On the 28th February 2022, Acerus Pharmaceuticals Corporation announced its definitive agreement for the acquisition of Serenity Pharmaceuticals LLC and the global rights to its Noctiva drug. Financial Times reported the transaction value to be $815 million. On 7th March, Acerus announced the successful closing of its Serenity transaction. It is Acerus’ only (disclosed) M&A transaction to date.
Serenity had previously been granted approval by the U.S. Food and Drug Administration (FDA) for its Noctiva nasal spray. Noctiva is indicated for the treatment of nocturia in adults who awaken at least two times per night to void. It is the first FDA-approved therapy for nocturia.
Company Overview
Founded in 2008, Acerus Pharmaceuticals is a publicly traded Canadian pharmaceutical company focused on the development, manufacture, marketing and distribution of branded products within the field of men’s health. The Company commercializes its products via its own salesforce in Canada, and through a global network of licensed distributors in the U.S. and other territories. Its shares are traded both on the Toronto Stock Exchange (TSX:ASP) and the OTCQB Exchange (OTCQB: ASPCF).
Acerus Pharmaceuticals Corporation
Among Acerus Pharma’s most successful products is:
- NATESTO®, the first and only testosterone nasal gel for testosterone replacement therapy in adult males diagnosed with hypogonadism
The Company continues to execute its commercial strategy focused on expanding in the US market. Total Natesto® prescriptions rose 20% compared to the fourth quarter of 2020, while the reintroduction into the Canadian market is expected to commence in the second half of 2022 due to manufacturing and supply chain disruptions.
Revenue was $0.7 million in 2021 compared to $0.3 million in the prior-year period. The improvement was primarily due to two factors:
- continued growth in product sales, driven primarily by success in the Urology segment, where prescriptions rose 30% in the fourth quarter and were up over 40% for the full year
- full Natesto® revenue recognition as a result of re-purchasing the rights from Aytu Biopharma on April 1, 2021.
This trend has continued into 2022, lead by a return to in-person meetings with healthcare practitioners, strong economic trends, and overall increasing demand.
Moreover, two significant events bolster the outlook for Acerus in the future:
- the increase in the First Generation facility and the payment of existing SWK obligations, providing greater financial flexibility as well as reduced cash interest expense going forward.
- the transformational acquisition of Serenity, including the global rights to its Noctiva™ brand.
Given the success with Natesto® and the expanded product portfolio, forecasts for 2022 are positive.
Serenity Pharmaceuticals, LLC
Founded in 2006 and based in Miami, Florida, Serenity Pharmaceuticals is a privately held organization developing patented drugs for the pediatric and geriatric urology field. Serenity Pharmaceuticals is working to develop patented pharmaceuticals with unique delivery mechanisms and formulations, to provide safe and effective treatments for voiding disorders.
The Company had been recently granted approval by the U.S. Food and Drug Administration (FDA) for its Noctiva™ (desmopressin acetate) nasal spray, marking the first FDA-approved therapy for nocturia.
Market overview
Cleveland Clinic makes £1bn bet on London private healthcare:
(London, March 29) A US group is opening central London’s first large-scale private hospital in four decades as it makes a £1bn push into UK paid-for healthcare.
Ohio-based Cleveland Clinic is launching its first UK medical centre in an eight-storey, 325,000 sq ft building that overlooks Buckingham Palace in the wealthy neighbourhood of Belgravia. It will be the biggest private hospital in central London after the 206-bed HCA-owned Wellington when it opens on Tuesday.
UnitedHealth to buy LHC Group for $5.4 billion in home healthcare push:
(March 29) UnitedHealth Group (UNH.N) said on Tuesday it would buy LHC Group (LHCG.O) for about $5.4 billion in cash, as the largest U.S. health insurer expands its home health services.
The deal will combine the provider of healthcare services at home, mainly for older patients dealing with chronic illness and injuries, with UnitedHealth’s Optum unit, which manages drug benefits and offers healthcare data analytics services.
Demand for home healthcare over clinic-based services has increased in the United States, especially during the COVID-19 pandemic as patients and caregivers increasingly prefer to access vital services from the safety of their homes.
US sues to stop UnitedHealth’s $13bn purchase of Change Healthcare:
(New York, February 24) The US Department of Justice has sued to block UnitedHealth’s $13bn acquisition of Change Healthcare, in the latest effort by Joe Biden’s administration to clamp down on large takeovers.
UnitedHealth’s health services arm Optum last year set out to buy Change Healthcare, a healthcare insurance technology group. UnitedHealth also owns the largest health insurer in the US.
In a lawsuit filed on Thursday seeking to block the deal, the justice department said the transaction would substantially reduce competition in the industry, allowing United “to use its control over Change’s technologies to disadvantage its health insurance rivals” by raising their costs and denying them access to innovations.
The justice department’s concerns about the deal focused on data control. The complaint said that because Change’s insurance claim technology was widely used, the merger would give United access to rivals’ data.
GSK announces appointments to Designate Haleon Board:
(London, March 15) GlaxoSmithKline announced the appointment of six directors to the designate Board of Haleon, the new independent company to be formed following the demerger of the GSK Consumer Healthcare business, expected in July 2022.
