C.K. Cooper has raised its price target for “buy-rated” DUSA Pharmaceuticals (NASDAQ:DUSA) to $9.50 from $8, suggesting that shareholders do not tender under a takeover offer from Mumbai-based Sun Pharmaceutical Industries and wait for a better offer.
“Shocking, short-sighted, disappointing, all words that came to mind when trying to capture initial thoughts on the DUSA management team and the board’s willingness to accept such a low offer in what is clearly a business with positive momentum and untapped potential,” writes analyst Ken Trbovich.
He said the deal values DUSA at a level that it could achieve on its own next year, without a buyout premium. Sun has offered to acquire DUSA at a 21% premium to the 30-day trailing average of the stock.
“We understand management has had to overcome significant challenges to bring the company to its existing level, but efforts to drive value in the capital markets have been suboptimal at best,” Mr. Trbovich said.
“A simple, public plan to deliver on revenue and earnings targets that appear achievable would provide greater interest and value for the stock than it has received historically. Yet, management has never even attempted this strategy before accepting the offer,” he added.
“If they had and it had not worked, then we could understand management and the board’s willingness to accept this path,” he said. “Accepting the offer represents the easier path but may not yield the value that could have been achieved if the stock were appropriately valued in capital markets before application of a takeover premium.”
Mr. Trbovich said that he understands DUSA hasn’t yet analyzed results of the Phase 2 BASDI trial, which should provide a meaningful new marketing message and potential to significantly improve labeling for Levulan PDT. Based on the positive Upper extremities trial, which also tested short-duration incubation, “we have every reason to believe results of BASDI should be positive as well,” he added.
“Management hasn’t said otherwise, so to accept the offer in front of the data is a glaring oversight and again representative of management’s poor timing in accepting such a low offer at this time,” he said. “If the data from BASDI was negative, then accepting the offer might seem more palatable.”
