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Incyte Corporation Message Board

  • jacosa jacosa Sep 18, 2013 1:43 PM Flag

    Rolling eyes, shaking head

    Without having studied the exact terms of the present conversion... When they did the big conversion, the usual suspects moaned about dilution and the stock went down for a while. Finally, somebody did the actual arithmetic and realized that the deal was marginally accretive...and the price went up. Then it turned out that not ALL the bonds got converted and there was moaning about management incompetence, etc...

    It's jest bidness.

    To be sure, Incyte now has more big plans than there's money to support, so SOMETHING can be expected. The people who can make decisions and make them stick don't seem to think capping the upside is a good idea, so I don't see a sale to a big player. The financial structure has no bearing on single-program partnerships, so that doesn't seem to be something the conversion bears on. The company simply isn't solid enough yet for straight debt to look good. If I had to pick something that could be done by year-end, it would be a revolving credit facility. That's actually a pretty plausible way to finance a small p3 to put PaCa on the Jakafi label. Not by any means a prediction.

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    • What I was TRYING to say was that even though the latest induced conversion is not an especially material event, we were already starting to hear one bunch of the usual suspects moan about dilution and another bunch of the usual suspects crow about an imminent buy-out. And that we'd been through this before (I didn't say more than once, but in fact we got similar noise when the original convertible bond issue was rolled over).

      I have problems with persuasive writing; one of them is going on too long. I mentioned the only place where it seemed that paying off senior debt might make a practical difference (and I said that I wasn't predicting it). I may yet learn to keep one message to one point.

    • Usually I think that you make some good sense of the science but your financial acumen puzzles me. First thing first the convert always existed since 2009 and equated to about 30 mil shares. As soon as the stock was above the convert price one can assume that those shares already existed and one should had look at the share count including the convert. I believe, now that the stock is above $30, it makes sense that the company induces conversion. I believe the convert is non callable meaning the company can only do this under private negotiations as disclose in their filing. For those converts remaining the holders can wait 2015 and will receive their corresponding shares, or they can negotiate to convert earlier. Depending on the holder strategy and profile it will cost them to hold the converts by shorting the stock. As a matter of fact after the last conversion the short interest went for 22 mil to 11 mil, eventually lifting the stock. Second, as of June the company had something like $270mil in cash up from $220 mil in December. With $220 mil targeted in sales for 2013 my guess is that they will finish the year at $290 million. Don't we also expect that $50 mil payment from NVS sometime in 2014, adding to the cash position. PaCa p3 with 500 patients will probably cost them $50mil over 2 to 3 years only marginally increasing the spend in 2014 and 2015. Not much of a cash sucking trial. Third unless some unexpected events PV should be on the market by 2015 adding to their top line revenue. Do the big guys want to keep the upside? why not but they would be hard press to refuse a good take over offer.
      My guess is that the company will induce more conversions to save interest, do not need more financing and certainly not a credit facility (I can't see how bank could lend), that if NVS does not make a move on them, then Lilly would on the RA results. At this point it is too much of an attractive target to let go.

      Sentiment: Strong Buy

      • 3 Replies to
      • You talk as if you were disagreeing with me about the conversion, but we said the same thing near as I can tell (you DID have the full story which I didn't)

        The registration pivotal trial to put PaCa on the label is the LEAST expensive of the items I think management would like to do. Listen to them and you'll hear that they'd like to bring at least 2 more candidates forward soonest, and they want to do some independently. They don't remotely have the money. They COULD have the money if PaCa goes on-label as fast as a bunny rabbit; they recently said that the "magic subset" will be revealed at ASCO next June, which is incompatible with starting a pivotal trial before then (they have to publish subject selection criteria). With present financial resources that makes sense--it would be a race between 2 big numbers (cash coming in and the expense of the trial--I'd make that $50MM a floor on the price. The big payoff wouldn't depend too much on FDA action because the drug is already available.

        What could "induced conversion" possibly accomplish? It has zero pertinence to a single-drug partnership. It has minor impact relative to a buy-out (you know what the 'leveraged' in LBO means? It means lots of debt around). Getting rid of senior debt COULD be preparing to meet covenants attached to loan-like financing. I've seen [much] shakier companies than Incyte get revolvers. You pay a commitment fee and a scandalous interest rate on any balance and can stop worrying about when that milestone comes in within a 1-month window. Management says that they just run the figures and it makes sense to encourage conversion. One or t'other; what else makes sense?

        I don't know what a good takeover offer would look like, but with RA and toxic cancers up in the air, I think it's a bigger number than anyone is going to risk.

      • Biotech Guru I second and affirm your post. Over the years Jacosa has added more value than anyone else on this board. However, science is the only area where I revere Jacosa. I hope Jacosa will agree that he is not a finance or proforma financial person for financial projections, npv, valuation and the like. The same goes for balance sheet, converts, options, and other def 14 a proxy statement related matters, Incy is behaving very strangely and I believe there is something related to partnerships, buyout, or something more fundamental about jak1 or Ido - or I don't know what - that is going on. The accumulation at the $35 plus price level for as long, with related cumulative volumes say that one or more large institutional players know something. That is just my gut because this is a 3 times beta stock, for accumulation for so long at these price levels by large insititions has me puzzled. The way decision making happens on investment decisions in large funds says this could not happen for as long,at these prices without an absolute minimum 50 per cent upside from these levels. Or else, these funds are all making one of their worst decisions ever because of the beta on INCY.

      • Here here!