Eli Lilly ($LLY) has approached the acquisition of POINT Biopharma (PNT) for $12.50 per share, a transaction that personally benefits PNT’s Chairman with $115 million, the CEO with $45 million and the Chief Medical Officer $40 million. This agreement has already received approval from both companies’ boards and the regulatory body, so requires only a final shareholder vote to wave it through (>50%). However, back in September, an anonymous ‘Company B‘ sent a potentially much more lucrative offer to PNT for their business: $13 per share plus an additional $7 as a Contingent Value Right if ‘PNT2002‘, a prostate cancer drug, is approved by the FDA in Q4. This news is now imminent – there’s one month left of Q4. It’s the shareholders’ preferred bid, obviously, but it’s unlikely to offer the same compensation boons to PNT’s top executive class…

PNT’s largest shareholder, the Biotech Value Fund, has committed to using its 16% stake to block the LLY transaction for now, and the fact that PNT’s stock is trading higher than $12.50 suggests that other shareholders are also ready to put their crosses in that ‘against’ box when it comes to voting through LLY’s deal if PNT2002 is approved. LLY executives have responded by going on the record to say that if the drug results (known as SPLASH read-outs) do come out positive, there will be no improved bid. However, they’ve also said that a negative outcome would not change their minds over the acquisition/constitute a MAE to justify pulling out.

In light of this, the risk/reward appears quite attractive. PNT is currently trading at $13.70 with upside of $7 (+45%) to Company B’s offer if the drug is approved, in contrast to downside of $1.20 (-8.75%) to LLY’s offer if it the drug isn’t approved.

The issue is that I can’t attach probabilities to the trial outcomes. I’m not a scientist and don’t know anything about PNT2002 but the short few weeks to find out and risk-reward skew speaking to other bio tech investors makes it interesting enough to me for a smaller bet.

I also like the fact that if Company B offered $13 before the CVR on drug approval, that would suggest they potentially value PNT minus the drug at more than LLY anyway. Hence, if PNT2002 fails to get approval or results are mixed, could we see a $13.50/$14 bid still come through from Company B and a bidding war kick off? Food for thought.

Current price: $13.7 Target: $18-20

Long $PNT