Breaking it Down: Myriad's aquisition of Javelin Print E-mail
By Nicholas DeCesare   
Sunday, 03 January 2010 18:43

On December 18th, Myriad Pharmaceuticals (Nasdaq:MYRX) announced the company had entered into a definitive agreement to acquire Javelin Pharmaceuticals (AMEX:JAV) then chaos ensued.

Myriad Pharmaceuticals to Acquire Javelin Pharmaceuticals

As the news of Myriad Pharma buying Javelin for $96 million hit the street, investors seemed less than pleased.  Myriad Pharma, which was spun off from Myriad Genetics in the summer of 2009, was immediately criticized by one analyst during the joint conference call with Javelin on December 18th.  Myriad’s stock price has declined since announcing the deal and currently sits around $5.00 per share. 

Javelin’s stock price had an initial rise but has also turned downward in the last two weeks and hovers around $1.30 per share.  The merger agreement entitles Javelin shareholders to receive 0.2882 shares of MYRX for each share of JAV that they hold.  At the time the deal was announced, this represented a 17% premium given to Javelin shares and valued them around $1.50 per share.  Also in the agreement, a larger premium is given to Javelin stockholders depending on the timing of the approval of their blockbuster drug, Dyloject. 

The Dyloject NDA was submitted by Javelin on December 2, 2009.  The exact details of the larger premium are shown below:

*  If approval of Dyloject is received on or before June 30,
2010, the exchange ratio will be increased to 0.3311,
representing a 37.1% premium over the average closing price
of Javelin stock over the last 10 trading days.

*  If approval of Dyloject is received after June 30, 2010,
but before January 31, 2011, the exchange ratio will be
increased to 0.3066, representing a 27% premium over the
average closing price of Javelin stock over the last 10
trading days

*  If approval of Dyloject is received after February 1, 2011,
but before June 30, 2011, the exchange ratio will be increased
to 0.2943, representing a 21.9% premium over the average
closing price of Javelin stock over the last 10 trading days.

*  If approval of the Dyloject is received after July 1, 2011, the
exchange ratio will remain 0.282, representing a 16.8% premium
over the average closing price of Javelin stock over the last
10 trading days.

If approved, Dyloject, which is used for the management of acute moderate-to-severe pain in adults, will be the first IV non-steroidal anti-inflammatory drug (NSAID) marketed in the United States as a single agent for the management of acute moderate-to-severe pain in adults since ketorolac in 1990.  The greatest premium can be acquired by Javelin shareholders if Dyloject received an expedited review, otherwise, it is extremely unlikely the FDA will approve Dyloject before June 30, 2010.  During a recent Conference call with analysts in November, Javelin’s CEO Mart Driscoll said that Javelin was working with the agency on possibly acquiring that expedited review for Dyloject. 

The deal seems very positive for both companies and their shareholders.  For Myriad, they have essentially purchased Javelin for an all stock transaction which values JAV at less than $100 million.  This allows Myriad to begin reaping the benefits of Dyloject, which is already sold in the EU and which analysts and executives of both companies estimate can reach at least $250 million a year in sales in the United States.  Myriad also will now have access to Ereska, a drug which narrowly missed its Phase III trial endpoint in the summer of 2009 and is used as a proprietary nasal formulation of ketamine for treatment of acute moderate-to-severe pain. Ereska is optimized for use as a pain medication and may offer a safe, non-opioid alternative for the treatment of moderate-to-severe pain.   Assuming Dyloject is approved and marketed this year, Myriad will use the extensive cash flow that is predicted to come from Dyloject in the United States, to further their own drug studies for their product candidates for cancer and HIV, Azixa and MCP-4326.    Myriad has approximately $165 million in cash on hand, and with approximately 25 million shares of Myriad Pharmaceuticals stock outstanding, the shares trade for much less than cash.  Bolstering their pipeline and anticipated cash flow with this transaction, could reap huge rewards for Myriad in the near future.

For Javelin, this seems to be the end of a lengthy search for a partner or buyout candidate for their assets.  Javelin has seen it stock price decline significantly in the last two years, with a peak of over $4 a share in January of 2008, to a low of under 50 cents in the same year, and currently around $1.30.  Most of the decline was the result of a delay in finding partnerships, disappointing Phase III results for Ereska, and a company simply running out of cash.  Many shareholders and analysts had believed the company would be bought for much more than what MYRX had offered.  In fact, a strong argument could be made that with the potential sales of Dyloject in the United States and the potential for an Ereska NDA in the next 6-12 months once another small Phase III trial is complete, Javelin could be worth more than $3 a share. 

However, CEO Marty Driscoll realized he was in no position to negotiate much more than what was being offered for the company and in the form of partnerships and accepted the Myriad deal.  For Javelin shareholders that purchased stock above the $1.50 offer price, there seems to be silver lining.  First of all, the premium will go up once Dyloject gets approved, whether it is this summer, fall, or early next year.  With similar drugs on the market that have worse side effects and less significant studies and with such a robust set of data and incredible safety profile, it would be shocking if the FDA did not approve Dyloject.  Second, there have been rumors that Javelin may get a second offer from a larger pharmaceutical company. 

In other words, Javelin signed an agreement with Myriad as they needed to get  a deal done with cash running low, but they have kept the door open in case other deals come forward.  It certainly appears Myriad is getting Javelin and its drug candidates for a very cheap price, at first glance, $100 million is not much for what Dyloject and Ereska could offer in the near future.  Could a larger pharmaceutical company move in and pay the small break up fee and make a bid for Javelin now that Myriad has made their move?  Certainly. 

However, if nothing transpires in the first few weeks of the new year, I would say that this deal will go to vote (as both companies shareholders must approve) and the MYRX/JAV merger will be complete in the first quarter of 2010.  Myriad has a well respected management team, a solid pipeline which could be extremely lucrative, and the cash to make this deal a winner.


Disclosure: Long JAV

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