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Exelixis, Inc. Message Board

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  • gregorio_allegri gregorio_allegri Oct 1, 2012 3:14 PM Flag

    Rangebound hedgefund stranglehold

    Mr. Calvin

    You are singing yesterday's tune.

    From Saturday's PR:
    "All 24 BRAFi-naïve patients evaluable for tumor responses had a decrease in tumor size from baseline, however, further follow-up is required to determine the confirmed objective response rate."
    +
    "Exelixis is entitled to an initial equal share of U.S. profits and losses, which will decrease as sales increase, and will share equally in the U.S. marketing and commercialization costs. "
    +
    "Roche has disclosed that it intends to evaluate the combination of vemurafenib with GDC-0973 versus vemurafenib in a multicenter, randomized, double-blind, placebo-controlled Phase III trial in previously untreated patients with BRAFV600 mutation positive, unresectable locally advanced or metastatic melanoma."
    =
    Sudden need for $200 million more in cash (e.g. the offering of which you complain.)

    Notice also that the Roche combo study has been flying under the radar as it has been given almost no mention in the previous EXEL conference calls. Neither was it mentioned in the Adam Feurerstein short thesis article that came out before ASCO. Neither was it mentioned in the complaints about the offering on this board. Yet from how I look at things half the US rights for an effective drug against melanoma doubles the value of this company. The guy who seems to get it is Ernie on this board.

    Warrants and this Convert offering are not the same.

    If I buy a stock offering at say X with warrants to buy 1 share for every 2 of the offering at X + 70 cents, then I put out zero dollars for the warrants (the company just gives them to me to entice me to give them some cash they desperately need.) If then I short the shares at X + 2 bucks and the stock goes to X + 1 I cover and keep the warrants. If it goes to X+3 and I want out I buy the warrants and make 1.30 in profits. There was no way I could lose. This is a classic death spiral financing however it does not always lead to death. ARIA, for instance did almost exactly what I am describing above at 1.50ish (warrants at 2.10ish) and today is about $24. Viable drugs in big markets trump all else.

    Converts don't work the same way. First. if I was the buyer, I paid money for them up front and they pay interest so are worth income which offsets any play that requires me to sell them to someone (this creates some risk for me whatever I do.) Second, the converts can not be converted to stock until 2019 (which means if I have to sell, I have to make a market with someone at some undetermined price, creating risk.) Third, their value is capped because EXEL can buy them back without converting them to stock. Fourth, if the company goes belly up the converts are not worth much (which is what you may be betting on if you go short.) Fifth, if I sell them out while EXEL is going up rapidly in price I have probably cost myself some $ relative to NPV of the converts. Because of these considerations, there is a good chance of making a fool of yourself by mindlessly shorting EXEL (with now two likely viable molecules.)

    Sell to me my friends, for I am scaling in again after selling out at 5.35. This time I will be looking for a higher selling price than that and am "willing" to be an "investor" instead of trader (i.e. I may wait months instead of weeks to sell out, LOL)...

    glta
    ga

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    • Extremely well written post from gregorio.allegri. If you haven't read it, you should. The idea that owners of the convertibles make out like bandits by shorting against their own shares is FUD strategically timed before a weekend of superb data.
      There is a massive short interest here that will say or do anything to drive the PPS lower. Beware the "long" who is worried. Way too much upside here to be pontificating about what can go wrong. Not one single bear argument holds water. So now they are grasping at straws like making up trading strategies that are fraught with risk. It's a travishamockery.
      GLTA

      Sentiment: Strong Buy

    • Allegri,

      My post was really just intended for Wilder as we have had an ongoing discussion over the merits of the last offering. My arguments regarding the failings of MM in securing the funds had nothing to do with the need for the money or the use of convertibles, so your post is entirely irrelevant to the ongoing discussion between Wilder and me. If you are truly interested in our discussion (which I can't imagine why you would be) I guess you can do a search to find the posts, but I'm not going to repeat the points made here. Obviously, there are a lot more cheerleaders on this board than there is objective analysis though there are a few that are very objective in their analysis of the science. However, the science is a secondary concern for me with respect to this company.

      My primary concern is with the management of this company. Of the opinions I have read about Morrisey, some think he is ok and others think he is a buffoon. I haven't read any opinions that believe he is outstanding as a CEO. This concerns me. While I understand it is natural to obsess about the science of a drug company, I also understand the quality of management can be of almost equal importance to the investor in the company. For the reasons stated in my prior posts, I believe the latest offering demonstrated some severe weaknesses in the quality of management that others have been warning were there all along.

      The question for me now is whether the remarkable science of Cabo can overcome the significant weaknesses of management to produce a healthy return for the investor. I have no doubt that under quality management, the stock price of this company would be easily double from where it is today. However, we must play the hand that has been dealt.

      • 3 Replies to jcalvin1127
      • They recently hired a guy named Garlan who brings strong Chief Commercial Officer credentials...This indicated to me a strong desire to continue to bring in top talent in advance of approval...He is doing the right things IMHO.

      • Jcalvin,

        I agree that the CEO is a "baffoon". But, look at the qualificatios of the members of the board and their seniority. I think, all critical decisions must be with the consensus of the board; CEO alone can't act in isolation.

        Regarding the offerngs, although the board must have discussed that at length, the idea and the plan must have been evolved by the CFO. It appears that the Exelixis board lacks sufficient expertise on financing matters. Thus, I would consider the CFO being the culprit for developing and pushing the offer, including the idea for and implementation of the convertibles. MMM is just a scientist and he may have done his job well in that regard, although, being a CEO, he must also be well up on the financing matters. Therefore, MMM being a baffoon on financial matters, the board must have selected someone more appropriate than him to be the CEO. MMM, in my view, would be good just as the Chief Scientific Officer and must be replaced with someone who can control the CFO OR just fire the CFO.

        Sentiment: Strong Buy

      • They recently hired a guy named Garlan who brings strong Chief Commercial Officer credentials...This indicated to me a strong desire to continue to bring in top talent in advance of approval...He is doing the right things IMHO.

    • $$$$

      Bump. For those that missed this post, I simply wanted to ensure that Gregorio's take on our current trading scenario was not forgotten. This short-term rangebound scenario was discussed at great length before Nomad reappeared once again to attempt to rob all the credit, as if he'd invented the concept of the arbitraged convert.

      GA's got some interesting commentary, and I encourage the read.
      GLTA

      • 1 Reply to wilderguide
      • GA's commentary would be much more compelling if it was accurate. Holders of the subordinated convertible debt can convert during any fiscal quarter commencing after September 28, 2012 (and only during such fiscal quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130% of the applicable conversion price on each applicable trading day. With regard to the claim that "EXEL can buy them back without converting them to stock," this too is inaccurate. If EXEL calls the notes for redemption, holders can convert at any time prior to the close of business on the second scheduled trading day prior to the redemption date.

    • "Yet from how I look at things half the US rights for an effective drug against melanoma doubles the value of this company."

      Gregorio, I only picked this quote but I wish I could bump your entire post by itself. Best post of the day.

      Sentiment: Strong Buy

    • bump

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