Quick Pitch: POINT Biopharma Global (PNT)

Potential Higher Offer – TBD Upside

This idea was shared by Anomalo.

 

This is quite unusual setup in the pharma merger arbitrage space. POINT Biopharma Global agreed to be acquired by pharmaceutical giant Eli Lilly at $12.5/share. However, PNT is already trading at $13.7/share as the company is expected to report positive trial results for its key asset PNT2002 during the coming month. If the trial results are indeed positive, shareholders will reject the current offer, and Eli Lilly will likely be forced to raise the bid. If the results turn out to be negative, Eli Lilly cannot walk away and still need to honor the current $12.5/share bid. Essentially, investors are now paying $1/share for the option of seeing trial results and potentially pocketing an extra $3-$7/share.

It seems highly unlikely that the transaction will go through at the current terms before the SPLASH Study (PNT2002) results are announced.

  • The current acquisition offer has been opposed by one of PNT’s largest equity holders, Biotechnology Value Fund (16.5% stake). The fund recently filed a 13D, stating:

The Reporting Persons believe that closing the proposed acquisition (the “Acquisition”) of the Issuer by Eli Lilly and Company (“Lilly”) in advance of the Issuer’s imminent Phase 3 SPLASH Study (the “SPLASH Study”) results is not in the best interest of the Issuer’s shareholders. Per the Agreement and Plan of Merger, dated October 2, 2023 (the “Merger Agreement”), Lilly is committed to acquiring the Issuer for $12.50 per Share, and the results from the SPLASH Study are specifically excluded as a potential trigger for a Company Material Adverse Effect (as defined in the Merger Agreement). The Reporting Persons see negligible downside and the potential for significant upside for the Issuer’s shareholders to await the results of the SPLASH Study prior to consummating the Acquisition. Accordingly, in the absence of the SPLASH Study results, the Reporting Persons do not intend to tender their Shares in support of the Acquisition in the initial tender period expiring November 9, 2023.

  • The acquisition has so far gathered lackluster support, with only 25% of shares tendered after the third extension of the offer. The number of tendered shares has actually slightly fallen from November 16 (26.5%) to December 1 (24.8%). The offer has now been extended once again till December 15, but the minimum participation threshold of 50% has no chance of being reached in the absence of trial results.
  • The merger proxy detailed that another unidentified party was bidding $13/share to $16/share (and a further $4 in sales-milestone-related CVR) conditional on “base” case / “upside” case results of SPLASH. If the results turn out to be positive, Eli Lilly will need to match/exceed this offer and potential new ones to reach the necessary shareholder support.

Why is the market expecting positive SPLASH Study results?

PNT2002 is a radiopharmaceutical therapy for the treatment of metastatic castration-resistant prostate cancer (mCRPC). The phase 3 study (SPLASH) commenced in 2021. The company has since reported positive interim results, and PNT2002 received FDA’s fast-track designation in Apr’23.

In 2022, the FDA approved Novartis’ Pluvicto, a similar radiation therapy for the treatment of the same condition, mCRPC. Moreover, last year, Lantheus Holdings, a large $5bn market cap biopharma with an extensive portfolio of commercial products, acquired exclusive worldwide rights to develop and commercialize PNT2002 and PNT2003 (PNT’s other phase 3 asset) for $266m in cash + additional milestone payments of approximately $1.8bn based on FDA approval, net sales, and commercial milestones.

As for the expected PNT2002 trial results date, during the last several earning releases management noted that trial results will be released in Q4’23. The timeline has somewhat shifted from last year when the company guided for results in mid-2023.

