I have written to this issue a few times. & as others have acknowledged, the buyout price of a company has. ZERO, to do with the trading shareprice.
Yes the # gets accociated as a multiple of SP at news time. Nice simple comparable.
However not in any way related to the negotiations.
As a buyer of ONC for example. The price would need to be justified internally at the aquiring company.
In simple math, what could owning Onc, its patents, the potential future income from co- therapy with the aquiring company,s drugs etc.
In a perfect world that math would be easy. Number of patients x treatment price = potential annual income. What is the required financial outlay to just that income.
That would be the case with an approved marketable product.
Pre- approval, adds in mutiple layers of doubt. Those who take the time to read analysts reports see those " discount" rates used in their numbers.
So who decides?
In negotiations, both sides have internal reporting requirements. All meetings & discsions are documented.
As well a third party " fair price evaluation" would be undertaken.
That report would form part of any agreement, placed out for shareholders approval.
why?
Obviously, after the fact it would be easy ( has happened), shaeholders of either side launch a class action. Being sold for too little, or bought for too much.
Point being & you can find a great explanation on investopedia, " value of biotech companies"
People like to say Matt wants this or that. True!
However, in a buyout situation, the B.O.D. Has final say not operating management.
Why, do these things take so long?
I have been part of no less than 6 companies taken over.
The voting package includes negotiations details, up to & including when talks first started.
Assuming Roche decided they wanted to own Onc.
Upfront talks would happen. Leading to a NDA. Then accountants, lawyers & clinical advisors get involved.
Once a reasonable decision is made, an outside consultant would be brought in to provide audited, validated opinion of valuation.
The negotiations would Center around that.
At no time in any of those calculations does the trading share price come into discussion.
onc value would be based on future income to the aquiring company.
Could Onc be bought out for mutiple billions?
100% depends on the potential oF income from Pela.
nothing more , nothing less.
When they talked about de- risking. There are financial as well as clinical implications from trial certainty.
in any business " doubt = discount"
Longer & additional trial results remove various doubts. It takes longer, but if positive greatly increases what an aquiring company is willing to pay.
Both companies need to justify a final negotiated price....backed with documents, valuation reports & third party opinions.
All available at voting time.
Stay tuned.