AND: That's great for us longs.
Why would anybody cheer on a buyout of a stock at $8, when just 9 months ago it was trading at $25?
But, here are the real reasons why there will be no buyout before HGS recovers:
1- Sales growth and market potential remain murky. Remember: HGS itself NEVER provided any sales estimates before launch. It was analysts who made predictions.
2- Even with sales growth being murky, at some point this drug will be on track to have 30K patients translating to $1B/yr in revenue. Right now we don't know whether we will cross that threshold in mid-2013 or mid 2014. Until we have a better picture, no one will be buying or selling this company.
3- There are no buyers out there besides GSK. Who would want to buy HGS and get in bed with GSK? NO ONE.
4- GSK will not make a move before it knows more about Benlysta market potential and Darapladib trials. That's mid-2013.
5- If GSK were to make an offer now, even a 268% premium (which is what inhibitex got) would not be enough to bring company back to its post phase 3 success prices (HIgh was $34.49 - as one character on this board has monikered himself).
6- If GSK were to make a "reasonable" offer now, both GSK and HGS long term shareholders (not us, but the real money) will not back that offer. HGS will think its too low, and GSK will think its too high.
SO, in the end, 2012 will be a transition year for HGS.
I won't predict stock price, but I will say this: recent price volatility has nothing to do with a buyout.
If you're rumor-mongering on this site, you're either:
C- Short sighted and willing to sell out at a low price
Good luck to all longs. I'm one of them, and hope nobody steals my shares.
I disagree on the part about no groups wanting to buy this other than GSK. I'm a big believer in activist shareholders and I'm not ready to believe that Loomis Sayles won't turn activist. If they bid $15/share then they know they're forcing GSK's hand. GSK isn't going to lose control of this asset and risk it falling into the hands of some crazy hedge fund. They'll have to bid to win it. You still see Loomis as passive..I'm not convinced. Time will tell.
"3- There are no buyers out there besides GSK. Who would want to buy HGS and get in bed with GSK? NO ONE."
There is a precedent for this:
AMGN bought Immunex when Immunex had a 50:50 sales deal with Wyeth, similarly to HGSI/GSK split.
Why does HGS need to be trading at 18-20 for a buyout; didn't you just mention INHX buyout. It was trading at 9.87 when buyout was announced. They never traded above 10.60 before the bidding war. Current PPS is not indicative of value and it does not dispell a buyout possibility. So, in theory, we could go to $18 and get a buyout of $25 or we could go to 9.87 and get a buyout of $25 which is what INHX did.
I think HGS is worth much much more than its current stock price. Personally, I think Benlysta will be a blockbuster and have other uses as well.
So, I don't think HGS will sell itself for $25.
FMV for HGS is roughly $8 to $12 Billion. That's roughly $40 to $60/share.
You are a little off on your numbers. Andrew Witty said he should know mid-2012 if cardiac drug shows promise even before completing trials. Watkins announced profitability by 2013 instead of 2014, which means anticipated sales interpret dollars. BMS paid 163% premium for INHX; they started at 133% and increased to 163 during a bidding war with an undisclosed company and increased the bid by 30% to seal the deal.
Thank you for correcting me. I look forward to productive input.
However, I beg to differ with some numbers:
1- Inhibitex sold for $26 after closing at $9.87. That's 2.63X the closing price, or 263%.
Here's link to Forbes: http://www.forbes.com/sites/matthewherper/2012/01/07/bristols-purchase-of-inhibitex-caps-amazing-run-for-some-biotech-stocks/
2- Witty may know by mid-2012, but market won't put credence on that knowledge for a few months. Lag time.
3- Watkins originally announced profitability by 2013, then pushed it back to 2014. I'm assuming they've laid off the 150 people to cover their rear in case their quarter over quarter growth in sales remains at an anemic 34%. If so, 2012 revenue will only be $227M ($35M Q1, $47M Q2, $63M Q3 and $84M Q4 of 2012). If so, their burn rate would've eaten through even the $900M cushion they have.
I hope this helps clarify.
Either way, I don't think HGS is being bought out anytime soon.