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 Auxilium Pharmaceuticals (NASDAQ: AUXL) are up over 40% this morning after management confirmed that Endo International plc put in an unsolicited tender offer to buy the company. The offer is reportedly worth $2.2 billion, or $28.10 per Auxilium share.
Last June, Auxilium agreed to merge with Canadian biotech QLT (NASDAQ:NVLN) to gain access to their orphan drug candidates indicated for genetic-based diseases of the retina. Per today's press release, Auxilium is not planning on altering this merger agreement with QLT, but management is reviewing the offer as part of their fiduciary duty. QLT shares have nonetheless dropped by as much as 15% today, signaling that investors are concerned the planned merger will be nixed.
So what: Auxilium's portfolio of urology and men's health products, combined with a planned restructuring, are expected to help push earnings per share up by 431% next year. So the lingering question is going to be whether Endo's offer is rich enough.
Now what: Auxilium's management and legal advisers are going to pore over this deal to consider their next move. My take is that the planned merger between Auxilium and QLT is worth more than $2.2 billion on a forward-looking basis. Endo therefore might have to substantially up the offer if it wants to make this deal a reality.
In sum, I wouldn't try chasing this stock on the heels of this news, if you missed out on today's massive move upwards. The offer could easily be rejected by Auxilium for a number of reasons, which would probably cause shares to return to their former levels in a hurry.