In a Nov. 16 research note, analyst Ed Arce with H.C. Wainwright & Co. reported Avenue Therapeutics Inc. (ATXI:NASDAQ) has agreed to be acquired by InvaGen Pharmaceuticals Inc., a private Indian company, for $215 million in cash. "Critically, this investment allows Avenue to be fully funded beyond anticipated FDA approval of intravenous Tramadol by year-end 2020," the analyst stated.
Arce explained the transaction is "a much better outcome than many had feared." The transaction will comprise two parts: a stock purchase and a merger agreement. Upon closing of the first stage, which requires approval by a majority of Avenue shareholders, InvaGen would acquire a 33.3% ownership of Avenue on a fully diluted basis for $35 million, which is expected to be 5,833,333 shares at $6 per share. This is a 44.2% premium to the closing price of $4.16 on Nov. 12.
Consequently, Avenue is expected to file a preliminary proxy statement soon and then, following resolution of the FDA's feedback, a definitive proxy statement. The shareholder vote and subsequent InvaGen investment are anticipated in Q1/19.
Also included in the agreement, InvaGen may provide $3 million in credit to Avenue until closing of the first stage, which would be subtracted from the stock purchase if used. Between the closings of the first stage and the merger, the acquirer may provide further financing up to $7 million, which, if drawn, would be deducted from the merger consideration.
As for the merger, it depends on four conditions:
- FDA approval of IV Tramadol
- A broad label on IV Tramadol consistent with oral tramadol for moderate to moderately severe pain, without limitations depending on type of surgery
- No risk evaluation or mitigation strategy or other commercialization restrictions
- Drug Enforcement Administration Schedule IV categorization.
Upon closing of the second stage—the merger—InvaGen would acquire the remaining issued and outstanding shares of Avenue for $180 million, which is expected to be about $13.92 per share.
Shareholders as of April 2021 would receive payment for their shares and one contingent value right (CVR) per share. Each CVR would allow for cash payments when commercial milestones are met in two time frames.
Of the proposed deal, Arce concluded, "Leveraging InvaGen's desire to establish a specialty hospital business in the U.S., Avenue has, we believe, struck a highly favorable agreement, allowing current shareholders to capture an estimated 235% gain in less than 2.5 years, before considering the CVRs."
H.C. Wainwright reiterated its Buy rating and $11 per share price target on Avenue, whose current stock price is about $5.37 per share.[NLINSERT]
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Disclosures from H.C. Wainwright & Co., Avenue Therapeutics Inc., Estimate Changes, November 16, 2018
I, Ed Arce, certify that 1) all of the views expressed in this report accurately reflect my personal views about any and all subject securities or issuers discussed; and 2) no part of my compensation was, is, or will be directly or indirectly related to the specific recommendation or views expressed in this research report; and 3) neither myself nor any members of my household is an officer, director or advisory board member of these companies.
None of the research analysts or the research analyst’s household has a financial interest in the securities of Avenue Therapeutics, Inc. (including, without limitation, any option, right, warrant, future, long or short position).
As of October 31, 2018 neither the Firm nor its affiliates beneficially own 1% or more of any class of common equity securities of Avenue Therapeutics, Inc.
Neither the research analyst nor the Firm has any material conflict of interest in of which the research analyst knows or has reason to know at the time of publication of this research report.
The research analyst principally responsible for preparation of the report does not receive compensation that is based upon any specific investment banking services or transaction but is compensated based on factors including total revenue and profitability of the Firm, a substantial portion of which is derived from investment banking services.
The Firm or its affiliates did not receive compensation from Avenue Therapeutics, Inc. for investment banking services within twelve months before, but will seek compensation from the companies mentioned in this report for investment banking services within three months following publication of the research report.
The Firm does not make a market in Avenue Therapeutics, Inc. as of the date of this research report.