Allergan could pay up to a 3,000% premium to acquire a tiny pharmaceutical company

Allergan, the pharmaceutical giant, is purchasing tiny Tobria Therapeutics in an interesting acquisition.

The deal is initially for $28.35 per share in cash, however according to the statement from Allergan, the deal could balloon to much more.

Tobria, which closed trading on Monday at $4.74 a share and a market cap of just $52.0 million, is developing two drugs to treat NASH disease. According to the Allergan statement, NASH is a build up of fat in the liver for unknown reasons that can eventually lead to liver failure.

Tobria has two drugs under development that used together could help to treat NASH — Cenicriviroc (CVC) and Evogliptin — and this is where the big payday for Tobria comes in. In the event that the drugs meet certain thresholds, the purchase price by Allergan could get much larger.

“Allergan will acquire Tobria for an upfront payment of $28.35 per share, in cash, and up to $49.84 per share in Contingent Value Rights (CVRs) that may be payable based on the successful completion of certain development, regulatory and commercial milestones, for a total potential consideration of up to $1.695 billion,” said the release from Allergan.

Thus, if the drugs end up making it to market the acquisition price doubles and the company is acquired for a total that is just over 3000% above its closing market cap from Monday of $52 million.

The move by Allergan, according to the release is a bet that the drugs will not only be successful, but also will address a growing need.

With the increasing rates of diabetes, obesity and other metabolic conditions in the U.S. and in developed nations globally, NASH is set to become one of the next epidemic-level chronic diseases we face as a society,” said Allergan CEO Brent Saunders in the statement announcing the move.

“It is important that we invest in new treatments today so that healthcare systems, providers and patients have treatment options to face this challenge in the coming years.”

It’s not uncommon for a pharma companies stock to skyrocketing following the approval of a new drug. On Monday, Sarepta Therapeutics surged as much as 86% after the Food and Drug Administration approved its Exondys 51 drug.

Thus, Allergan is making the bet that the development of Tobria’s drugs will similarly add value to it portfolio.

In pre-market trading, shares Tobria had surged to $31.85 per share, a 572% increase. Shares of Allergan were down slightly following the news, down 0.3% to $244.50 per share as of 8:34 a.m. ET.

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