Update as of Friday August 15 -
A few days ago the Company raised enough additional cash to fund operations at the current burn rate until the second half of 2016.
Barring a problem with the application for marketing authorisation, Arikayce is due to be launched in Europe in the second half of 2015.
Friday's closing price of $13.18 x 48,183,016 shares gives a current valuation of $635,052,151
12,000 patients x $30,000 would generate annual sales of $360,000,000
A valuation multiple of 17.64 would deliver a valuation of $6,350,400,000
Decide for yourself -
1. why, after the CEO recently mentioned MDR-TB as a potential use of the therapy, the analysts are still excluding off-label sales from their valuations.
2. how likely it is that 12,000 of the 12,000,000 with TB will be treated off-label with Arikayce in place of one or more of the liver-toxic antibiotics in the current multi-drug regimens.
3. whether a valuation multiple of 17.64 will be warranted when sales hit $360 million.
A recent snapshot of pharmas valued from $4 billion to $9 billion with positive earnings -
Company ... Market value ... Multiple ... Q1 sales x 4 ... Q1 v 2013 ... Q1 v Q4
PCYC ...... 9,260,454,870 ... 19.39 ...... 477,508,000 ....... +84% ......... -3%
BMRN ...... 8,914,668,090 ... 14.71 ...... 606,208,000 ....... +11% ........ +3%
JAZZ ........ 8,405,163,576 ..... 8.51 ...... 987,676,000 ...... +13% ......... +5%
SLXP ....... 8,576,659,274 ..... 5.58 .... 1,537,496,000 ...... +65% ....... +49%
TARO ....... 6,224,852,021 ..... 8.31 ...... 748,800,000 ........ +2% ........ -12%
MDVN ...... 5,834,953,246 ... 16.73 ...... 348,756,000 ...... +28% ........ -10%
QCOR ...... 5,672,223,163 ..... 6.24 ...... 908,416,000 ...... +14% .......... -6%
CBST ....... 4,643,326,216 ..... 4.44 ... 1,044,932,000 ......... -1% ........ -13%
UTHR ....... 4,475,054,784 ..... 3.87 ... 1,157,612,000 ........ +4% ......... +0%
ITMN ........ 4,520,936,978 ... 37.33 ...... 121,096,000 ...... +72% ....... +18%
Presumably some would have had higher sales multiples but for disappointing Q1 numbers. SLXP has a low multiple primarily because an acquisition delivered the bulk of the recent increase in sales.
The confirmation that the EMA considers the Arikayce NTM data adequate evidence of efficacy opens the door also to off-label sales in MDR-TB (starting this time next year, assuming accelerated assessment).
Provided the strain is not amikacin-resistant, and wherever funding allows, Arikayce is a logical substitute for injections which cause kidney damage and loss of hearing.
And the big players definitely wouldn't want retail investors to realize just yet that the risk/benefit argument for Arikayce trumps that of EVERY antibiotic now available to a Worldwide TB population of 12,000,000.
12,000 using Arikayce at $30,000 per course would generate sales of $360,000,000.
A market value of $4,643,252,400 - ten times the current valuation - would require a sales multiple of 12.90.
August 8, 2014 6:05 pm
Shire drops on doubt over AbbVie takeover
By Bryce Elder
However, tax avoidance is not the only attraction, according to analysts.
A meeting with AbbVie’s chief financial officer Bill Chase provided reassurance that the takeover will complete, Credit Suisse told clients. “While he cannot break down the value that AbbVie would obtain from an inversion specifically, the strategic importance of integrating Shire into a more diversified, speciality care NewCo holds more importance than some on the Street currently appreciate,” it said.
Buying Shire will give AbbVie greater flexibility to deploy cash trapped outside the US, which is more important to management than using controversial tax-lowering methods such as intercompany debt and interest expense deductions, said Credit Suisse.
