There is very active backroom talk about two healthcare stocks and now and news may be "imminent." As usual, we are left to look for clues that may provide our readers with a trading edge should they decide speculate on either play.
Shares of Obagi Medical Products, Inc. (NASDAQ:OMPI) suddenly began to move higher in February. It wasn't until March that we heard that the firm had become an attractive acquisition target. Shares continued to rise after those initial rumors and were pushed further by some strong earnings numbers-- and have since steadied at current levels.
A few weeks ago, we told our Seeking Alpha followers that there were several more voices joining the chatter about the possible acquisition of OMPI. Various scenarios have followed since but now it looks more and more like the sparks here are worthy of paying attention to this week as they may finally become flames.
Late last week, Voce Capital Management publicly reiterated its opposition to a "poison pill" implemented by the Board of Directors of Obagi which is being voted on by shareholders this coming week on June 6, 2012.
A letter by that group charges that Obagi had spurned recent overtures to acquire the Company and in response, the Obagi Board issued a press release on February 14, 2012 committing that it would "review and consider, with the assistance of its financial and legal advisors, any good faith offer for the acquisition of the Company." Yet Obagi has done just the opposite. The pressure is on and our sources continue to tell us that an $18-$20 "all cash" buyout of the firm may finally close.
Those of you who heard us in March and took action have already seen some nice returns. Those of you who are hearing about OMPI for the first time, may want to pay attention and do your due diligence quickly since hanging your hat on hope is no way to invest.
The downside here is an investment in a company that has done a very good job of cleaning up previous concerns and has become quite attractive whether or not the buy-out takes place in days ahead. As such we continue to like the low risk-high reward scenario at play here. Shares are up +31.96% since last year, but are still trading -9.31% from their 52-Wk High of ($ 13.75).
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The other hot rumor on our radar involves Synergy Pharmaceuticals (NASDAQ:SGYP).
As a fellow Seeking Alpha contributor points out, "trial results for the company's lead product candidate, Plecanatide [also known as SP304] in the treatment of chronic idiopathic constipation (CIC) and constipation-predominant irritable bowel syndrome (IBS-C), are due later this year and provide the most notable pending catalyst, but there are other indicators and variables that could play a roll into a pre-announcement move higher."
Industry sources tell us that Big Pharma may not even wait for those official results and could be ready to make a deal for SP304 shortly. Part of the reason for their attraction to the drug candidate may be found in a disturbing and recently published New York Times article that points to the over use of a laxative a drug called Miralax. The FDA approved that drug for use only by adults, and for only seven days at a time, yet Miralax has become a long-term solution for childhood constipation. The article points out that while no studies have shown that the drug's active ingredient (polyethylene glycol 3350) has severe side effects, there is a growing chorus of questions about why parents and doctors have used and prescribed it for children for so many years.
In a statement, Merck (MRK) said that it recommends the use of Miralax only for patients 17 and older and only for a week, and added that it "regularly analyzes and reports all adverse event information as part of our ongoing post-marketing surveillance."
Those of you familiar with Synergy know that the company is focused primarily on the development of drugs to treat gastrointestinal disorders and diseases.
Synergy Pharmaceuticals' product, SP-304 is a synthetic analog of uroguanylin, a natural gastro-intestinal hormone that is produced in the gastro-intestinal (GI) tract and is a key regulator of intestinal function.
SP304/ Plecanatide devwis in Phase III for Constipation (Chronic Idiopathic Constipation). It is in Phase I for Irritable Bowel Syndrome (Constipation-Predominant Irritable Bowel Syndrome) and was previously discontinued as therapeutic indication for both Colon Cancer and Inflammatory Bowel Disease
The receptor, called the guanylate cyclase C (GC-C) receptor, promotes fluid and ion transport in the GI tract. Under normal conditions, the receptor is activated by the natural hormones uroguanylin and guanylin. Activation of the receptor leads to the transport of chloride and bicarbonate into the intestine.
Among the seven milestones listed for Synergy in the BioMedReports FDA Calendar, one indicates that Synergy anticipates completing enrollment of the Plecanatide Phase II/III trial in the third quarter of 2012 and reporting top line data in the fourth quarter 2012.
If you're considering a bet here, from a risk reward perspective, we like the fact that the company recently completed a big financing in which Synergy received net proceeds of approximately $42.0 million. Our readers would be coming in post that dilution and share prices could start to wake up after a period of consolidation at these levels if the leaks about the possible pharma deal continue to spread.
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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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