Verona Pharma: A 363% Return Thanks To Big Pharma's Myopia
Merck plans to acquire Verona Pharma for $10 billion, or $107 per share — a 363% gain for the Innovation & Freedom Portfolio.
Disclosure: The author holds a beneficial long position in Verona Pharma plc. (NASDAQ: VRNA). This article is provided for informational and educational purposes only and is not financial advice. Although the author is a Medical Doctor, this content represents a personal opinion regarding the company’s science and market potential and is not medical advice, a diagnosis, or a treatment recommendation. The author receives no compensation for this article and has no business relationship with the company mentioned. Please see the full "Legal Information and Disclosures" section below.
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%.
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Legal Information and Disclosures
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Disclosure of Interest: The author holds a beneficial long position in Verona Pharma plc. (NASDAQ: VRNA). The author reserves the right to buy or sell these securities at any time without further notice. The author receives no direct compensation for the production of this content and maintains no business relationship with the companies mentioned.
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