Currently, AbbVie has a 13 per cent pro forma tax rate and pays 35 per cent to repatriate international cash. So even without redomiciling, AbbVie could still make savings worth about £9 per Shire share just by getting access to the UK group’s cash flow, 70 per cent of which comes from the US, Barclays estimated. “Put another way, for every dollar of expenditure that AbbVie can avoid paying with repatriated cash by utilising Shire’s US cash flows it saves 54 cents,” the broker told clients.
Merger cost savings can deliver a further £3.70 per Shire share so even if inversion is impossible, Abbvie’s offer, worth £52.42 on Friday’s prices, looked only marginally too high, Barclays said"
and from another Financial Times article today:
"Republicans have been equally critical of the deals, but they want any legislative
solution to be part of broader tax reform, which is unlikely to pass the US Congress.
The Obama administration this week said it was exploring ways to use the president’s
executive powers to limit inversions, but lawyers say it is not clear it has sufficient
Current Shire price if closed today would be about $265 per adr. Lower abbv sp and fx rates have dropped it by $10. The shpg current price is about $30 lower meaning aN additional $10 additional spread from a few weeks ago($275 vs $255). If they decide not to invert or if our king makes up new laws again they will likely fall to $170-180 per adr.
What to do to play this situation . . . . .?
Actually, if the deal falls through SHPG gets $1.6B. Not sure exactly what amount the tax savings amounts to
@@@@@A $1.6 billion breakup fee would be paid to Shire if the acquisition isn't completed -- even if regulators block it....He believes that the lower tax rate the combined company will enjoy by being based in the U.K. "represents a major component of AbbVie's projected $1 per share accretion by 2020, if the deal is completed as expected in the fourth quarter."
Yes, I checked, the cash part of the deal is 24.44 billion pounds which is roughly $41.5 dollars.
The expense on that new debt might not be deductible under new tax rules being considered by the Obama Administration.
Of course, the US Treasury is just floating ideas and testing the political winds so we don't know what their final rule will be or if they rule at all.
Again, our big hope, I think, is that they not make any rule retroactive to July 18th when the deal was made between Shire and ABBV.
It occurs to me that ABBV would still get their tax saving of $5 billion by 2020 if the Obama Administration acts to make such tax inversions more difficult because the way the Administration would do it is probably by making interest on debt non deductible as an expense.
ABBV already has net debt of $5.65 billion, so assuming they take on debt to pay all of the cash due to Shire shareholders--I have to go back to check how much it is-$41 billion?, If the interest is 8% that would be $3.21 billion per year that was not tax deductible. Assuming a 35% tax rate that would be about $1.124 billion per year in increased taxes for the new Abbie to pay until the debt was paid off.
So about $5.6 billion in extra taxes if my $41 billion number in extra debt needed for the transaction is correct. Not that much more. My weak guess is ABBV would still do the deal.
Again, I think what saves the deal is my guess is they can't make it retroactive and have it stand up in Tax Court.
I think ABBV would have to pay $1 billion to SHIRE if ABBV recommends their shareholders vote against the deal versus a tax saving of something like $5 billion by 2020 if I'm recalling correctly.
So would ABBV be willing to "spend" an extra $4 billion on this $53 billion deal, raising the "price" to ABBV by about 8%? I would weakly guess ABBV would still be willing to go through with the deal.
The reason I'm holding my shares though, is (while I think the Obama Administratiion should act on this tax inversion issue), I don't think they should make it retroactive because I don't think that is fair to companies who were operating under the rules at the time of the deals and my guess is they will not make it retroactive.
Further, I would think that if the Obama Administration changes the rules and makes it retroactive, that ABBV could take the case to Tax Court with a good chance of winning.
I'm not sure of any of this, however, and am interested in others' opinions. What do you think?
How much of the current share price is driven by inversion value do you think? The Times had an earlier article about the Shire Board Chairwoman who engineered and drove this deal on the Shire side, not the CEO - so you think the merger goes forward if the tax benefit goes away?
Yes, 66.8% of ABBV is held by institutions and another 0.06% by insiders for total of 66.86%
The whole article would not post.
They are considering taking away the ability to deduct debt assigned to the foreign company (would be an issue for the ABBV/Shire deal) and it is possible the Executive action could be retroactive.
