Monday, June 30, 2014

June Results

I can’t believe we’re already starting off the second half of the year. So for the month of June, the portfolio performed well as some of my larger positions such as Constellation Brands (Ticker: STZ) and Apple (Ticker: AAPL) approached new highs. In addition, Vertex Pharmaceuticals (Ticker: VRTX) announced positive phase 3 clinical trial results on VX-809 and Kalydeco for cystic fibrosis, which helped to propel the stock up nicely. The portfolio generated a positive return for June of + 0.57% to + 2.15%. Why this range? I usually just look at the end value of the portfolio at the close on the last trading day of the month and that would be +0.57%, but today there was a weird option pricing for my Safeway short Put resulting in a wide bid / ask spread. This pricing skewed the value of my portfolio down. If I ignore that crazy option price, my portfolio will have increased ~ +2.15% versus the +0.57%. For simplicity, I think I’ll just use the +0.57% for the month of June.

That’s it for now…

Performance Year to Date = +9.50% to (+11.08%) with the running monthly returns as follows:

January -0.67%
February +6.50%
March -2.69%
April -1.51%
May +7.30%
June + 0.57% (+2.15%)

Thursday, June 26, 2014

Idenix Arb Play

Even though there has been a lot of M&A activity, it’s been a bit difficult zeroing in on a good risk reward opportunity. One of the plays I do like is Idenix (Ticker: IDIX), which is being acquired by Merck (Ticker: MRK) for $24.50 in cash. Idenix still carries a decent spread (~ 1.9% or ~ 15.54% annualized based on yesterday’s closing price of $24.04. This is assuming the cash hits the account by August 8th). I believe this deal is going to close pretty fast. The companies have already filed with the FTC and the waiting period will expire on July 3rd. I don’t see any issues with the FTC taking a closer look at this deal as Gilead (Ticker: GILD) owns this market right now. Merck’s tender offer will expire on August 4th and this deal should close shortly after.

I’ve been playing this via long common (average price of $23.60) and short out of the money Puts. The large spread can be attributed to the painful memories of Bristol Myers (Ticker: BMY) acquisition of Inhibitex. Bristol Myers acquired Inhibitex for its early hepatitis C candidate, which was in clinical trials. Shortly after the merger closed, adverse events were reported in the Inhibitex hepatitis C trial. This resulted in Bristol Myers pulling the plug on Inhibitex’s hepatitis C program and writing off the entire acquisition. 

Can this happen with Idenix? Yes, but I see the odds as very low. I’m sure Merck has performed extensive due diligence to ensure there is no replay of Inhibitex.

EDIT: Updated tender filing with the SEC today... The FTC waiting period is now expected to expire on July 18th.