Verona Pharma: A 363% Return Thanks To Big Pharma's Myopia

This is the author’s opinion only, not financial advice, and is intended for entertainment purposes only. The author holds a beneficial long position in Verona Pharma. The author receives no compensation for writing this article and has no business relationship with any of the companies mentioned.

What a great day for the Innovation & Freedom Portfolio: Merck announced its intention to acquire Verona Pharma for $107 per share, valuing the company at approximately $10 billion. Having purchased VRNA at $22.62 per share, this results in a 363% profit in less than a year.

This acquisition shows that big money isn't always smart money, and informed retail investors can have an edge. If I owned MRK, I would be furious. On July 9, 2024, VRNA closed at $17.04 per share. At that time, Merck could have acquired Verona for, say, $2.5 billion. What has changed since then? Nothing. Ensifentrine for the treatment of COPD was approved on June 26, 2024, and the Phase III ENHANCE trials were published in 2023. However, Merck's shortsighted management waited a year and paid four times the price for Verona instead of taking advantage of the bargain Verona was a year ago. Once again, shareholder value has been squandered due to myopia.

Ohtuvayre (ensifentrine) is the first new inhaled COPD treatment in over a decade. BMO Capital Markets projects that Ohtuvayre could reach $3.4 billion in peak sales. This was all predictable based on the available trial data a year ago, yet Merck's management team is essentially willing to pay a substantial premium. Their loss is my gain.

Note: The mentioned profit of 363% is based on today's stock price of $104.73. If Verona were to trade at the intended acquisition price of $107, the profit would be 373%.