Tekmira Said to be Takeover Target & How I’m Handling My Short Position

Well, I’m glad my short in Tekmira is hedged, even if it is only 33% calls to puts.

News like this is why you hedge to begin with. We’re only dealing with rumors here, but it’s clearly enough to get the market stirred up, and definitely enough for me to keep a little closer watch on how things go with TKMR in coming weeks.

News broke this afternoon from the Daily Mail that Tekmira could potentially be a takeover target.

The Daily Mail story can be found here. It states the following:

Shares of Tekmira Pharmaceuticals rose 3.24 per cent to $19.75 following a sharp increase last week on news that it has verbal approval from the US Food & Drug Administration that would fast-track its new drug to treat the virus.

This action may allow the medicine to be used to treat the growing tally of those stricken by the virus. TKM-Ebola is being developed by Tekmira and the US Department of Defence medical team.

Tekmira is capitalised at a measly £400m and would cost a bidder in the region of £1bn-plus, a relatively small mouthful for any cash-rich giant.

Rumours suggest two of the interested parties could be the UK’s Shire (22p off at 4894p) and GlaxoSmithKline (15.5p dearer at 1463p. The mega premium paid for  InterMune puts a valuation of $40 plus a-share on Tekmira.

It puts a value on Tekmira near $50/share – which I find to be absurd. But, the article does make a good point when they mention that in the case the company wants to get scooped up quickly, a bidder would have to pay a substantial premium – in order to get something pushed through without a counterbid, etc. 

I’m none too worried about my short and could even balance my trade out tomorrow to be a straight straddle on the name, should shares get a boost. A buyout of $40+, much to the chagrin of longs, would still net me a substantial profit on my position. A straight long straddle could work because you have a couple of binary outcomes: 

– either the buyout occurs or Tekmira gets FDA approval for Ebola, etc; shares will rocket

– my original thesis will hold water, Ebola hype will stop eventually, and TKMR will head back down to it’s $10 levels

Either way, a straddle a couple months out could net a profit.

However, I also note this poignant commentary from Dr. Sanjay Gupta on the severity of the outbreak in the long run:

Is Ebola going to be our era’s plague or Black Death? Is it the most dangerous disease on the planet?

Not likely, says Gupta.

“Ebola is not the great plague; there’s no question about that,” he explained. “The grim reality is that it often kills so quickly that people don’t have time to spread it.”

“It’s a myth that Ebola is the most dangerous disease that humans have ever encountered,” he added. “HIV/AIDS, for example, certainly has killed more people, and up until recently, there was no treatment for that disease either. Rabies, something that you can get from animals as well, if you develop symptoms, you’re very unlikely to survive. With Ebola right now, about seven out of 10 people are dying (in Guinea), but not everybody.”

I pride myself on noting when I’ve gotten something wrong. I haven’t gotten TKMR wrong, per se, yet, but I am advising my readers that I’m cautiously watching. However, for now, this is just a rumor and is to be treated as such. I will continue to monitor the Ebola situation and could potentially see a boost without further news as a cue to add to my short.

Follow me on Twitter @QuoththeRavenSA and keep checking in.

Hope everyone has a great Labor Day weekend, if you don’t hear from me before then.

One thought on “Tekmira Said to be Takeover Target & How I’m Handling My Short Position

  1. Good for you for hedging your position….I wish I had! I sold 2/3 of my puts this morning. TKMR is a spotlight momo stock. It has gone from trading 3-400,000 shares /day in June to 4.4 million shares/day in August. It even had 2 days where it turned over more than the entire market cap. When you have that kind of hysterical following, best not to get in the way of those stampeding bulls.

    As to the takeover rumors, I have been in the financial markets since 1979. If 5% of the takeover rumors I hear touted actually came to fruition, I would be surprised. The Daily Mail story really lacks cred, IMHO. First, the Fast Track approval did not occur recently, it happened back in March. And they give absolutely no basis for thinking there should be a near 100% take-over premium, other than that occurred in the biotech they mentioned. A billion dollar valuation for a company with 1 drug in phase 1 and a few others in the pipeline? Anything can happen in the stock market, but that seems a real stretch.

    I am playing TKMR on the oft-repeated performance of investor mass-hysteria. I think my chance of predicting how the retail masses will react is better than the Mail’s chances of predicting a takeover. I will cap my downside by owning puts, and I will add to my trimmed down position once the current fervor dies down.

    Liked by 1 person

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