Shares of Radius Health (RDUS 21.66%) were up by more than 14.6% as of 12:28 pm on Thursday on news that the company has agreed to be acquired by a pair of private healthcare investment companies. The deal to take the private business is valued at $ 890 million, a sum to be split between cash that will be paid to shareholders up front and cash to be paid later, contingent on one of Radius’ osteoporosis medicines, Tymlos, reaching $ 300 million in net sales during a 12-month period between now and the end of 2025.
Shareholders will get $ 10 for each of their Radius shares when the transaction closes, and an additional $ 1 per share if sales of Tymlos clear the target.
The stock’s price rose to reflect the up-front payout, but its current level near $ 10.20 indicates that there is a perceived risk that sales of Tymlos may fall short of the level required to trigger the additional payment.
That’s a reasonable fear, as the drug’s net sales were $ 43 million in Q1, down from $ 45 million in the prior-year quarter. Furthermore, management estimates that the medicine will bring in $ 232 million in net revenue this year – well short of the $ 300 million milestone.
The acquisition should close before the end of Q3. The question now is whether Tymlos sales will start to grow again while the company is still public.
If they do, shareholders are more likely to get that extra $ 1 per share payment down the line, which would make the stock look undervalued. In contrast, if sales don’t grow in Q2, the stock’s current price will look less favorable.