Year End Adjustments and Pharmasset

As the year end approaches, it’s time to trim the weeds. I’ve been selling positions that I have losses to offset the gains for the year. It’s also a good strategy as it forces me to dump the laggards and prepare for a fresh start to the New Year.

Right now, I just have just one arb position and that is in Pharmasset Inc. (Ticker: VRUS), which is in the process of being acquired by Gilead for $137.00 per share in cash via a tender offer. The spread remains large as the market was spooked by high liver toxicity results in a phase two trial for PSI-938 for hepatitis C, which resulted in a halt to the clinical trial for PSI-938. This does not in anyway affect the merger agreement as Gilead is purchasing Pharmasset for their lead hepatitis C drug, PSI-7977. The clinical data for PSI-7977 has been clean, but the market as always over reacts.

The next market moving news for Pharmasset will be the HSR approval from the FTC. According to the proxy statement, Gilead filed for HSR approval on or prior December 15th, which means that they should know by December 30th. I would expect a press release on the HSR status in early January since they are unlikely to do anything much over the weekend / holiday.

Receiving HSR approval (early termination of review) is a must for a January closing. I do not for see any anti-trust issues. The hepatitis C market is very competitive right now with several major players such as Merck (Ticker: MRK), Vertex (Ticker: VRTX), Roche (Ticker: RHHBY), etc…. Gilead wants this deal done as fast as possible based on their tender offer route. I have a strong conviction on this merger arb play and see this as a very good risk / reward opportunity.

Got Some Zynga, but...

It looks like the Zynga (Ticker: ZNGA) IPO turned into a dud. I was allocated a few shares, but the stock quickly dropped below its offering price of $10 per share. I sold my shares in Zynga at $10. My initial plan was to flip it for a quick profit, but that plan quickly changed. The valuation in Zynga is just too high for this market environment.

Sold Goodrich and More Pharmasset

I sold my position in Goodrich Corporation (Ticker: GR) today at $122.73 generating a net gain of 12.91% (~58% annualized return). I was hoping to sell this position next year to minimize my capital gains tax, but I saw an opportunity in Pharmasset, Inc. (Ticker: VRUS) that I couldn’t pass up. Goodrich was a nice special situations play. I used the proceeds from Goodrich to purchase more Pharmasset at $129.15. As they say in poker, I’m “All In” on Pharmasset.

On a side note, I put in an indication of interest for some shares in Zynga, which is expected to price next week. There’s no doubt that this will be a hot IPO. I’ll probably flip it if I’m allocated shares.

Sold Global Education & Technology Group

I took my profits in Global Education & Technology Group Limited (Ticker: GEDU) today at $10.86 generating a net gain of 3% over a 16 day period (67.5% annualized return). This was a nice merger arb play as it presented a quick closing time frame. I saw a more compelling opportunity in Pharmasset Inc. (Ticker: VRUS), which is being acquired by Gilead Sciences (Ticker: GILD) for $137 per share in cash. Bloomberg had a nice write up on this merger arb play regarding the wide spread in Pharmasset (Click: here). I picked up a chunk of shares at $128 and change. I’m looking at a potential 6.2% gain over a 3 month period (~20% annualized return). Some are projecting a relatively quick closing as in January. I like this risk return opportunity…