Biotech Values

[Summer2762]

>I would wager that it’s less than 2%

That would have been my guess. However, about 2/3 of exercised & held options are options that would not have expired for another 4yrs. See table 5 in the same paper.

Furthermore, time-value or how much the option was in the money is not strongly correlated to positive insider info. However, the opposite seems to be true for negative insider info in case of a exercise & sell.

The authors of that paper also have the following interesting discussion about why someone would exercise and hold:

MacDonald (2003) analytically demonstrates that, under positive private information and current tax policies, it is only optimal to exercise the options and hold the shares if the firm also pays large amount of dividends... This is true in spite of the ordinary income versus capital gains tax differentials.

I dont know how the dividend rule may correspond to ENTA's situation (say in case of a sale).

Other explanations for this "illogical" step in that paper: a) It's a mistake or b) influenced by psychological factors.