Cypress Bioscience a Buyout Target – Analyst Blog

Recently, Cypress Bioscience Inc. (CYPB) confirmed the receipt of a proposal from the New York based investment advisor Ramius LLC to take over the former for $4.00 per share. The board of directors of Cypress Bioscience will evaluate the all cash offer with its financial and legal advisors. The shareholders of Cypress Bioscience have been asked not to take action currently.

The buyout offer represents a premium of 74% over the average closing price of Cypress Bioscience since the acquisition of Israel-based BioLineRx’s novel antipsychotic agent CYP-1020 to treat schizophrenia. Ramius intends to support the development of the candidate with third party financing.

CYP-1020 is being developed for the reduction of psychosis and improvement of cognition in patients suffering from schizophrenia. Results from a recently conducted proof-of-concept study on CYP-1020 showed that the candidate not only reduced psychosis compared with placebo, it also improved cognition compared with both placebo and the control arm. Improved efficacy and a differentiated mechanism of action would help the candidate gain share once launched.

Schizophrenia is a severe mental disorder. Current approved treatments for schizophrenia include Novartis’ (NVS) Clozaril, Pfizer’s (PFE) Geodon, AstraZeneca’s (AZN) Seroquel, Eli Lilly’s (LLY) Zyprexa, and Bristol-Myers Squibbs’ (BMY) Abilify.

Ramius, based in New York, currently has a 9.9 % stake in Cypress Bioscience and operates as an investment manager for various hedge funds.  

Ramius is willing to enter into immediate discussions with Cypress Biosciences’ directors regarding the buyout offer. The investment firm, which requested Cypress not to approve further acquisitions, licensing agreements or business deals, observed that the acquisitions and other internal investments of Cypress have significantly eroded shareholder value. The offer, if it materializes, is expected to boost shareholder value.

We remain concerned about Cypress Bioscience’s early stage pipeline. This concern is reflected by the downward estimates revision by 2 out of the 5 analysts following the stock for the third quarter of 2010. This justifies our short-term Zacks#4 Rank for the stock.

However, we are pleased to see that Cypress Bioscience is working on expanding its pipeline. The company derives revenues primarily from its lead product Savella, which received US Food and Drug Administration (FDA) approval in January 2009 for fibromyalgia. We remain optimistic about Savella’s sales potential. This justifies our long-term Neutral stance on the stock.