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Possible Pay-Off for NuPathe Stock Holders

February 17, 2014 | About:
ABN

ABN

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How much would you pay for a potential $2.15 payment? Fifty cents perhaps? Or perhaps more if you felt there was a high probability of payment and less if you felt the probability was low.

NuPathe has entered into an agreement with Teva Pharmaceutical Industries Ltd. under which Teva will acquire NuPathe for $3.65 per share in cash. Additionally, NuPathe stockholders will receive rights to receive additional cash payments of up to $3.15 per share if specified net sales of NuPathe's migraine treatment, ZECUITY, are achieved over time. The contingent cash consideration payments, which will not be publicly traded, are as follows:

- $2.15 per share in cash payable upon net sales of ZECUITY of at least $100 million in any four consecutive calendar quarters, on or prior to the 60th day following the ninth anniversary of the date of the first commercial sale of ZECUITY.

- $1.00 per share in cash payable upon net sales of ZECUITY of at least $300 million in any four consecutive calendar quarters, on or prior to the 60th day following the ninth anniversary of the date of the first commercial sale of ZECUITY.

Zecuity is the first and only FDA-approved migraine patch. It contains a micro-processer that delivers sumatriptan and is to be used for the treatment of acute migraine. Adverse reactions to sumatriptan taken orally are common, but usually minor and transient, and many patients find them acceptable because of the rapid relief they get from their migraine. The most common side effects include nausea, vomiting, dizziness, fatigue and chest pain.

The Zecuity patch means that patients who suffered from side effects before may now be able to avoid them as the drug is taken through the skin and patients are able to reduce doses. Drugs taken orally may sit in the stomach and not be delivered properly or they simply don't get it into their system fast enough to fight the migraine chain-reaction. The Zecuity microprocessor actually customizes the delivery allowing the medication to be delivered at just the right time, in just the right amount.

Thirty-one million Americans suffer from migraines with up to 12 million Americans suffering from chronic migraine headaches. The estimated global market size is around $3.3 billion and some forecasts point to it growing to almost $6.0 billion in 2021. NuPathe estimates its core market is the 8 million migraine sufferers in the U.S. who have migraine-related nausea on the majority of their attacks.

NuPathe CEO Armando Anido has not been drawn on specifics but has indicated that the unit cost will be comparable to the $95 cost of an injection. Based on the above, shareholders would need NuPathe to sell just over 1 million units over a four quarter period to receive the first pay out of $2.15. This equates to just 0.13 unit for every patient who would benefit from the treatment or one unit per customer over the year if Zecuity achieves a market share of just 13%.

NuPathe stock closed on Friday at a price of $4.15, representing a premium of $0.50 over the $3.65 up-front cash offer. There are risks in all speculative opportunities, but the first payout of $2.15 contingent on sales of $100 million appears to be a reasonable target and would offer a handsome return on current price.

The author is a blogger at SurgingEarnings.com

Risk Disclaimer: This article does not constitute a recommendation to buy or sell. Investing in stocks or other securities and derivatives is a high risk activity and not suitable for everyone. It is strongly recommended that individuals should consult with a SEC registered investment adviser prior to making any investment decisions.

Disclosure: The author holds no positions in NuPathe Inc.


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