RE:UneventfulOh to be so confident - I hope you are right but quite frankly I wonder. It seems I have had this conversation with lots of folks over the last month - everyone is concerned and no one knows for sure.
The basis for the split is the assumption that in a perfect world Nuvo Pharma would trade at a multiple of EBITDA sufficient to overcome the loss of cash and that Crescita would retain most or all of the cash value in its share price.
There is significant short term risk in that assumption:
- Lack of information. What is the level of profitability for Nuvo Pharma today? How many shares were issued to pay-off management for outstanding compensation? How much cash was transfered to Nuvo Pharma and Crescita? What is the annual expense budget for 2016 for each company?
- Outstanding trial result. Will Pennsaid 2% pass the Phase III clinical trial? There is a significant downside risk to future revenues if the answer is no.
- Impact of Horizon subpeona. Will sales of P2 in the US suffer as a result of the investigation into Horizon's marketing methods? It would seem there is potential downside risk to Pharma's revenues and perhaps some degree of upside if Horizon has to cut their price
- F/X rates in 2016. The Canadian dollar has appreciated from the 0.68 cent level. All of Pharma's revenue is at risk to a risking Canadian dollar
- Management reputation. There is a long history of shareholder destruction; failed clinical trials, a failed acquisition, a failed marketing effort, and a failed marketing deal. There is not a high degree of trust based on their track record.
As management pointed out shareholders now have a choice and can exit either stock to hold the other. As many have noted who will be the buyers for Crescita if a significant number of shareholders decide to exit next week? On the Pharma side there would seem to be just enough risk and uncertainty that the initial price might reflect a significant loss of value due to the cash that is going to Crescita - i.e. $3.00/share.
Once a market has been established, the phase III trial results announced, and sales numbers for Horizon in the US are reported perhaps the Pharma share price will begin to strengthen. It is hard to envision shareholders willing to pay a high multiple for Pharma when the average shareholder doesn't know current profitability levels and there are potential storm clouds overhead.
My hope is that once their compensation is re-priced the phase III trial results will be published and management will be more transparent in providing all shareholders with basic information about the two companies. It might even take a few quarters to demonstrate the level of profitability of Nuvo Pharma before shareholders are willing to pay a larger multiple and new analysts start to follow the stock. As far a s Crescita is concerned I doubt I will live long enough to see anything but losses from future share dilutions if I continued to hold the stock.
Of course if you think there might be a buyout for either one or both new companies - fill your boots next week.