By John Vandermosten, CFA
Avenue Therapeutics (ATXI) announced an acquisition agreement with InvaGen Pharmaceuticals to acquire a 33.3% stake in the company for $35 million to be followed by a second stage closing in 2021 which will acquire the remaining shares for up to $180 million, subject to FDA approval and other specific terms. 5.8 million new shares will be issued at $6 per share, providing sufficient capital to advance IV tramadol to the post-approval stage. Furthermore, if the FDA grants approval and certain milestones are met, shareholders will receive payment of an estimated $13.92 per share and be eligible for contingent post-transaction consideration based on sales and profit metrics.
Based on details in the release, the $35 million and 33.3% stake in Avenue equate to 5,833,333 newly issued shares at $6.00 per share. The capital infusion will give InvaGen the right to install three board members. Second stage closing will acquire the remaining shares outstanding for an estimated $13.92 per share. InvaGen will pay $180 million to acquire the remaining shares outstanding assuming certain constraints are met. A portion of this $180 million will be used for transaction and closing costs. Below we highlight the shares and related prices for the first stage of the transaction.
View Exhibit I
There are several requirements that must be met before the second stage can proceed, outlined below.
‣ FDA approval of IV tramadol
‣ Label for IV tramadol must be indicated for moderate to moderately severe pain not specific to any surgical type
‣ A Schedule IV classification by the DEA
‣ Absence of REMS or other similar restrictions
InvaGen Pharmaceuticals was acquired by Cipla in 2015 as the Indian company sought to expand its generic business in the United States. Cipla has had a presence in the United States since the 1980s and has supported the development of over 170 ANDAs over that time period. As the business in the United States grows, Cipla and InvaGen are seeking to establish a specialty hospital business with IV tramadol as their lead asset. InvaGen’s investment helps Avenue surmount two hurdles: the provision of sufficient capital to complete the planned trials and an exit and commercialization strategy for IV tramadol which includes contingent consideration for shareholders.
‣ Avenue & Cipla/InvaGen announce proposed transaction – 4Q:18
‣ Filing of proxy materials – 4Q:18
‣ Launch of soft tissue/abdominoplasty Phase III trial – 4Q:18
‣ Shareholder vote on transaction – 1Q:19
‣ Close of transaction: first stage – 1Q:19
‣ Report topline results from soft tissue and safety trials – mid-2019
‣ File NDA with FDA for IV tramadol – 4Q:19
‣ Target action (PDUFA) date for NDA submission – 4Q:20
‣ Close of transaction: second stage – 2Q:21
‣ Potential contingent consideration to shareholders of record – 2021+
The deal with Cipla and subsidiary InvaGen is a material positive as it provides sufficient capital to complete the IV tramadol development program and an exit strategy for investors following approval. Current capital was raised at a premium to current and average share price over the last year, limiting dilution for recent shareholders. We also see the opportunity for the shares to trade above the second stage closing price as shareholders will have rights to contingent consideration based on performance.
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By John Vandermosten, CFA