There has been a lot of M&A activity in the biotech sector so many (most) of the smaller biotech stocks have been trading at very expensive valuations, often without any real profits, just the hope of a drug in development eventually being approved. It’s a high risk, high reward game so it’s important to keep your total allocation to the area in check. I’ve tried to limit our position to only one small biotech stock at a time as a speculative position. Last summer we purchased Tesaro and then sold the stock about a year later for a very nice gain. I then used the profits from that investment to buy Dyax in July. Dyax is another relatively small biotech company with a specialization in drugs that treat a rare genetic disease of the immune system called Hereditary Angioedema (HAE).
It was announced this morning that Shire and Dyax Corp have agreed to a takeover, with the former buying the latter for an upfront cash consideration of $5.9 billion ($37.30/share) – roughly a 35% premium to Friday’s closing price! The deal is interesting because it also contains an additional consideration of $4/share if one of Dyax’s key drugs in development receives approval. Since the deal is all cash (no stock of the acquiring company), I’d typically look to sell the stock on the initial pop but in this case I’ll probably be holding on for the deal to close, which should occur at some point in the first half of 2016. Owners of the stock at the close of the deal will receive the $37.30/share in cash plus non-tradable contingent value rights for that additional $4/share consideration which I view as basically a free call option.
Good start to the month!
-Nick
Dyax Corp (DYAX) – 1 year