Several other points worth noting:

  • One of the risks in this setup is that the trial results might not come out before LLY is able to walk away from the transaction. The merger agreement states that LLY is obligated to extend the tender offer 5 times (for not more than 10 business days per each extension). My understanding is that after that LLY can either continue extending the tender until the outside date of Jun’24 or pay a break-up fee and walk away. However, with the results expected to be announced in December and two more extensions remaining, the risk of LLY withdrawing from the transaction before the PNT2002 trial results seems unlikely.
  • I also do not see how LLY could wiggle out of the transaction if PNT’s trial results are unsuccessful. The merger agreement specifically excludes negative PNT2002 trial results from conditions that would trigger a material adverse effect. This, coupled with the fact that LLY structured its acquisition proposal as a cash-only offer (as opposed to cash + CVR), suggests that the acquirer is also interested in PNT’s other assets, including the remaining development pipeline and infrastructure/supply-chain relations. LLY’s management has highlighted that aside from giving the company a push in the radiopharmaceutical space, the transaction would provide it with PNT’s manufacturing facilities that could be used to develop multiple radiopharmaceutical products. From the acquirer’s recent conference call:

Our interesting point is a lot around the platform, again, the ability to make multiple radiopharmaceuticals, I think is an interesting area of medicine. I personally have been in radiopharmaceuticals for a few decades now, and I think the time is right to get into therapeutic radiopharmaceuticals. They have a manufacturing facility under construction. And I hope we can complete the acquisition and help them build it, get it inspected and start launching products.

8 Comments

8 thoughts on “Quick Pitch: POINT Biopharma Global (PNT)”

  1. Although likely only peanuts in an upside scenario, where PNT rejects LLY’s offer, it’s worth noting that according to Section 9.03 “The Company shall pay to Parent a fee of $54,384,447”. If I’m understanding this correctly PNT being the one paying LLY.

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  2. I would think the main risk is that the SPLASH results drop, but LLY and the major PNT shareholders have different opinions about whether those results merit more money, so the tender never hits 50% and LLY walks after the fifth and final “ten day extension” expires.

    My read of the merger contract language, specifically Sections 2.01(a) and 9, and Exhibit A, suggests LLY can so walk away without paying any fee at all.

    (In fact, I see no language in the contract that contemplates LLY paying a termination fee for any reason; all the specified termination fees are owed from PNT to LLY if (basically) PNT gets a better offer).

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  3. If the SPLASH results are positive there would likely be another company or two happy to buy above 12 1/2 and market would anticipate that.

    The risk I see is that before the results come out the buyer walks away. They feel they are dealing with irrational shareholders who are trying for a money grab.

    Negative results no big deal buyer is on hook during tender.

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  4. Now the positive topline results (with no OS benefit yet) are out and the stock dropped to 12.5 matching the tender, is there any remaining upside play here?

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    • given the “positive” results are underwhelming, do folks now see a downside that $lly could get out of the acquisition creating downside risk?

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      • I think market’s reaction was due to SPLASH trial results being worse than the efficacy stats from the interim trial relative to the benchmarks.

        – Interim: “Median rPFS was 11.5 months, as compared to the control arm benchmarks of 3.5–4.2 months”
        – Latest: “A median radiographic progression-free survival (rPFS) per blinded independent central review of 9.5 months for patients treated with 177Lu-PNT2002, compared to 6.0 months for patients treated with ARPI in the control arm”

        This also compares unfavorably to Novartis Pluvicto: “rPFS analysis (HR 0.43; 95% CI: 0.33, 0.54) demonstrated a consistent clinical benefit in patients with Pluvicto versus a change in ARPI, more than doubling time to radiographic disease progression (12.0 months vs. 5.6 median months)”. https://www.novartis.com/news/media-releases/novartis-pluvictotm-shows-clinically-meaningful-and-highly-statistically-significant-rpfs-benefit-patients-psma-positive-metastatic-castration-resistant-prostate-cancer-pre-taxane-setting

        There is no risk of LLY walking away, they have just extended the tender till Dec 22 and i am guessing majority of shareholders might now approve the deal, including Biotechnology Value Fund (the one that encouraged to wait). I do not think any other third party offers will surface.

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