When a company acquires another business, there’s often going to be a premium involved, especially if it’s in good shape or has some promising assets in its portfolio.
But normally, you don’t see a company pay double what its current valuation is
That’s what Vertex Pharmaceuticals (NASDAQ: VRTX) recently did when it announced a $10 billion purchase of Crinetics Pharmaceuticals (NASDAQ: CRNX), a company that specializes in endocrine disorders and diseases. Vertex agreed to pay a 102% premium for the stock, slightly more than double its valuation. While it was great news for Crinetics investors, it didn’t sit all that well with Vertex investors, and the stock proceeded to fall sharply on the news.
Why did Vertex pay so much for the healthcare company? Management was “floored” by this one drug Vertex expects the assets it gets from Crinetics to add as much as $5 billion in revenue. And what really stood out to management was a particularly attractive drug: atumelnant.