MannKind has announced the tender date for scPharma is October 6th, 2025. If you want to own the contingent value right (CVR), you should keep your shares and tender them in the offer. If you don’t want to own the CVR, then you should sell your shares prior to October 6th.
The documents filed with the SEC have details on the deal history. Another company (Party A) offered scPharma $4.50 in stock. While I think that’s low, it was a huge 50% premium to the then $3.01 stock price. This again illustrates the danger of a low stock price. It can lead to takeover offers that are low compared to the value of the company, but high compared to the stock price. To the credit of management, they told Party A that they’d consider a higher offer even as $SCPH fell to $2.50. Negotiations continued. Management told Party A again they needed a higher offer even as the $SCPH stock price fell and Party A’s stock price rose.
At one point, management agreed to provide Party A with further due diligence if Party A would agree to maintain the $4.50 offer price. The key point here is that the declining scPharma stock price alone pressured management to entertain a low-price offer despite the fact that there was no change in the value of the company.
Management decided to shop the company and contacted 25 potential acquirors. 11 of them executed confidentiality agreements and six of them accessed the data room. It’s almost 100% certain that management contacted every drug company that would have interest. As a result, I’m revising my prior opinion that there was a small probability of a higher takeover offer. The MannKind deal is highly likely to be the best we’re going to see.
Assuming the full CVR value of $1.00/share, the deal is priced at 3.1x next year’s revenue. The tender documents filed with the SEC indicate precedent transactions in the 4.6x range and a higher range for all-cash deals. My deal list had several transactions in the 5.5x – 6.1x range. Amplifying my point above, I think the value of scPharma was higher than the deal price, but the low market price of $SCPH stock made negotiating for more very difficult. It’s reasonable to say that management shopped the company and an acquiror could have paid more had they seen more value. However, acquirors have to be aware of appearances just like target companies do. If it’s difficult for scPharma management to turn down an acquisition premium that started at 50% and rose to more than 100%, it’s equally difficult for the management team of an acquiror to pay a 200% or 300% premium. The stock price anchors the discussion.
Management contends that the $9.5MM termination fee isn’t onerous enough to deter a potential competing bid. I agree with that assessment. Given the lengthy and comprehensive process management engaged in while shopping the company which included bids from three parties including MannKind, a higher offer is unlikely.
I also think it’s interesting that management projections indicate the company isn’t likely to be free cash flow positive until later than had been previously discussed. That’s at least partially due to higher expected costs and delayed approval for the autoinjector.
I continue to believe that receiving the full $1.00 from the CVR is more likely than not and haven’t sold shares of $SCPH. Management projections indicate they believe there is an 85% probability of the autoinjector being approved. They provided MannKind with an estimate of $116MM of revenue in 2026. So, to get management’s estimated value of the CVR, we’d use the following calculation:
Autoinjector: $.75 * 85% = $.64 (I’m assuming approval by September 30th, 2026. CVR holders would get lesser amounts if the autoinjector is approved at a later date.)
Revenue: $.10 for revenue > $110MM. An additional $.15 pro-rata for revenue up to $120MM. So, add $.15 * .6 = $.09. Total estimated value of the revenue portion of the payout is $.19.
This means management projects the value of the CVR at $.83. The current stock price is $5.58, a $.23 premium to the $5.35 cash portion of the deal. If you continue to own the stock, you’re effectively paying $.23 for the CVR that management thinks is worth $.83 and could be worth as much as $1.00. Your value is more than 3x to management’s valuation and 4x to the max valuation. Important to note that the $.83 calculation is probability-weighted. Any cash you receive from the CVR is based on making the deal milestones and could be zero. The CVR is not liquid, can’t be traded, and won’t have a probabilistic value.
IR@DeepKnowledgeInvesting.com if you have questions.
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