Sounds to me like the Obama Administration is floating the idea of him acting alone, without Congress to see what reaction would be.
Pres. Obama would like to increase the requirement that foreign entity hold 20% of the new company to 50% of the new company but I did not see this mentioned in the article.
The whole article can be found under Yahoo Finance for ABBV
Also the message board for ABBV has a few posts complaining (reasonably, I think, against having to pay capital gains tax on shares they are not selling and urging the ABBV/Shire merger be voted down by ABBV shareholders.
Institutional traders will vote with management for the merger. I would guess insiders and institutions together hold the vast majority of ABBV shares so would expect a "FOR" vote by ABBV shareholders.
JULIE HIRSCHFELD DAVISAUG. 5, 2014
WASHINGTON — A group of Democratic Senate leaders is calling on President Obama to go around Congress and act on his own to curtail tax benefits for United States companies that relocate overseas, warning that billions of dollars in tax revenue can be lost if he fails to act.
Seeking to stanch a recent wave of so-called corporate inversions, the senators wrote a letter to be sent to Mr. Obama on Tuesday urging the president to move quickly to strip away the financial incentives for the deals.
“The coming flood of corporate inversions justifies immediate executive action,” says the letter, spearheaded
Nothing it is just TALKING POINTS PUSHED BY HARD LEFT WING OF THE DEMOCRATIC PARTY. It is trying to make you look and feel bad for the possibility of a successful inversion strategy.
I am still buying SHPG because that is over 8% left on the table.
Sentiment: Strong Buy
Did I mention that most drugs used in TB are being used off-label?
The CDC has actually offered guidance on the off-label use of bedaquiline (Sirturo) in MDR-TB.
A six-month course of tablets is priced at around $31,000. Furthermore significant safety concerns emerged during the Phase II study that supported its conditional approval (subject to a PHASE IV study), including an unexplained substantially higher number of deaths in the bedaquiline arm than in the Placebo arm.
The FDA's decision to demand an additional trial of Arikayce is interesting, considering the EMA is satisfied with the proof of efficacy in NTM from an FDA trial - and has now invited a submission for a marketing authorisation for both Cystic Fibrosis and NTM.
Efficacy in NTM means efficacy in TB. I somehow doubt FMR has maxed out its holding at 14.9977% - and Steven Cohen has just reported a 5% holding - because of the CF and NTM opportunities.
Sales of Arikayce in Europe next year for NTM and CF mean off-label sales for MDR-TB. And Europe is the gateway to the rest of the World in that regard.
After this morning's 25% drop the current market valuation is equivalent to just 2,500 patients using a six-month course each year.
The MDR-TB patient population is estimated at 630,000.
The EU CF patient population alone is estimated at 35,000 - and the first once-daily antibiotic available to those patients will sell like hot cakes because of their overall daily treatment burden.
I'm half expecting the arrogant shysters selling all these shares this morning for $13 to discover there are more buyers than they can supply.
Problem is there are no leaps options available on this stock. I emailed SHPG and the CBOE about that a long time ago to no avail.
If you are that sure of a take over then it's better to buy option leaps for either Jan 2015, Mar 15 or Jan 16....... Better to use the leverage, invest less money and control more shares.
The buyout is not $273 or $275. It is .896 shares of abbv and 24.44 gbp. The abbv price goes up and down and the fx rate has dropped over .02 meaning fx alone drops ADR's by about $1.50. Look to these as primary fluctuation points. Add in the noise from our do nothing president and congress sabre rattling and there will be continued volitility until we get closer to the deal consumation in Dec/Jan.
There's an article out today saying President Obama has the authority to rule that some interest paid on debt by the resulting U.S. subsidiary would not be tax deductible.
I see that ABBV already has about $5 billion in net debt and I would think they would need to take on another $41.75 billion in debt to pay the 24.44 Great Britain Pounds part of the offer so this could be a significant issue for them, I don't know.
That may be why the stock is down a little more today.
no one seems to say anything at all. Almost a good 20 points off. What the hell am i missing.