Biotech Values

[DewDiligence]

MYOV—We can use simple algebra to answer that. For the sake of simplicity, let’s assume that Sumitovant can acquire the full 10b5-1 allotment of shares at the current share price. Let’s also assume (somewhat unrealistically, perhaps) that the relative buyout premium is the same at any share price—i.e. that it’s a constant percentage.

Let B = the relative buyout premium.

Let G = the growth rate of MYOV’s share price between now and when the 10b5-1 plan ends (six months from now).

We know that Sumitovant’s current equity stake is 53%, leaving 47% to be acquired. We also know that Sumitovant’s equity stake after completing the 10b5-1 plan will be 66% (an absolute increase of 13%), leaving 34% to be acquired.

Thus, equilibrium occurs when:

0.47(1+P) = 0.13 + (0.34)(1+P)(1+G).

Solving the above for G gives:

G = 0.13P / 0.34(1+P).

For example, if you expect P to be 30% (a typical buyout premium), then the equilibrium value of G = 0.039/0.442 = 8.8%.

I.e. (under the model assumptions), a 30% buyout premium implies that Sumitovant would do better by making a buyout offer immediately if the share price appreciates at least 8.8% during the next six months.