Peter, let me pose a variation on a biotech valuation question: as the sector is in favor and gains ever-increasing attention--not only because of deal flow but because, on a secular basis, more analyst investment (biologic and financial) is being focused on the aging of the population and its projected increasing therapeutic needs--more and more deals will be done. Inevitably, the deals will involve pharma munching on biotechs (call this "type 1" munch), and not only the smaller, big-science companies (as RH dubs them), as well as big biotechs munching on smaller biotechs (call it "type 2" munch), as we have seen the last couple of weeks, with more sure to follow. As a consequence, with the premiums paid, in stock or cash or both, market caps become bloated beyond recognition, and the pay-off of the acquired science and pipelines is consequently diluted as it is spread out over that larger market cap, irrespective of whether it's type 1 or type 2. A munch of SEPR would be a classic example, if for example, it were acquired by a BMY. The risk in holding BMY shares received in consideration for one's SEPR shares is obviously lower, but the reward is now diluted across BMY's huge capitalization, and probably deferred, as a different valuation is placed on SEPR within BMY. I am sure I am not alone in stating that I'm prepared to accept the higher risk, even if it means crash and burn, in lieu of a payoff that is much smaller but with much less risk. This is probably one way of defining the quintessential BT investor.
My question is this: what is your strategy for re-deploying assets as your portfolio is increasingly munched over the next few years? Is it deal specific? If you like the fit and prospects, do you ride the acquiror's shares issued in consideration of the munch? Do "fit and prospects" per se, i.e., necessarily, give way to re-deploy to smaller, riskier investments if the company resulting from the deal (e.g., BMY-SEPR) is gargantuan? Will you keep half and re-deploy half? Of course, much of this is in the unknowable, as re-deploying assumes that there are values available as suitable vehicles with which to ride funds made available from the munch. As the munches proliferate, presumably, the cream is skimmed and there are fewer class vehicles in which to re-deploy. So, the question again, do you have a general philosophy as to investment strategy as the munches proliferate?
tia,
quid
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