XenoPort, Inc. (XNPT) stock is soaring today, roaring 56% higher on heavy trading after the small-cap biotech company agreed to be bought by the privately owned Arbor Pharmaceuticals for $7.03 per share, or $467 million.
The deal, which gets XNPT stock owners a 60% premium to the $4.40 per share closing price on Friday afternoon, was reached over the weekend.
Let’s take a look at the nuts and bolts of the deal that’s making XenoPort shareholders very happy today.
XNPT Stock: A Pure-Play on an Obscure Drug
XenoPort is one of those small-cap biotechs that basically lives and dies by the commercial success of one drug. That drug, for XNPT, is Horizant, a “treatment option for moderate-to-severe primary restless legs syndrome and postherpetic neuralgia,” according to the press release announcing the deal.
While XenoPort does technically have a pipeline, Horizant is the undeniable value-add that XNPT stock gives Arbor. In the first quarter, Horizant generated revenue of $13.7 million, up 106% from the same quarter last year, when it brought in just $6.6 million. XenoPort generates some other revenue from royalties and collaborations, but Horizant accounts for 97% of all revenue.
Arbor’s CEO Ed Schutter acknowledged the fast-growing nature of Horizant in today’s press release:
“The XenoPort sales team has done an excellent job of growing Horizant, and we look forward to supporting them to continue this significant momentum.”
Moreover, you can tell that XNPT stock isn’t being bought for its pipeline just by looking at its research and development expenses. The company had made a strategic decision to invest in Horizant and wind down R&D related to other treatments it was researching, causing R&D expenses to crater 72% in the first quarter to $1.76 million.
As for how the new owner of XNPT stock will put XenoPort’s star drug to work, I wouldn’t rule out the Valeant Pharmaceuticals Intl Inc (VRX) buy-and-raise model just yet.
While politically unpopular, it wouldn’t shock me in the least if the bean-counters at Arbor Pharma included a price hike to Horizant in its calculations when trying to figure out what XNPT stock was really worth to them.
What we do know, though, is that Arbor plans to push Horizant on a larger scale than XenoPort did or was able to.
XenoPort CEO Vincent J. Angotti said it himself today:
“We believe that Arbor is well positioned to provide the proper resources for a more expanded commercialization effort of Horizant. We evaluated many potential options to maximize the value for stockholders and believe this transaction represents a great outcome for XenoPort stockholders.”
Given the fact that XNPT stock was languishing 44% below 52-week highs just three days ago, I’d have to agree.
The deal should close in the third quarter of 2016.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
