Quick Pitch: Revance Therapeutics (RVNC)

One thing that immediately pops out is the disproportionate price cut from Crown’s initial $6.66 bid. While RVNC’s Teoxane business accounts for half of the revenue, the real crown jewel of RVNC – and likely the focus of both bidders – is Daxxify. And Daxxify wasn’t impacted substantially in these developments. Losing a portion of Daxxify’s profits in the Australian and New Zealand markets due to the exclusive license granted to Teoxane is a relatively minor setback. Meanwhile, in September, as the takeover saga was already unfolding, Daxxify secured approval from Chinese regulators, unlocking access to a major new market.

Adding it all up, a 50% price reduction essentially implies that the RVNC/Teoxane partnership business became worthless, which clearly doesn’t make sense. This suggests that there is plenty of headroom for improved offer from both of the suitors – the gap between $3.1-$3.6 to $6.66 (or c $6/share, adjusted for the incremental cash-burn) is sufficiently wide.

Two additional factors fuel optimism regarding a potential bidding war: (1) the timely involvement of Beryl Capital and (2) carefully worded Crown’s response, which did not explicitly rule out possibility of an improved bid – it was strict only regarding the “no intention to extend the outside termination date”.

 

Daxxify – Botox alternative

Daxxify has positioned itself as a strong competitor to Botox. The main advantage is longer-lasting effect (6-9 months compared to Botox’s 3-4 months), which reduces the required frequency of injections. Additionally, Daxxify is considered a “vegan” solution since it doesn’t contain any human or animal-derived components, unlike Botox, which uses proteins from human blood. The product was initially priced lower than Botox. These factors contributed to Daxxify outperforming all other Botox competitors during its launch (see the 5th slide of this presentation). Toward the end of 2023, management increased pricing to better align with competitors.

Daxxify started off strong, but the growth slowed in 2024. The reasons remain unclear – management only noted some kind of business headwinds and increased competition. The latest merger proxy (pages 39-42) shows three sets of financial projections done by RVNC’s management – Feb’24, Aug’24, and Nov’24 – with each new guidance painting increasingly worse outlook. The Feb’24 projections showed 2024E sales at $148m, implying strong 76% YoY growth, and 2025E sales at $245m (further 66% growth). However, the latest guidance from November cut the 2025E revenues to just $123m. I’ve incorporated the latest projections (November) into the historical performance table below.

This sharp decline in Daxxify’s outlook, coupled with scant commentary or explanations, is puzzling – especially given that the guidance was revised downwards shortly after Crown Labs’ acquisition announcement (the largest drop in projected performance was between February and August).

That said, both suitors likely think they can outperform that guidance and ramp up the growth. Crown Labs and Teoxane already have established presence in European and Asian markets. Notably, Teoxane is global a market leader in RHA fillers, holding the #2 position in Europe and #1 in the Middle East. Dermal fillers and botulinum toxin injections are complementary markets (one used for dynamic wrinkles, another for static). Crown Labs owns a portfolio of aesthetic and skincare treatments, including microneedling, anti-aging creams, acne treatments, etc. So Daxxify’s inclusion in portfolio would also be synergistic.

 

Scenarios

I see four main scenarios this setup could unfold:

#1 – Bidding war erupts with one or more overbids. Crown ups its offer and the stock price goes up, with the market anticipating a counterbid from Teoxane. This is the best-case scenario, which seems fairly likely, as both bidders have demonstrated strong interest in acquiring RVNC. There also appears to be room for further price increases.

#2 – Teoxane’s bid wins. Management shifts its support to the higher $3.6/share offer, Crown walks away, and arbitrageurs pocket 11% spread to the $3.6/share bid. Less lucrative than a bidding war, but still a decent outcome.

#3 – Crown’s bid prevails. Management ultimately decides not to support Teoxane’s offer, perhaps due the uncertainty or any potential concerns related to financing, or simply unwillingness to risk losing Crown’s offer. In this case, Crown’s $3.1/share bid proceeds, leaving investors with a 5% loss from current levels.

While I think that Teoxane is unlikely to face financing issues, it’s worth noting that Teoxane is a tightly held private company with reported revenues of $240m in 2021. The potential financing plan that Teoxane has suggested so far involves equity in the combined private entity, which adds some complexity, especially to the timeline. That said, Teoxane has emphasized its strong profitability and high EBITDA margins, claiming it would have no trouble securing the necessary funds. Also, on a positive side, RVNC’s management already noted that its lawyers allowed to consider Teoxane’s offer as superior – so the bid is not getting rejected without any consideration.

#4 – Both suitors walk away, leaving RVNC as a high cash-burn operation with significant liquidity concerns. This is the worst-case scenario but, I think, the least likely.

The key risk here is that Teoxane might simply be aiming to derail RVNC’s merger with a larger and better-funded company. If left without a deal, Revance’s dwindling cash reserves would leave it vulnerable to a possible much lower offer from Teoxane later on. Crown Labs alluded to this possibility in its response:

Teoxane’s motive for submitting the Teoxane Proposal is suspect, as Teoxane may stand to benefit from our transaction’s failure. As a strategic partner to Revance, Teoxane was able to extract significant concessions from Revance. Teoxane’s negotiating leverage is further improved if Revance remains a smaller, independent company facing near-term liquidity pressures as compared to being part of a larger combined entity with Crown.
[…]

Teoxane’s subsequent actions, including its posture in negotiations with respect to amending the terms of the Distribution Agreement—which dragged out over the course of several months—played a substantial role in decreasing the value of our transaction by transferring significant value in the partnership with Teoxane at the expense of Revance and its stockholders. Shortly after execution of the Crown Binding Merger Agreement, Teoxane filed a Schedule 13D amendment stating that the Existing Crown Transaction undervalued the Company—yet did not seek to conduct detailed due diligence or make a proposal to acquire the Company. Teoxane has had many opportunities over many months, including prior to the signing of our Original Merger Agreement and during extended commercial negotiations between Revance and Teoxane prior to signing the most recent amendment to the Distribution Agreement, to conduct detailed due diligence or make a real proposal to acquire the Company—yet it declined to do so each time.

However, I don’t see this as a material risk. Teoxane, being a small-ish company itself, depends heavily on the US market and its partnership with RVNC. It’s unlikely that Teoxane would risk destabilizing a key partner by playing such games.