Optifinancial Newsletter - Knowledge is power Aurinia Pharmaceuticals Buyout, rational investing and value hunting
This is not financial advice nor recommendations. This is purely our own thoughts and opinions regarding the matter discussed below for entertainment purposes. This is not advice and is never intended to be.
Aurinia | $33.09
What is Aurinia Pharma?
Details on Bristol Myers offering a buyout to Aurinia, $45-50 a share in the future for AUPH? I think so!
My personal price targets and forecasting
Aurinia is a Canadian based pharmaceutical company that is in the commercialization phase of selling their recently approved drug “Lupkynis” that treats Lupus Nephritis (LN). LN is a crippling autoimmune disease that attacks the kidneys. Recently Aurinia has shown excellent results with their drug in the public and are the standard of care for the public. Their recent sales have been steadily increasing and they are becoming cash flow positive. These credentials from this small drug company (294 employees) I believe has given the go for this company to be bidded for.
Retail Investors intelligence:
During the time period I joined the Aurinia stocktwits in December 2019, I have seen many intelligent thoughts and rational thinking. This has been doubted by many individuals as GME skyrocketed and Aurinia was dipping to it lowest possible price. Many investors were struggling to see why Aurinia was so low of a market cap. They saw the value and potential future value. They also described buyouts being a perfect fit for Aurinia. This educated prediction has paid off recently as Aurinia is being pursued by up to 3 large pharmas at the moment. Possibly more.
Forecasts expect Aurinia to reach 1 billion in sales by 2025-2026.
Before the recent buyout bidding news, Aurinia was sitting around $22 a share or 2.8 Billion in market cap.
Shortly after news propagated to the public, the stock price elevated to $30.40 or 3.6 billion on Friday afternoon. I believe the stock is still at a discount and is also being discounted by the market as well because of the uncertainty of the terms of the buyout the Bristol Myers proposed. All we know at the moment is that they are in talks and we can rely on the fact that they are needing a new drug in their pipeline to reflush their future.
Below is a Condensed chart on potential bidders and their latest cash on hand. Here is a google sheet that is restricted but you can access to see the actual details on cash on hand per quarter.
Main contenders right now are GSK, AZN, PFE & BMY.
Details on Bristol Myers Squib bid and some thoughts:
The news comes from undisclosed sources and unnamed sources as well. This is due to the nature of the buyout offer from Bristol Myers to Aurinia being private. This is normal behavior due to not allowing another competing company to underbid Bristol Myers or outbid them. An extremely large catalyst for this stock would be disclosure of what Bristol Myers is offering.
In my view, I see the first offer being low. I see Bristol Myers trying to undercut Aurinia which may be around for 4-5 billion. I think Aurinia would probably disagree and would look to be bought out for 7, and end up in a final agreement of 6.2 billion or $52 a share. [This is speculation]
Regardless this will induce a great amount of volatility and we should see on Monday this week an upwards force bringing Aurinia to $30-36 a share
A possible negative scenario that could bring the price down is if Bristol Myers walks away from the Aurinia deal. I do think this is a low probability due to the Merger and Acquisition competition. The buyout environment we are in at the moment is the most cash ever built up by large pharmas and we think the competition in acquiring solid companies will possibly drive the premium up for Aurinia. Not to mention very low interest rates which are also inflating company values as well.
Other large pharmas such as Astrazeneca and Glaxosmithkline were rumored 3 months ago to be initiating talks in buyout of Aurinia.
For an investor that is looking at this company, will it go up? and what are the current risks?
I think it will go up even if Bristol Meyers Squib walks away. You may want to grab shares in this case as the stock drops, because I believe that there are multiple contenders trying to grab Aurinia at the moment. If Aurinia declines, this is bullish as they most likely have a better offer. If Bristol Meyers Squib declines, we may see a steep drop and I believe that is an excellent buying opportunity if it does happen. I ultimately think Glaxosmithkline (GSK) is going to try to outbid Bristol Meyers Squib due to wanting the monopoly on the LN market. GSK has an relatively ineffective drug that treats LN, Benlysta. The only hitch I see is that GSK has the lowest cash on hand at the moment of 5.5 billion compared to AZN,PFE & BMY . We should see in the next quarterly report what there cash balance is. We think they may even take out debt to establish a higher bid to control the market.
Another unlikely risk is that Aurinia does agree to being bought out. Low probability here, as they only have 1 product in their pipeline and are too small to get their drug distributed everywhere. They definitely have done a good job getting it protected in different areas in the world. This will help them keep control and give them a bit of an edge for the bidding war.
Click here for more on thoughts on some of the other suitors
Current Price: $33.08
3 Month Price Forecast: $50
With a buyout of 6.2 billion, we see this hitting $50 a share within a 3 month period.
Final thought on AUPH: This company will receive a wild amount of volatility due to the drama of a buyout. We ultimately think AUPH will end up over $50 a share. Their product has value to the world and the investors who are behind this type of value historically do well. Execution of their drug and marketing has shown success and we are waiting patiently for the final conclusion of the AUPH journey.
Disclosure: We do own AUPH securities/shares at the time of publication.
All stocks talked about we have invested in, and do not intend to give advice nor recommend acting upon the information.
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Until next week,
and the Optifinancial Team
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