Horizon Pharma has made an unsolicited proposal to acquire Depomed for about $3 billion in stock, as the would-be buyer steps up its months-long campaign to buy its target.
“Given the significant revenue and operating synergies, as well as considerable tax savings, we would create substantial long-term value for Depomed's shareholders in addition to the immediate value realized through the proposed premium,” Timothy P. Walbert, Horizon Pharma’s chairman, president and CEO, said in a statement. “The strategic and financial benefits of our proposal are highly compelling.”
Depomed late this morning issued a statement confirming the offer and rejecting it, noting it was identical to a proposal Walbert made in a May 27 letter to Depomed president and CEO James A. Schoeneck and reiterated on June 12. “The Board is confident that continuing to execute on its strategic plan is the best path forward for the Company and its shareholders at this time.”
Walbert said Depomed’s management and board of directors had refused to enter into “friendly and confidential” discussions despite repeated attempts since March, and have rejected the buyout proposal.
“We have elected to bring this proposal to the attention of Depomed's shareholders, who we expect, given the opportunity to understand the financial, strategic, and operational benefits of this transaction will support it and will encourage their board and management to begin constructive discussions with us promptly with the goal of completing a negotiated transaction,” Walbert added.
In his letter to Schoeneck, Walbert said the two companies complemented each other, given Horizon’s strengths in orphan disease, primary care, and specialty markets, and Depomed’s in pain and other central nervous system disorders.
Horizon signaled its intent to expand its orphan drug portfolio in March, when it said it will acquire Hyperion Therapeutics for about $1.1 billion. The deal will bring to Horizon Ravicti® (glycerol phenylbutyrate) oral liquid and Buphenyl® (sodium phenylbutyrate) tablets and powder, both indicated for urea cycle disorders.
“We are confident the proven execution of our commercial organization and our broad platform would drive increased adoption and even stronger performance of your newly acquired products Nucynta® ER and Nucynta® as well as your existing medicines Gralise®, Cambia®, Lazanda®, and Zipsor®,” Walbert added.
Back in January, Depomed agreed to buy U.S. license rights and related royalty obligations for the Nucynta (tapentadol) opioid pain drug franchise from Johnson & Johnson’s Janssen Pharmaceuticals for $1.05 billion.
Nucynta franchise sales last year exceed sales of Depomed’s other four drugs combined—Cambia (diclofenac potassium for oral solution) for migraine attacks; postherpetic neuralgia treatment Gralise (gabapentin) tablets; Lazanda (fentanyl nasal spray) for breakthrough pain in adults with cancer (18 years of age and older) who routinely take other opioids round-the-clock for cancer pain; and mild-to-moderate acute pain drug Zipsor (diclofenac potassium).
Horizon Pharma is projecting full-year pro forma 2015 net sales and adjusted EBITDA for the combined company of more than $950 million and $350 million, respectively. The combined company would also have more than 700 sales representatives and 13 marketed medicines.
“We would benefit from meaningful sales and operating synergies, as well as opportunities to further penetrate more markets for the benefit of our customers and patients, yielding greater revenue and earnings growth potential,” Walbert wrote.
Horizon’s offer comes to $29.25 per Depomed share, a 42% premium over yesterday’s closing per-share price of $20.64 Depomed shareholders would own approximately 25% of the combined company, with Horizon Pharma saying it would use $575 million of the proceeds to retire Depomed's senior secured notes bearing interest of 10.75% with a combination of Horizon cash on hand and newly issued debt.
In a June 25 letter to Walbert rejecting the proposal, however, Depomed said its board “believes the indicated value of the Proposal of $29.25 substantially undervalues Depomed and its business.”
Shares of Depomed spiked up 37% to $28.23 in trading this morning as of 10:10 a.m. ET.