Personally, if I were a COR shareholder - which I am not yet at this point - I would prefer that COR get bought out than sign a corporate deal. And that scenario certainly makes a great deal more sense to me if I were the prospective purchaser too, but I won't elaborate on that here.
By being bought out, COR has some chance of continuing to function as a relatively independent subsidiary of the purchaser. As such, their existing management and scientific team would likely be able to exert greater control over the development of their platform as well as move (much) more deftly and speedily in terms of moving the drug candidates through trials. To me, that is the best-case scenario. Keep in mind that this would only likely happen after some real signal of efficacy - whether it be this Sleep Dep trial or a subsequent one - which, in turn, would likely lead to a sharply higher share price PRE-buyout. Add 30%-60% on top of that for your takeout price.
While COR management is going to do their darndest to partner with someone who is committed to the Ampakine platform, the number of examples of Big Pharma moving at a snail's pace with drug development is quite large. Add to this the interesting speculation offered by Dr. Tracy about how a BP partner's "decision-tree" thinking differs greatly from what COR's would be (i.e., governed by almost exclusively pursuing a "blockbuster" indication to make it seem worth their while), and it doesn't cheer me up so much to have COR simply partner the platform. This is especially true the earlier the stage of development their drug candidates are in when they partner. On a related point, while the biotech environment will likely be significantly different (we hope) from its current toxicity when COR signs a deal, there is no guarantee that the type of deal envisioned by Stoll after Sleep Dep results (or other Ph2a data) is going to move the stock price forward as much as many would hope.
Now, some of you may think that a buyout would put a ceiling on your dreams of COR being a 10-bagger or 50-bagger. True. Realistically though, how often does that happen? And you have to break down that return by the number of years it will take to get there. For example, if I make 20% each year in a portfolio, in 10 years, that's a 6-bagger. (And my number of shares outstanding didn't increase!!) But if COR were bought out, especially from these prices, you're looking at a VERY impressive rate of return - and likely within 6-18 months. Too, a buyout essentially guarantees large profits, whereas if the platform struggles post-BP deal then shareholders face potential losses or at least very meager profits.
Just food for thought; for me, preferable to the hand-wringing about short-term stock price.
Should we hope for COR to be acquired, or should we hope that it will remain independent, drawing royalties from BP and profits from orphan indications? My preference is neither. I agree that if COR is acquired in the near term, we will miss out on potentially huge profits. But if COR wants to license major indications to BP and keep minor indications for itself, it must face two difficulties.
First, I have never been convinced that BP will be satisfied with a license that carves out minor indications to be retained by COR. That would leave BP with the problem of overlapping uses for a given Ampakine and a consequent inability to control prices. Any license that leaves open a possibility of competition with respect to the licensed product, even a remote possibility, will be valued far lower than a license that is not subject to that danger. The result will be that COR will be unable to do a deal with BP or, if it does a deal, will receive much worse terms that otherwise would be available.
Second, if COR retains orphan indications, it will spend the next few years in clinical trials, which might be successful or might be a bust. If COR is lucky and an orphan indication is approved, it will face the daunting need to develop manufacturing and marketing capabilities. We are talking about very large expenditures, probably exhausting any upfront payment by BP and requiring more dilutive financings.
To avoid these problems, I believe COR should consider a more conventional license that does not carve out exceptions to the grant. This of course means abandoning its present plan of becoming a company with its own products.
Some say that BP will not develop orphan indications, that BP is interested only in blockbusters. I question that, particularly if a given Ampakine is useful for both a major indication and an orphan indication. I believe the added revenue from the orphan indication will make the particular Ampakine a bigger blockbuster in the eyes of BP. We frequently see BP adding incrementally to indications approved by the FDA for a particular drug.
Some say that without COR having its own clinical programs there will be a danger that a BP licensee will sit on the technology and not develop it aggressively. It seems to me, however, that if COR extracts enough of an upfront payment that is very unlikely. Moreover, there seems to be no reason a license couldn�t provide for reacquisition of the technology by Cortex if the BP failed to expend X dollars during a given period to exploit the licensed technology. Finally, with Lilly and three COR licensees seeking to develop Ampakines, it seems highly unlikely that the technology will be allowed to lie fallow. Competition will insure that it is exploited by the licensee if it turns out to be as useful as we hope.
Trying to keep minor indications while licensing major indications has the tail wagging the dog. We shouldn�t try to eat our cake and have it too. Let�s keep our eye on the ball. And so on.