Haleon will be a new global-leading company in Consumer Health, and is strongly positioned to deliver better everyday health, sustainable above-market growth and attractive returns to shareholders.
The new Board appointments follow the appointment of Sir Dave Lewis as Chair Designate in December 2021 and represent further progress to create a new, qualified Board for Haleon with the appropriate mix of skills, experience, diversity, and continuity. The appointments include the transition of two GSK Non-Executive Directors and three new external appointees. In addition, it is also confirmed that Tobias Hestler, CFO Designate, Haleon, will join Brian McNamara, CEO Designate, Haleon, on the Board as an Executive Director.
The race to buy Peloton kicks into gear:
(7th March) A peloton (pun intended) of potential buyers, however, think they’ve got the endurance to ride out the fitness group’s tumultuous share price. Amazon and Nike are among the strongest suitors, according to people briefed on the moves.
Acerus-Serenity Deal Rationale
This operation will allow Acerus to increase its presence in the men’s health market by adding Noctiva, an FDA-approved nasal spray used to treat nocturia (the need to urinate multiple times per night), to its portfolio. With an already established market presence through Natesto, a prescription medicine used to increase testosterone levels in men affected by testosterone deficiency, Noctiva will allow Acerus to consolidate its position in the market and, additionally, to seek synergies between the two products. Given that Natesto and Noctiva are under the same area of research and share the same channels of distribution, Acerus management saw in this acquisition an opportunity of growth to be reached through scaling.
From a financial standpoint, the newly formed company is expected to reach net revenues of $500 million by 2030, with Noctiva and Natesto totaling more than 400,000 patients. Given the $0.7 million revenues reported in FY 2021, these forecasts indicate strong beliefs on the effectiveness of this acquisition.
The key takeaway is that the transaction will create a “leading urology and men’s health company”. It will give Acerus access to two FDA approved, best in class, patent protected products. It will significantly expand Acerus’ presence in large, growing market opportunities (comprising more than 40 million people in the United States alone). Serenity’s pipeline includes “pre-clinical combination products and new indications”. On a combined pro-forma basis, Acerus is projected to achieve peak net revenue of more than $500 million USD in 2030, by leveraging its commercial strengths and international capabilities to maximize the potential of Serenity’s asset
Deal Structure
On February 28th, Acerus Pharmaceuticals announced the acquisition of Serenity LLC and the global rights to its Noctiva brand in a cash and stock deal.
Within 90 days of the effective acquisition, Acerus will pay a $6 million USD up-front fee to Serenity, less certain deductions. Serenity stockholders will be entitled to receive 804 million common shares of Acerus, payable either by January 10th 2023 or on the day of the first commercial sale of Noctiva if it occurs before then.
Serenity stockholders will own 32.6% of the fully dilluted shares. The company has two key securityholders, who Acerus expects will receive approximately 33.35% and 25.94%, respectively, of the Common Shares issuable to Serenity securityholders in connection with the Acquisition.
Two additional one-time equity-based sales milestones of $5 million USD each, will be paid to Serenity stockholders when net sales of Noctiva sold in the U.S. and Canada combined reach the thresholds of $100M and $150M in annual net sales. These equity milestones will be paid in common shares and will be valued at the highest of the then current market price or a pre-determined floor price.
Serenity shareholders will also receive, in cash, tiered low double-digit contingent sales payments equal to a percentage of net sales of Noctiva in the US and Canada, as well as contingent sales payments from net royalty profits of sales outside the US and Canada.
Acerus expects to have to raise an estimated $60M in additional capital over the next two years to fund the up-front fee, required marketing investment, grow the existing Natesto business, and resumption of Noctiva production, which is expected to be completed by Q4 2022.
Edward Gudaitis will continue to serve as Acerus’ CEO and the Acerus Board of Directors will include one Serenity board member until the Noctiva patent’s expiry. Samuel Herschkowitz, the former CEO of Serenity, will occupy this Board seat initially.
From a financial standpoint, the newly formed company is expected to reach net revenues of $500 million by 2030, with Noctiva and Natesto totaling more than 400,000 patients. Given the $0.7 million revenues reported in FY 2021, these forecasts indicate strong beliefs on the effectiveness of this acquisition.
The key takeaway is that the transaction will create a “leading urology and men’s health company”. It will give Acerus access to two FDA approved, best in class, patent protected products. It will significantly expand Acerus’ presence in large, growing market opportunities (comprising more than 40 million people in the United States alone). Serenity’s pipeline includes “pre-clinical combination products and new indications”. On a combined pro-forma basis, Acerus is projected to achieve peak net revenue of more than $500 million USD in 2030, by leveraging its commercial strengths and international capabilities to maximize the potential of Serenity’s asset
Sources: FT, Reuters, Acerus pharma
Authors: Riccardo Colombo, Daniele Rabusin, Alice Fanchin, Francesco Paganin, Ioana Gavrilescu, Valentina Piersensini, Akshay Shrivastava
Bocconi Students M&A Circle 