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Incyte Corporation Message Board

  • jacosa jacosa Oct 31, 2013 4:42 PM Flag

    Why again not to expect a buyout

    For some reason, the idea fascinates people. I'd rather get the discussion here and keep it away from conference call discussion.

    Starting point is that Incyte is a $1.2 bln or so company with the pipeline of a company ten times as big, which pipeline was generated by doing stuff everybody knows about very well.

    So lots of companies would sure like the candidates, and might pay a decent multiple of the nominal value of the company to get them. "We" might even go for a tender offer in the $70 range. But management is [justifiably] proud of the job they've done. They're "kennel blind" about the candidates (dog breeders never see flaws in their own animals) and they also attach a substantial value to the organization that generated those candidates. The number to get management to endorse a takeover is substantially higher than the price that could get enough shares tendered. As much as the big pharma houses covet those 10-or-so candidates, they KNOW that an organization capable of getting that sort of yield from the money they've spent over about 10 years is worth more. And of course, once an auction starts it doesn't necessarily stop at any plausible figure (I was watching when Anderson Clayton was auctioned off. It oughta be a case study). So that gives about 5 numbers we might guess at: the tender offer price, the lowest possible auction price, the price big pharma houses might be happy to pay, the price management would be happy to take and the highest possible auction price. Right now, the spread covered by those prices is scarily big (appropriate to think about on Halloween). So as I said elsewhere, an offer in the vicinity of the tender price would certainly wake up potential white knights, probably defeating the offer. The friendly offer realistic price is probably significantly short of the happy-management price. If anyone pushes too hard, it might turn into an auction with scary uncertainty.

    So no takeover soon.

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    • One last variable....Businesses need to continually please shareholders and show they're making moves to advance not only the business model...but the bottom line. Nobody expected Amgen to pay what they did for Onyx but they did. Heck, why not? There's too much competition out there and pressure to keep on keeping on. If three bidders like a house sometimes they get blinded by what's in front of them and make stupid offers out of emotion. I think it's the ole, "make INCY an offer they can't refuse" and those proud Management types will see the writing on the all and hopefully stuff their pride in their pockets and let Big Pharma do their thing!! Just my opinion of course.

      • 1 Reply to mrdtino
      • INCY Valuation Summary

        INCY : Valuation Summary
        Discount rate
        4Q14 Fully diluted shares (mm):
        Main value driver
        Jakafi for MF
        Jak inhibitor for inflammation
        Real options scenario analysis Risk adjusted NPV analysis
        Catalyst/liquidity discount
        10.0% 204.5
        Prob of approval 100%
        Value / share
        PE N/A0%$-
        Valuation methodology
        Adj. value/ share
        $ 49.99 $ 38.58
        50% $ 50% $
        Peak sales est. (avg. scenario) $ 400
        $ 2,000
        Avg peak yr 2016 2020
        19.29 $ 44.28 0%
        YE 2013 Price Target $ 44

        Source: J.P. Morgan estimates.

    • I agree with your basic premise that mgmt is "in love with their pipeline". Jacosa we all value your opinion...would you dare to put numbers on the 5 possible scenario?

      • 1 Reply to maddison3
      • They're very bad numbers. Let's say that a tender offer might succeed if left alone at around $68. Lowest possible auction price say $85. "happy to pay that" perhaps $120 "Happy to take that" around $190 (I DID say kennel blind). Highest possible auction price [lemme wipe this off my thumb]---Ah! $240. And no, I never said that any of this WILL happen. The large spreads are why it WON'T happen. This pup is going to have to grow into its feet a bit before buyer and seller are likely to agree on a price. Let's say wait until a quarter with sales is in somebody's forecast at least 10x what they are now (I DID say it has the pipeline NOW of a company 10x as large). That timing might be a bit pessimistic because Dr Paul is likely to retire first, and he is presumed to be a big part of the value of the company. And anyway, other things change too.

        But eventually selling the company is probably best for us owners. The multiple for an undersized pharma player with a great future behind it isn't so attractive. Just not in the next 18 months.

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