New Issue: Acorda Therapeutics $300m Convert Senior Notes

by Bill Feingold and Kent Bailey, CFA

The Convert

We would have preferred slightly more attractive terms on the new Acorda Therapeutics convertible, but there's still much to recommend. At $300 million plus shoe, slightly over 20% of the company's market capitalization, the deal is a shade large for a company this size. We would have also preferred a 2 handle on the coupon given the initial premium of 32.5% and the seven-year tenor.

But perhaps this is quibbling in a hungry marketplace. Acorda has been around for nearly 20 years. Almost next door to us here in Westchester County, Acorda has access to the medical resources that have made the county an underappreciated hotbed for biotech. Think Regeneron. A registered deal never hurts, making the bonds more accessible to separate accounts for those managers willing to look beyond an absence of accounting earnings.

Given the 7-year tenor, we'd look for hedgers to go around 70% if not a shade higher. Since this deal was a pure capital raise with no buyback, the stock got hammered pre-issue, enabling more patient hedgers to set the trade up at more attractive levels to offset the relatively full valuation.

The Fundamentals

Acorda is focused on developing and commercializing novel therapies to treat multiple sclerosis, spinal cord injury, and other neurological disorders.  The FDA approved ACOR's main product, Ampyra, in 2010 for improvement in walking in MS patients and the drug generated $300m in revenue in 2013.  Importantly, Acorda has several Orange Book-listed patents that protect the drug until 2027.  Acorda maintains a specialty sales force of 90 reps and has been modestly profitable since 2011.

With the majority of current Ampyra growth coming from price increases (11% each of the past two years), Acorda's pipeline is a key source of future revenue growth.  Including the planned expansion of Ampyra into the post stroke setting, the pipeline consists of Plumiaz for epileptic cluster seizures as well as the following earlier stage programs:  NP-1998, GGF2, rHIgM22, and AC105.  Phew!  That's a lot of acronyms.  While the pipeline lacks catalysts in 2014, Plumiaz will likely be approved and several early stage programs should show proof-of-concept data next year. 

So even though ACOR trades at a relatively modest 3x EV/Revenue, it makes sense for the company to leverage its strong balance sheet ($650m pro forma cash, convert is the only debt) and raise money now.  The proceeds from the new convert will allow Acorda to pursue new product in-licensing or acquisitions to diversify its revenue base and leverage its sales force. The extra cash will also support the expected increase in R&D as the pipeline matures.