A lot has happened over the last few weeks for my 4 largest special situation investments:
Actelion / Idorsia
The original Actelion idea was very simple: Buy an M&A target at a small discount which is relatively safe and get something (the Idorsia spin-off) extra which no one seemed to have noticed.
Although the case played out exactly as I thought and Idorsia even seems to be worth more than I assumed, I only made around +4% on it. Not bad for around 5 months but not great either.
Looking back I think I made 3 mistakes:
As I currently own a 5% poisiton in (special situation) Biotech company Actelion, I thought it makes sense trying to learn at least a little bit about Biotech.
By chance I came across the book “Genentech – The Beginnings of Biotech” which recounts the history of Genetech from the very early beginnings in the 1970s until the company went public in October 1980.
As I was trying to research a little bit how to value a pipeline of drugs still in development (Actelion spin-off), I stumbled across the so-called “Contingent Value Rights” (CVRs) which are often used in Pharma takeovers.
A CVR is somehow similar to a tracking stock with the exception that the CVR often tracks a more specific item such as a single product or in case of many Pharma M&A transactions, the outcome of a certain drug development project.
Acquirers and sellers sometimes use this instrument if they cannot agree on the value of an under development drug. The idea behind is that the seller keeps the upside and the buyer doesn’t need to pay upfront for some very risky future cashflows.
Sanofi/Genzyme Lemtrada CVR
When Sanofi took over Gynzme in 2011 such a situation crystalized. This is from a 2015 NYT story: