A major day of deal-making in the red hot biotech and pharmaceutical sector is paying for healthcare focused hedge fund Deerfield Management.
On Monday, two of the fund’s largest publicly traded positions, Auspex Pharmaceuticals and Horizon Pharma Horizon Pharma, both announced billion dollar-plus deals, catapulting their shares to new record highs.
Auspex, a developer of treatments for orphan diseases that’s expected to bring a drug for Huntington’s disease to market next year, will be acquired by Teva Pharmaceuticals for $3.5 billion, or an over 40% premium to Friday’s close. Since the company went public in February 2014, shares have gained nearly 470%.
Horizon Pharma, by contrast, is in buying mode. The Dublin-based developer of treatments for arthritis and other inflammatory diseases said on Monday it will acquire Hyperion Therapeutics Hyperion Therapeutics, a maker of orphan disease products RAVICTI and BUPHENY, for $1.1 billion in cash. The deal, Horizon Pharma said, will add roughly $100 million in adjusted EBITDA by 2016 and will include over $50 million in annual cost synergies. The strategic nature of the takeover catapulted Horizon Pharma shares over 15% higher on Monday, to a new record high above $25 a share.
For Deerfield both deals are a major windfall. The fund has roughly $6 billion in assets under management, meaning Monday’s mergers covered over 10% of its portfolio.
According to public filings, Deerfield counts Auspex as its largest holding with a near 14% stake in the company’s shares worth in excess of $315 million. The hedge fund, which invests in and finances development stage pharmaceutical and biotech companies, was a shareholder in Auspex ahead of its initial public offering last February and it increased its position through the course of 2014.
Auspex’s IPO helped raised capital for its late stage development on the Huntington’s, Tourette’s and tardive dyskinesia treatments that Teva is coveting. Citigroup analysts believe the Teva’s acquisition will augment its Huntington’s pipeline, and is a vote of confidence for Auspex given Teva RD head Dr. Michael Hayden is considered one of the top researchers on the disease.
In the case of Horizon Pharma, Deerfield disclosed an over 6% stake in the company in December 2013 when shares were limping below $7 a share. The fund also recently became a large holder of Horizon’s 5% convertible notes. Deerfield holds over $250 million of Horizon Pharma shares, after building its stake to near 9% through the course of 2014, and $131 million of its convertible notes, according to public filings compiled by Bloomberg Bloomberg.
“Auspex and Horizon are both companies we see as having strategically compelling platforms and underappreciated economic potential,” James Flynn, managing partner for Deerfield Management said in an emailed statement to Forbes.
“The acquisition of Auspex is a significant step in strengthening Teva’s leadership position in CNS and advances us into underserved movement disorder markets,” Teva CEO Erez Vigodman said in a statement.
He added that Teva will accelerate the development and commercialization of Auspex’s portfolio and characterized the deal as the company’s ”first major step” in reaching its recently announced mid-to-long term growth plan.
“The transaction also marks a great outcome for Auspex shareholders and stakeholders as it not only validates our portfolio of drug candidates while delivering significant financial return, but it also puts our programs into the hands of a company that has the experience and commitment to deliver our pipeline of therapies to patients in need,” added Auspex CEO Pratik Shah.