Stifel downgraded Vitae Pharmaceuticals (NASDAQ:VTAE) to “hold” from “buy” with a new price target of $21 after the company accepted a merger agreement from Allergan (NYSE:AGN) valued at $639-million or $21 a share.
In early trading on Wednesday, Vitae is quoted at $20.94, up $12.84.
Analyst Thomas Shrader writes that while the merger price looks like an attractive premium to yesterday’s share price, the value from other point of view looks quite attractive for Allergan.
He said the bid represents a relatively low multiple on his $1.5-billion worldwide peak sales estimate for Vitae’s psoriasis assets alone. Vitae also has interesting assets in atopic dermatitis, a BACE inhibitor and likely a pile of other good “probes.”
On a broader front, he figures the deal is reflective of the new reality in drug development and commercialization: the only way to make money is to develop important new molecules.
“With the Affordable Care Act set to shift power to the executive branch of government, it is expected that the ‘financial engineering’ of successful healthcare companies will be increasingly difficult, likely giving data driven examples of truly transformative medicines an increased share of voice for the overall healthcare budget,” he added.
Based on this new reality, he said Allergan, in one deal, acquired three important molecules and also strapped on a world-class structure-based medicinal chemistry effort that is comfortable working across many therapeutic areas.
“It looks like a very smart move to us and we expect more of the same in the sector,” he added.
