Author Topic: ACHN - Achillion Pharmaceuticals  (Read 1517 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 »
When you are dead, you do not know you are dead. It's only painful and difficult for others. The same applies when you are stupid.

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writser

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Re: ACHN - Achillion Pharmaceuticals
« Reply #11 on: January 20, 2020, 01:41:48 AM »
_JJ_ (@Aceglobalvalue - recommended on Twitter) pointed out that there are some interesting tidbits in the proxy. For some reason (read: laziness) I hadn't spent much time on the proxy. In my experience the 'background' section is usually one of the most interesting parts of a special situation proxy. You get to know a little about the actors involved and their behavior, the history of a deal, if there was any competition, why it is structured the way it is, etc. I think it helps you to get a feeling for the situation - however vague that is.

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On September 21, 2019, Dr. Sarin delivered a letter to Mr. Truitt, proposing a revised non-binding offer to acquire all of the outstanding common stock of Achillion for an aggregate price of $8.65 per share, which consisted of upfront cash consideration of $6.15 per share plus one contingent value right with a nominal value of up to $2.50 per share in cash, including $1.50 per share payable upon the start of a Phase III clinical trial for ACH-5228 and $1.00 per share upon the approval by the FDA of the combination of ACH-4471

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On September 23, 2019, following the direction of the Board of Directors, Mr. Gibney called Dr. Sarin and informed her that Alexion would likely need to improve its offer of upfront cash consideration

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On September 30, 2019, Dr. Sarin called Mr. Gibney with a revised non-binding proposal, which was characterized as Alexion’s “best and final” offer, to acquire all of the outstanding common stock of Achillion for an for an aggregate price of up to $8.30 per share, which consisted of upfront cash consideration of $6.30 per share plus one (1) CVR with a nominal value of up to $2.00 per share in cash, including $1.00 per share payable following the start of a Phase III clinical trial for ACH-5228 and $1.00 per share payable upon the approval by the FDA of ACH-4471

So, first they get offered $6.15 and a $2.50 CVR. Achillion says the cash component is too low. A final deal is negotiated at $6.30 and a $2 CVR. Apparently $0.15 now is preferable to $0.50 for a phase III clinical trial for ACH-5228. However (page 50):

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.. based solely on the assessments of Achillion’s management as to the probability of success and the estimated timing of achievement of the milestones, and discounting the two probability-adjusted payments under the CVR back to the valuation date using the midpoint of a range of discount rates from 11% to 13% based on Centerview’s analysis of Achillion’s weighted average cost of capital, Centerview calculated an illustrative net present value for one (1) CVR of $1.14

So, "our CVR is very valuable according to our calculations. But we prefer a little bit of extra cash right now" ..

Anyway, I still think the situation is interesting. At this point the market seems to be pricing in a >25% chance of regulatory intervention (or I'm way more excited about the CVR than the market). Seems high-ish. I don't think I have that big of an edge handicapping this type of situation (recent reminder). On the other hand: who has? The combination of regulatory uncertainty + high downside + large contingent payout seems like a showcase 'unlikable' special situation. I have a very tiny position. I hope to spike a bit more on a huge price drop / if FTC approval is in. But buying now might not be the worst idea ever either.
When you are dead, you do not know you are dead. It's only painful and difficult for others. The same applies when you are stupid.

@thewritser