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Trius Therapeutics, Inc. (TSRX) Message Board

  • biotechveteran biotechveteran Aug 1, 2013 11:08 AM Flag

    Why I sold at 14.10: Incentive Structure of CVR

    A quick point that I don't know if others have made. Why would Cubist be incentivized to hit the sales goals outlined in the CVR? Specifically, TSRX has 48million shares outstanding (61 million fully diluted). To think that Cubist is motivated to get sales up to the highest level makes no sense - an extra $10million in 2016 sales means the company would have to pay out $48million or more in CVR coupons to TSRX shareholders. Does anyone really like the terms of that deal? Think about it, by moving deliberately on Tedliz sales, Cubist saves itself at least $96million dollars. I can't believe they're going to bust their humps trying to generate an extra $10-20million in sales just so they can pay out $96million.

    I didn't like that math, so I sold near the close yesterday. I was a bit bummed that the takeout wasn't at a higher premium altogether, but I don't see a bidding war breaking out and I didn't like the CVR terms. Good luck to everyone re-investing profits.

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    • The rash of lawsuits only seem to underscore the point that the takeout price bothers a lot of people. However, by takeout price, I mean $13.50 as I believe others are increasingly realizing the riskiness inherent in the CVR pricing. Would there have been as much complaining if the takeout price were simply $15.50 in cash, with no CVR? The CVRs are quickly becoming available for nickels on the dollar - and one generally gets what one pays for. I wonder what TSRX management was thinking when they negotiated the CVRs.

    • Disagree with your logic for the simple reason that all the decision makers will come out better if they sell the product well. That CVR is not comming out of their pockets.

      That said, the low 14's is about all this deserves. Whover put that $1.30 target on the CVR was whacko. There are risks (even a QC issue in mfg would delay the NDA enough to kill the CVR). There is the time value of money.

      So no argument with you for selling in the low 14s. But it was also a buyback at 13.77 where it traded this morning. As long as one has no place for the cash, make a few pennies.

      • 2 Replies to fib1_1_2_3_5
      • Any way you slice it, the CVR is coming out of Cubist's cash on hand and the company is NOT incentivized to pay it out. It seems like as the market has had time to digest the news, the consensus is trending towards this view. Besides, as Warren Buffet said (I'm paraphrasing), it's a bad idea to chase the last 10%. So, I'm happy to be out at 14.12 and waiting on other good biotech buy opportunities rather than waiting for the deal to close.

      • I can see both sides of this argument, I think the bid left room for an increas in case another bidder comes in, or in case shareholders revolt. I bought back all of my covered calls since the premium was low and even added a little at the lows yesterday. I can see $15.5 being paid out up front, but just a wild guess. I can't believe this is their best and final offer, it seems like a trial ballon and first offer. Hopefully, some rival will make them pay more, but I doubt this will happen overnight. Happy to hold this for awhile since most other stocks seem expensive.

    • trius will be the one motivated to reach the sales to get the extra $2

      Sentiment: Buy

      • 2 Replies to dmurad97
      • You usually don't have bidding wars when the BOD of both companies have already agreed to the deal. Now, if TSRX had independently decided to hire a consultant to negotiate with other companies once Cubist approached them, then we could all be optimistic a better offer would be forthcoming. However, they expect the deal to close by the end of the quarter and all TSRX communications available, incl. their SEC filings, indicate that it is full steam ahead to get in bed with Cubist. Give the latter credit, they negotiated 2 pretty impressive deals.

      • Trius has NOTHING to do with the sales - they have no sales force. It's all in Cubist's hands. And that's why they're not going to work hard to give away $96million.

    • Hey you have to go with your gut, there are risks either way, I want to try to get the entire $15.50, just for principle. As far as sandbagging TED and doing to the right thing, I think Cubist will probably be bought out now and the obligations will be paid sooner, but that's my belief......

      Sentiment: Hold

 
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