Small-cap biotech Organon jumps almost 30% on reported Sun Pharma takeover offer

Shares of Organon & Co. surged nearly 28% on Friday after India’s English-language daily Economic Times reported, citing sources, that Sun Pharmaceutical Industries is preparing to submit a binding $12 billion offer to acquire the company, Barron's writes.

Organon shares rose nearly 28% to $8.83 apiece on the New York Stock Exchange on Friday, marking the largest single-day gain in the company’s history, Barron’s writes. In early trading on Monday, the stock extended gains, rising about 2.5%.

The rally was driven by a report from the Economic Times, which said, citing sources, that Sun Pharmaceutical is nearing a deal to acquire Organon. According to the publication’s sources, the U.S. drug developer has been valued at $12 billion. By comparison, even after the surge, the company’s market capitalization stood at $3.3 billion on Friday. That implies the deal values Organon at 3.6 times its market value.

Interest from Sun Pharmaceutical first emerged in late January, when the Economic Times reported that the Indian company had made a non-binding offer to acquire the small caps drugmaker. That news pushed the shares up 8%.

Sources told the Economic Times that Sun Pharmaceutical is now preparing to submit a binding offer for the acquisition of the small caps company, FirstWord Pharma reported. At the same time, the publication’s sources said that two other consortiums are also interested in acquiring Organon.

Neither company has publicly commented on the reported interest in Organon, GuruFocus noted. Seeking Alpha, for its part, reports that Sun Pharmaceutical described the report from the Economic Times as “speculative in nature.” That raises questions about the firm’s commitment to the deal, Simply Wall St said.

Spun off from Merck & Co. (operating as MSD outside of the U.S. and Canada) in 2021, Organon focuses on developing therapies for reproductive health, contraception, and fertility. Its portfolio also includes drugs for dermatology, neurology, and cardiovascular conditions.

In October, Organon announced the resignation of CEO Kevin Ali after an internal investigation by the board found improper sales practices related to its Nexplanon contraceptive implant. Wholesalers were encouraged to purchase more product than needed, allowing the company to meet targets. While the practice did not require a restatement of financials, the board deemed it improper and said some company statements were inaccurate, according to the press release. Shares fell nearly 24% on the day of that announcement.

Sources cited by the Economic Times said Sun Pharmaceutical had been interested in acquiring Organon even before those events, FirstWord Pharma says.

Since the start of the year, Organon shares have gained 23%. Most Wall Street analysts remain skeptical about the stock's prospects: four recommend "sell," three "hold," and only one “buy.” The average target price is $9.67 per share, implying 9.5% upside.