rijk Posted February 15, 2011 Share Posted February 15, 2011 looks like Sanofi and Genzyme agreed on a deal worth $74 cash/share and CVRs worth anywhere between $2 and $6/share GENZ is currently trading around $74.30 http://online.wsj.com/article/SB10001424052748704409004576146350470325700.html?mod=rss_Deals_and_Deal_Makers "The CVR, which investors would be able to trade on a stock exchange, would have an initial trading value of at least $2 a share, people familiar with the matter said." this comes close to buying $ bills for 15 cents....... of course the deal is not yet officially announced and to purchase the CVR's, you need to tie up a lot of capital for a small equivalent CVR value. what's wrong with this idea? regards rijk Link to comment Share on other sites More sharing options...
rijk Posted February 16, 2011 Author Share Posted February 16, 2011 i wish i had bought yesterday, looked like a case of high uncertainty/low risk to me the CVRs, priced today at approx $1.40, still represent a good risk/reward from the lack of feedback, i take it that board members believe that this is not a decent investment???? regards rijk Link to comment Share on other sites More sharing options...
netnet Posted February 17, 2011 Share Posted February 17, 2011 How are you valuing them? Can they go to zero? What is the probability of the upside? Link to comment Share on other sites More sharing options...
rijk Posted February 17, 2011 Author Share Posted February 17, 2011 tricky to value the cvrs, the floor would be $74 cash but of course, in the unlikely event that none of the milestones are achieved, the cvr element could turn out to be worth nothing at all the milestones are clear,.. but to attach probabilities is very hard, however, i think it's fair to say that at a cost of $0.30 per cvr (feb 15 opportunity) and a potential value of $14 per cvr, you only need a tiny probability (approx 2%, ignoring npv element, cvrs expire in 2020) to break even...... the picture has changed now that GENZ trades at $75.30, the cvrs cost $1.30, which would require a success rate of nearly 10% maybe this is a simplistic approach but i believe that at a cost basis of $0.30, it would be hard to loose money.... regards rijk Link to comment Share on other sites More sharing options...
netnet Posted February 17, 2011 Share Posted February 17, 2011 not to be a stickler, but on the 15th I don't think you had no certainty of an agreement. So now the play is just valuing the CVR's from Bloomberg: Genzyme holders will receive one contingent value right per share. Sanofi will pay $1 per CVR if Genzyme meets production targets this year for two rare-disease drugs, Cerezyme and Fabrazyme, and another $1 if Lemtrada wins U.S. approval. CVR owners will also get $2 if Lemtrada sales exceed $400 million within specified periods in specific territories, $3 if sales exceed $1.8 billion, $4 if they surpass $2.3 billion and $3 if they top $2.8 billion. So it seems that the highest probability events are Lemtrada winning approval and possibly a 400 mm sales. (I think Sanofi projected 700mm sales.) So that gets to 3. There are people who seem to have some expertise in handicapping these sorts of things. (But I'm not one of them.) The rest would be gravy. Link to comment Share on other sites More sharing options...
rijk Posted February 17, 2011 Author Share Posted February 17, 2011 no worries, i mentioned in my feb 15 message that the deal was not yet official, however, wsj/bloomberg & reuters all issued articles on feb 15 to confirm that the agreement would be made public the next day.... of course there was an element of risk embedded here...... the thing that made me a bit nervous was that board approval was not yet formalized on the 15th, in any case.... the cost was so low that, in my view, the risk/return represented a decent investment opportuity.... $1.30 still sounds like an attractive risk/return profile to me, any input from expert handicappers would be most welcome... regards rijk Link to comment Share on other sites More sharing options...
rijk Posted February 18, 2011 Author Share Posted February 18, 2011 hope we get a chance today to buy below $1....... regards rijk http://www.ft.com/cms/s/0/97db083a-3ae7-11e0-8d81-00144feabdc0.html#axzz1EJQTpU8E Link to comment Share on other sites More sharing options...
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