to treat dermatological conditions. In the first quarter, Barrier had revenue of $8.4 million from its compounds, and it expected 2008 sales to top $40 million. This hasn't been enough to stanch the company's steady outflows of red ink, though; Barrier's operating cash flow declined more than $11 million in the most recent quarter.

With only $37 million in cash and equivalents on its balance sheet at the end of the quarter, Barrier thus had to either find a partner for its drugs, or submit to a potentially punishing new round of financing. This deal makes sense on Stiefel's end as well. Barrier's products will be worth more to a larger company that can better market such drugs, and put more resources into new clinical studies to improve their labels.

There has been a spate of activity in the dermatology-products space in recent weeks, most recently including Allergan's (NYSE: AGN) purchase of QLT's (Nasdaq: QLTI) acne treatment. Stiefel's acquisition of Barrier won't do much to expand the market for these treatments, but it does show that even niche products can find a home in larger drugmakers' portfolios, if the price is right.

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