Raptor Pharmaceuticals (NASDAQ:RPTP)
On Monday, Horizon Pharma bought out Raptor Pharmaceuticals for $800 million in an all cash deal. Taking into account the amount of cash in the buyout, it translates to $9 per share. Although the stock traded higher by 20.3% to $8.96. Before the news of the announcement Raptor’s stock traded at $7.45 per share. The stock was no stranger to a heavy amount of trading volume. The stock traded a total of 47 million shares, which was 54 times greater than the 3-month average volume of 821,000.
Horizon has been known to make many acquisitions over the years to bolster its pipeline. In this case, it had laid out that much cash to boost its rare disease portfolio. That’s because Raptor Pharmaceuticals had a range of different drugs in the pipeline that treat many types of rare diseases. Such diseases range from Huntington’s Disease, Cystic Fibrosis, and many others. With this buy Horizon will be able to get a wide variety of new drugs in the pipeline that target multiple rare diseases.
The CEO of Horizon Pharma, Tim Walbert, noted in an interview that buying into Raptor’s pipeline is for another underlying reason. That reason being that by targeting rare diseases it won’t be affected as much as it is right now on pricing pressure. For example, Mylan, Vertex, and other pharmaceutical companies have fallen under scrutiny for raising drug prices by an enormous amount. This has caused a back lash in pharmaceutical industry. Where patients, doctors, and specialty pharma are not happy with pharma companies raising the price so much.
This holds especially true after many pharma companies have raised prices on drugs that have been on the market for 10+ years, and treat a big population of people that need the treatment. There is a loophole that exists when it comes to rare diseases, and this is where the underlying reason comes in. With not that many pharmaceutical companies targeting a rare disease, it allows the company itself to deliver a treatment that costs an enormous amount.
The U.S. government has gone after pricing pressure from drugs that treat a wide patients population, but have done nothing for those that treat a rare disease. For example, Vertex Pharmaceuticals drugs treat cystic fibrosis. Even then, some patient sub populations only contain 2,000 patients or less. In this case, to make a crazy amount of money Vertex has set one of its Cystic Fibrosis drug, known as Kalydeco, to $300,000 a year. Tack on the fact that the patients will probably have to take the drug for the rest of their lives, because it is no cure, then that means Vertex stands to make millions of dollars for the rest of the patients’ lives.
This example can be brought up to all other drug companies that only research rare diseases. Which is probably a big reason why Horizon Pharma bought out Raptor Pharmaceuticals. This brings up another issue that must be addressed for shareholders. Is a biotechnology company that targets rare diseases only worth a 21% premium? It seems that shareholders got robbed here my Raptor’s management team. With a pipeline like the one Ratpor has I could at least see a 100% or higher premium. I think that Raptor’s shareholders may have even been robbed.
Especially for the reason that Raptor has a larger pipeline than most other biotechnology companies. The fact that it targeted a lot of rare diseases should have also garnered a higher premium price to its last close. Going forward it seems that this one is going to get bought out for the price listed in the new today. Unless another miraculous bid comes in, shareholders shouldn’t expect to receive more for a premium. If all goes well with the buyout then the buyout transaction is expected to go through in the fiscal fourth quarter of 2016.
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