Author Topic: ACHN - Achillion Pharmaceuticals  (Read 1050 times)

writser

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Re: ACHN - Achillion Pharmaceuticals
« Reply #10 on: October 20, 2019, 05:19:15 AM »
You will have a real hard time doing this.   It's trading sub $6.20 because there *is* real FTC risk.  Once FTC clears, it will likely go to $6.70 or higher valuing CVRS 40-75 cents in total is my guess.

I like this idea after FTC approval.   Until then, I won't touch it at these levels.

Agreed. You aren't buying the CVR's for free now: you are buying the CVR's bundled with the FTC risk for free. I would absolutely not recommend going 100% long with puts at this point.

The deal is at a large premium so even assuming a small chance of FTC intervention (and the subsequent butchering of the share price) quickly makes this less attractive. Very simplistically, a 10% chance of FTC intervention and a subsequent price drop to $3.75 yields a $6.05 break-even price for the merger, ignoring the CVR's. Even if you add in the expected value of the CVR's, above that 10% intervention hurdle the trade quickly gets less attractive. And do you really want to bet on the chances of FTC approval being >90% in this case? I'm not sure.

On the other hand, Alexion is buying a small, speculative pipeline, there are some issues with its Soliris patents - and they are expiring soon, there seem to be a few companies developing competing drugs out there and the large parent termination fee also suggests confidence at the buy-side. I'll probably keep a small position with the intent of adding later.

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Just looking it up on bloomberg, Dyax traded  5-35 cents through the merger price for a month or so after approval, ended up closing at $1.11 through the merger (creating a $4.00 CVR potential for $1.00) If I recall correctly I bought it and puts a bit through so was paying somehting but payoff was high. but then 2015 sell-off accelerated and I ended up selling dyax to free up margin to buy LUK bonds and stuff.

That's a shame, the DYAX CVR's paid out in 2018. Turned out to be a great trade. Though maybe you did better on your other purchases.
« Last Edit: October 20, 2019, 06:23:46 AM by writser »
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