Bertrand Delsuc · @BertrandBio
8th Jan 2018 from TwitLonger
$ABLX Laden-Bid Offer Fails to Value Partnerships-$45 as Starting Point for talk
Takeover Offer Fails to Value Partnerships; View $45 as Starting Point for Talks
On 1/8/18, ABLX and Novo Nordisk (NVO, $54.64, Not Rated) disclosed an unsolicited all-cash offer by NVO to acquire all outstanding ABLX shares for up to $36.67. We believe any price below $45 is unlikely to fully value ABLX's pipeline, particularly the partnered programs. As such, we strongly believe shareholders should not support the NVO offer and expect commercialization of caplacizumab and maturing of partnered pipeline to unlock significantly more value over the next 2-3 years. As a reminder, our $36 PT is principally driven by caplacizumab sales and to a lesser extent ALX-0171. We believe the proposed transaction does not provide adequate consideration to ABLX’s platform technology optionality and would provide NVO with a free call option on ABLX’s early stage and partnered pipeline. We do acknowledge there may risk of near term downward pressure on ABLX shares if management spurns takeover overtures. In terms of valuation, given that we do not believe a merger is warranted our PT is based on a going concern valuation of $36 and would expect shares of ABLX may fall below this threshold if a merger is not completed. We would note our proposed takeover price of $45 represents a roughly 22% premium over the current share price. Buy Rated
What’s New?
NVO announced unsolicited conditional proposal to acquire ABLX for up to $36.67 in cash. On December 22, ABLX received an unsolicited conditional proposal from NVO to acquire all outstanding ABLX shares for €28.00 ($33.66) per share and a contingent value right of up to €2.50 ($3.01) per share - €0.50 on partner opt-in for vobarilizumab in SLE and €2.00 on initiation of Phase III trial of ALX-0171. The all-cash transaction values ABLX at €2.6B on fully diluted basis. The December 22 proposal follows a December 7 proposal to acquire outstanding ABLX shares for €26.75 ($31.57) in cash
Pipeline Optionality Not Reflected In Novo Proposal:
We believe our price target on ABLX shares is conservative based on limited value attributed to pipeline programs due in part to early stage nature and lack of disclosure. As such, we believe the NVO proposal provides NVO with a free look at upcoming partnership programs including two IO candidates from Merck & Co. (MRK, $56.99, Not Rated) expected to enter the
clinic in 2018. Given MRK’s IO clinical expertise and regulatory processes for novel oncology agents, there is potential for the MRK partnership to yield material economics to ABLX in the near to intermediate term. Furthermore, NVO has a partnership with ABLX to develop multi-specific nanobodies for undisclosed areas including hemophilia as disclosed in NVO's public R&D Day in November. The economics of this agreement - €182M in milestones per product and tiered royalties - are not reflected in our model and could offer material upside from our forecast.
Valuation - $36 Going Concern; 25% premium or $45 for Takeout:
In conjunction with the new year we are rolling our DCF valuation forward 12 months resulting in PT from $30 to $36 for ABLX as a going concern. As a general rule, we expect companies
to be acquired for 25%+ of going concern value based on change of control premium suggesting a fair takeover price closer to $45 per share