I should add that the Stoll program whereby Cortex develops Ampakines for orphan indications to be retained by it implicitly involves a tradeoff, that is, lower royalties in return for higher upfront money. If Cortex doesn�t need the upfront money, it can obtain a much better royalty schedule. Dr. Stoll has as much as admitted that the hangup in dealing with BP so far has been his demand for more upfront money than BP has been willing to pay.
Royalties do not have to be in the 10-20% range. I think Pfizer is paying Neurocrine something like 50% for Indoplon. Of course, that compound was further along in its development than CX 717 when that license was negotiated, but it provides some hint of what may be possible. Ampakines are potentially a greater source of revenue than a sleeping pill which has serious competition.
<<This of course means abandoning its present plan of becoming a company with its own products.>>
I don't quite follow your train of thoughts here. Per your preference, if COR is not be bought out nor engage in inhouse orphan indication pursuits (since inhouse blockbuster ones are almost out of the question) what else is there for its raison detre?
Kindly elaborate. TIA
Your thoughts about a buyout are undoubtedly shared by a lot of investors, but I imagine for COR there is a larger than average % of longs that would consider a buyout to be a very disappointing outcome, myself included. Fortunately the existing deals already in place between Servier and Organon complicate the possibility of a buyout, plus I get the impression that Dr. Stoll is not proceding as if a buyout was the company's ultimate goal.
In the example you mentioned, for a buyout to occur Ampakines would have shown a real signal of efficacy. At that point a conservative BP would be willing to pay a good chunk of cash to gain control of a blockbuster potential platform that has heavily patent protected IP and a clinical lead over all competitors. My feeling is that if that set of conditions is attractive to a BP, I'd rather have my investment enjoying that risk/reward scenario with an independent Cortex than cashing out for a safe return in a BP buyout. To me it would be like selling a lottery ticket with 5 out of 6 winning numbers unscratched, and the 6th number not yet uncovered. The safe thing to do is to take the small profit and let someone else assume the risk, but then the chance of a huge success is forfeited.
I agree that 10+ baggers are rare, but they do happen. The most important ingredient is being in at the ground floor level before the world catches on to the potential a company has... COR closed today just above $2, which is probably the same as a share of COR cost 5 years ago, i.e. still ground floor level.
For those that prefer to wait for COR to be much further down the validation trail, and then buy at a safer time but at a higher price (e.g. $5 instead of $2), then the potential 10 bagger drops to a 4 bagger.
The only reason to root for a buyout that halfway tempts me is to mitigate risk. A buyout gives a guaranteed 2x+ return, but that's not why I'm in Cortex. There are a LOT of biotech stocks right now that have 2x potential, especially at the current universally depressed prices. But there are *very* few that have 10x (or more) potential.
If Ampakines hit on just *one* blockbuster, COR will be a 10 bagger. A 10% royalty to COR from a BP making $1B a year on (e.g.) a Schizophrenia Ampakine earns COR $100M a year of essentially pure profit. With the current fully diluted total of 50M shares, that's $2 a year in earnings. Multiply by a typical P/E multiple (e.g. 13), and COR becomes a 13 bagger at $26.
The absolute beauty of Ampakines is that if they work for one indication, e.g. Sz, it seems extremely logical and probable that they will have some degree of effiacy for AD, MCI, Sleep Dep, and any other cognitive deficiency characterized indications.
And the list of other possible indications is spectacular completely on its own: Depression, PD, ADHD, Stroke, Anxiety, Fragile-X, Spinal cord, TBI, and various Sleep Disorders.
So it comes down to this for me... I'd like to have at least one stock in my portfolio that has 10 bagger potential, and I want to hold that stock until it either succeeds as a 10x, suceeds in some lessor fashion, or flames out.
I have enough other stocks that have 2x potential, COR is the homerun hitter in my portfolio and I'd personally hate to see that potential traded for a nice, but hardly spectacular buy out price.
Purely out of statistical interest, it would be interesting to see how many feel the same way, so please Rec this post if you'd rather see Cortex remain independent instead of being bought out... Aiming4.
Aiming - I generally agree that the scenario you painted is the preferable one.
One correction - your $2 in earnings is pretax. This becomes around $1.30 after tax. Presumably there are tax loss forwards to shelter earnings for a while. Also assumes no additional share issue.
What would be desirable would be substantial upfront payment accompanied by a share placement with a BP.