I mentioned a few days ago that there were three companies with zero revenues, no infrastructure or commercialization capabilities, when adjusted for share count have higher values than Elite. One of the companies, Flexion, is being considered for acquisition by a firm in need of bolt-on revenue growth. So it is that Flexion’s board has accepted Sanofi’s non-binding offer for a $1 Billion plus deal. Flexion has an NDA for an osteoarthritis injectable drug under consideration but not yet approved by the FDA. The company has no other drugs in trials, nor do they have revenues, infrastructure or manpower to manage any form of commercialization; which will entail either the development of a sales/marketing function or an agreement with another firm to complete commercialization. Such is the rational of the value of the acquisition for both sides.
What should be mindful to Elite investors is that among the many means to assess the value of an acquisition candidate, beyond pipeline, approved drugs, debt, contractual agreements, and organizational infrastructure and capabilities, is comparable analysis. So it is that any subsequent acquisition candidates – think Elite – will use that price to lay the foundation for any argument they might have on how they should be valued in the event of interest by a firm to acquire them. This is common in business as it is in the real estate market. Based on a comparison between Flexion and Elite, given the pipeline potential alone, Elite is hands down the more valuable. And, just to be clear, as I have said before, neither the market cap, number of shares outstanding or approved, share price, nor exchange upon which it is traded have anything to do with a valuation. Been there, helped with it. I know the game. I know how valuations are arrived at. Elite is worth more than Flexion.
