Biopharmaceutical company Celator Pharmaceuticals, Inc. (NASDAQ: CPXX) stated that it is being acquired by Dublin-based Jazz Pharmaceuticals (NASDAQ: JAZZ) in an all-cash deal worth $1.5 billion. Following the news, the shares of Celator climbed up 71.59% to close Tuesday’s trading session at $30.08 per share. For the following reasons described below, the analysts perceive the deal to be a real good one for both companies.
Let us first begin with Jazz Pharmaceuticals. The company would lose patent protection in 2019 for its narcolepsy drug Xyrem. Thus, Jazz’s top-line growth is certainly going to get hurt. The company is already fighting several litigations to stop generic medicine manufacturers from duplicating its medicine. Thus, it certainly needs an alternative for growth.
Celator Pharmaceuticals recently got the orphan-drug status from the FDA for its cancer drug Vyxeos. The drug also received a similar status from the European regulators. The drug is used for the treatment of acute myeloid leukemia (AML). The status clears the way for Celator to commercialize the drug next year. However, as can be understood, the company lacks commercial expertise.
Now, Jazz, apart from having an oncology and hematology portfolio, has an established infrastructure and commercial expertise. Thus, it would result in operating synergies when these two companies combine together.
The deal is expected to complete in the third quarter of 2016. By September, the companies anticipate submitting Vyxeos for the regulatory approvals. The acquisition is accretive to earnings from 2018.
The acquisition (all-cash deal) price of $30.25 per share values Celator at $1.5 billion. The board of Celator has approved the transaction. Celator does not have any income and made a net loss of $19.3 million last year. The company also raised $40.6 million in January by offering shares at $9.50. The cash raised was about to be used for the commercialization of Vyxeos.
Jazz has a history of successful acquisitions. In 2012, the company acquired Azure pharmaceuticals. Two years later, Jazz acquired the Italian company Gentium for $1 billion.
Thus, considering the acquisition price, fundamentally, the share price of Celator has little chance of going down. Furthermore, the growth prospects would certainly draw more and more investors towards the stock in the days ahead.
The stock, which was trading at about $13 per share in the first week of May, gained more than $4 to cross $17 a few days back. Now, the acquisition news has made the stock extremely bullish as indicated by the MACD. The stock touched $30.08 yesterday. Having remained almost flat for several years, the indicator has firmly turned upwards.
Thus, purchasing a one-touch call option would be the best possible trade as of now. Selecting $35 or lower price as the target for the contract is better for the trade. Since the volatility has started increasing, a contract expiry period of three weeks would augur well for the contract.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
