On paper, the 43% premium that Eyetech Pharmaceuticals (NASDAQ:EYET) shareholders will realize from the proposed merger with OSI Pharmaceuticals (NASDAQ:OSIP) looks like a good deal. In fact, Eyetech stock jumped on Monday morning by around 30% from its Friday close.
Yet the $20 per share OSI offered for Eyetech -- the maker of Macugen, a treatment for age-related macular degeneration (AMD) -- is still below the $24 to which the stock had plunged after competitor Genentech (NYSE:DNA) released results from clinical trials involving Lucentis, its own AMD treatment. And it's well below the $48 a share at which Eyetech traded at the beginning of the year. A lot of investors will still be crying over what could have been.
OSI has offered a $935 million deal for Eyetech, some $15 per share of which will be paid in cash. The balance will consist of OSI stock, which itself has taken a few pokes in the eye this year as the battle for the $1.5 billion "wet" AMD market heats up.
Approximately 550,000 people in the U.S. alone are affected by this eye disease. And pharmaceuticals consider treatment to be a profitable approach, given that wet AMD is the leading cause of blindness in people over 60. Eyetech and Pfizer (NYSE:PFE) market Macugen for its efforts in combating the growth of abnormal blood vessels in the eye. When these vessels leak fluid and blood, they damage the macula, the spot at the center of the retina that is responsible for acute central vision. Known as wet AMD, it is responsible for only 10% of all AMD cases but 90% of the severe vision loss associated with the disease.
OSI, meanwhile, primarily develops oncology products for cancer patients. It has also been developing formulations that inhibit the formation of a protein called vascular endothelial growth factor (VEGF), and it has collaborated with Genentech to develop a VEGF inhibitor to be used in combination with its primary drug Tarceva for treatment in kidney and lung cancer. OSI is also working with Bayer (NYSE:BAY) on producing VEGF inhibitors.
What's noteworthy is that it's the VEGF protein that contributes to macular degeneration and which Macugen seeks to address. Yet it's still surprising that OSI would seek to purchase the company. Genentech's Lucentis is a particularly strong competitor and has shown better results fighting AMD in clinical trials, while Motley Fool Hidden Gems pick QLT (NASDAQ:QLTI) markets Visudyne -- what has up to now been the leading AMD treatment. The Eyetech purchase also seems expensive, considering the potential market size.
It will also be interesting to see how OSI's relationship with Genentech develops, now that it will now be both a collaborator and a competitor -- albeit in different fields. The markets apparently didn't like the deal either; OSI's stock lost more than 20% of its value in trading early Monday. With potential revenues for Macugen around $200 million this year, but split evenly with Pfizer, OSI seems to have little to gain from the deal, even if it is looking to expand beyond cancer therapies. Should Lucentis stumble, Macugen could gain some ground, but that seems to be a rather flimsy hope upon which to build a nearly $1 billion deal.
Eyetech shareholders can take little consolation in being offered a premium for their stock. But the situation does offer an eye-opening lesson on the risks inherent in investing in such one-trick ponies.
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Pfizer is a recommendation of Motley Fool Inside Value . Fool contributor Rich Duprey does not own any of the stocks mentioned in this article. The Motley Fool has a disclosure policy.
