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 the orphan drug specialist Synageva BioPharma (NASDAQ: GEVA) rose by over 115% today on exceptional volume after the company announced that it agreed to an $8.4 billion tender offer from Alexion Pharmaceuticals (ALXN).
Although the details have yet to be released, Alexion will reportedly finance the buyout via a mixture of cash and stock, paying $230 a share in total for the rare disease drugmaker. What's noteworthy is that this purchase price represents at a staggering 142% premium compared to where Synageva's stock finished trading on Tuesday.
So what: Whenever a biopharma decides to pony up billions of dollars for a company with zero approved products, the question of overpaying is going to pop up. And that appears to be what's driving Alexion's shares down by almost 10% today. That said, investors should bear in mind that the orphan drug market is on pace to grow to an astounding $130 billion by 2020, and Synageva has a fairly remarkable pipeline of experimental drug candidates.
Now what: The first real test of this high dollar buyout will come in September, when the Food and Drug Administration is expected to hand down its verdict on Synageva's experimental treatment for lysosomal acid lipase deficiency called Kanuma. While the drug's market potential isn't well-understood because of problems identifying patients -- a common problem among ultra rare disorders -- some experts believe Kanuma could generate blockbuster-type numbers if approved in both the U.S. and EU.
Apart from Kanuma, Synageva's remaining clinical assets are either in pre-clinical studies or early stage trials, meaning that it will be a long while before we know if Alexion really overpaid or not. My outlook, though, is that Alexion probably paid a reasonable price, as long as Kanuma is approved later this year as expected.
