Aliso Viejo-based Avanir Pharmaceuticals Inc. hopes to continue its recent surge under new owner Otsuka Pharmaceutical Co., which aims to beef up its neurology drug lineup following an upcoming patent expiration.
Avanir, whose stock has shot up more than 400% since the start of the year, said last week that it will be bought for $3.5 billion by Otsuka Pharmaceutical.
It said it will continue to “operate under its current structure” after the acquisition but did not directly address whether it will cut any jobs here.
Otsuka Pharmaceutical is in San Francisco and part of Tokyo-based Otsuka Holdings Co., which also includes medical device and chemical units and had $12 billion in revenue and $1.3 billion in earnings for the 12 months ended March 31.
Otsuka Pharmaceutical said it sought Avanir in order to expand its neurological portfolio.
“We believe that we can evolve into a truly global [central nervous system] pharmaceutical company” with the deal, said President Taro Iwamoto.
He praised Avanir’s “creativity and proven execution on drug discovery and development for largely unexplored medical indications” and said the company represents a “hand-in-glove fit” with Otsuka Pharmaceutical’s culture.
Avanir’s primary drug is Nuedexta, a mix of dextromethorphan and quinidine, which have both long since gone generic. The drug is sold to treat pseudobulbar affect, a neurological disorder marked by uncontrollable outbursts of crying or laughter.
Avanir is also looking at Nuedexta to treat pseudobulbar affect in Alzheimer’s disease, which represents a much larger market; about 5 million Americans have the disease, according to the Alzheimer’s Association.
Otsuka Pharmaceutical focuses on the neurology market with drugs to treat schizophrenia and depression. The company’s deal for Avanir as it prepares to lose patent protection for Abilify, its main drug for treating schizophrenia.
The U.S. patent for Abilify, which accounted for $5 billion in sales in the year ended March 31, expires in April, opening the way for generic competition.
The deal is expected to close in next year’s first quarter and has already been approved by Otsuka’s and Avanir’s boards.
Shares
Otsuka is paying about $17 a share in cash for Avanir, a premium of 13% over its closing price on Dec. 1, the day before the deal was announced. Avanir shares had a market value of $2.9 billion late last week.
Avanir said it expects to become an independent subsidiary within Otsuka’s operations.
“Together, our organizations will be able to more rapidly develop and commercialize needed medications for patients around the world,” Avanir Chief Executive Keith Katkin said in a statement. He couldn’t be reached for further comment last week.
Avanir had a fast revenue growth run. Last year it topped the Business Journal’s annual list of the fastest-growing small public companies based in OC, with revenue growth of 1,088% in the two years through June 30, 2013.
The drugmaker went “from a near zero-revenue company to a company that has made available a drug for patients who needed it, and the massive growth that you’ve seen is entirely tied to this product getting recognition by both physicians around the United States and patients who take it,” Greg Fleser, Avanir’s senior vice president of corporate development and chief business officer, told the Business Journal last year.
Avanir had $82.3 million in revenue and a loss of $36.3 million in the nine months ended in September.
It made a comeback after surviving stiff challenges during the late 2000s, when it moved from San Diego to Aliso Viejo under the leadership of former Chief Executive Eric Brandt, now executive vice president and chief financial officer for Irvine-based chipmaker Broadcom Corp.
Past Setbacks
It had some costly regulatory setbacks with Nuedexta, which was previously known as Zenvia and Neurodex.
The Food and Drug Administration expressed concerns about Nuedexta, including a worry about the heart risk of quinidine, an enzyme inhibitor that helps to increase the effectiveness of dextromethorphan, Zenvia’s active ingredient.
Regulators asked for more testing, which proved costly. Avanir had to cut 16% of its workforce at the time to reduce cash burn.
