Remains Opposed to Sale of Acceleron to Merck
at Current Price and Plans Not to Tender Its Shares
Believes Company Has Strong Momentum and
Continuing as Standalone Entity is Superior Path to a Transaction
at the Proposed Price, Particularly with Major Value Inflection
Point Coming from Phase 3 Data
Outlines Alternatives by Which Acceleron Could
Maximize Shareholder Value as Independent Company, Including by
Monetizing Royalties
Ready and Willing to Assist with Change in
Board Composition to Better Position Company for Go-Forward
Strategy
Avoro Capital Advisors (“Avoro”), a long-term and collaborative
investor in life sciences and biotechnology companies, beneficially
owns approximately 7% of Acceleron Pharma Inc. (Nasdaq:XLRN)
(“Acceleron”, “XLRN” or the “Company”) together with certain of its
affiliates and managed funds (“Avoro,” “we” or "us"), making it one
of the Company's most significant shareholders. Avoro today issued
an open letter to fellow Acceleron shareholders further detailing
why the proposed sale of Acceleron to Merck & Co. Inc.
(NYSE:MRK) ("Merck") for $180 per share (the "Merger") is not in
the best interests of all shareholders. Based on the information
currently available, Avoro does not plan to tender its shares in
support of the Merger.
The full text of the letter follows:
October 28, 2021
Dear Acceleron Shareholders,
Avoro Capital, together with certain of our affiliates and
managed funds, beneficially owns approximately 7% of Acceleron
Pharma Inc., making us one of the Company's most significant
shareholders.
After reviewing Merck’s Tender Offer Statement and the Company’s
Recommendation Statement on Schedule 14D-9, we continue to believe
that the proposed sale of Acceleron to Merck for $180 per share is
not needed at this time, and certainly not at a price that
drastically undervalues XLRN – representing just a 38% premium
relative to the stock’s average closing price over the prior three
months. Our conviction has only been strengthened by the recent
disclosures from the Company and the public support for our
position by other shareholders and sell-side analysts.
Based on the information currently available, we will not tender
our shares in support of the transaction.
We ask you to consider the following:
Why sell now, at an undervalued price,
when Acceleron has positive momentum and appears to be so close to
a value inflection point?
As we stated previously, we believe that Acceleron’s management
team has done an excellent job creating value for shareholders
until now and that the Company has great potential as a standalone
entity. We also believe Merck could ultimately be a great partner
for XLRN. The problem is not the fit, it is both the timing and the
price.
As we expected, Acceleron’s Schedule 14D-9 filing reveals that
Acceleron’s Board of Directors (the “Board”) initially only
received an offer from one party (Merck), briefly tested the
market, and determined they had to accept Merck’s revised offer
because no other viable alternatives immediately presented
themselves. We do not understand this logic that assumes that a
transaction had to be pursued at this time rather than staying
independent. In fact, in our view, the fact that other bidders did
not jump to pursue a transaction supports the notion that a sale at
this time is premature.
We expect that, by the end of 2022, Acceleron will have results
from its Phase 3 STELLAR trial that is enrolling the prevalent PAH
population, which we believe will support a higher share price – a
notion also voiced publicly by other shareholders and sell-side
analysts such as a recent Raymond James analyst note that stated,
“if successful in Phase 3, we believe XLRN shares could easily be
worth ~$250+”.1 Subsequent clinical trials in newly diagnosed PAH
patients, late-stage PAH patients, and group 2 pulmonary
hypertension patients offer further potential value creation
opportunities. The data already generated by Acceleron are
extremely rare and promising developments that have been widely
praised by the PAH community. Given sotatercept’s disease
modification potential contrasted with current PAH treatments that
remain limited to vasodilator therapies, it is very likely that
appropriate reimbursement can be obtained once the product reaches
the market.
While we of course understand that XLRN bears some degree of
risk in waiting for at least some of these results versus taking
the money on the table from Merck, there is always risk in this industry – and based on the
data so far, this risk is overwhelmingly worth taking in our
opinion. It’s also understandable that other parties approached by
the Acceleron Board following the Merck approach preferred to wait
to see the Phase 3 trial data (STELLAR) before wanting to transact.
It simply makes sense, both for XLRN and potential acquirers, to
wait until we are past these critical value inflection points
before deciding on the future of the Company.
In addition to sotatercept, Acceleron also has great potential
to create value with Reblozyl. Bristol-Myers Squibb (“BMY”) has
guided to more than $4B in peak sales for Reblozyl with low-to-mid
20% royalties going to Acceleron. This guidance implies a
multi-billion dollar valuation for the royalty alone using standard
industry multiples, which taken together, suggests that sotatercept
is being grossly undervalued at the current price given its
blockbuster potential.
Others Agree that the Price is Too Low
for a Sale at this Time
Since our initial letter on September 30th, 2021, two other
Acceleron shareholders have publicly stated their opposition to the
Merger at the current price.2,3 It should certainly give all
shareholders pause that multiple investors with significant sector
expertise, who rarely if ever take public stances like this,
believe this Merger is not in their best interests.
Further, numerous sell-side analysts have noted that the value
assigned to Acceleron by the Merger is too low. Examples
include:
Raymond James (Danielle Brill), 10/4/21:
- “We think $11.5B for XLRN is a steal.”
- “…we share the view of many investors in XLRN that this
deal-price is too low (<40% premium over 200-day moving
average)”
Cowen (Yaron Werber), 9/27/21:
- “M&A speculation driving stock — we see $180/sh as too low
to get deal done”
- “We believe that the stock could see much higher values as a
stand-alone company either based on 35x P/E multiple on EPS or a
more traditional 4-6x multiple on peak sales which would provide an
even higher valuation.”
Barclays (Carter Gould), 9/26/21:
- “With that backdrop, and sotatercept’s significant commercial
potential, we would be somewhat surprised to see Acceleron proceed
here without a greater premium…”
Jefferies (Akash Tewari), 10/6/21:
- “The deal price of $180/share is a bargain…”
Better Alternatives Exist at this
Valuation Level
If XLRN’s Board did feel the need to pursue a monetization
avenue following the Merck approach, there were, and still are,
better options.
Should the tender not receive sufficient shareholder support,
one pathway would be for Acceleron to remain independent and pursue
complete or partial monetization of its Reblozyl royalty to a
variety of potentially interested parties that seek lucrative
royalties such as Party A, who has already demonstrated interest in
the Reblozyl royalty as indicated in the Schedule 14D-9 filing. In
fact, based on what we have heard from market participants, we
strongly believe there is tremendous continued interest in this
royalty stream, and it appears from our reading of the Schedule
14D-9 that the Company failed to properly explore this avenue as a
means to unlock shareholder value.
Merck’s comments on the conference call following the Merger
announcement about Reblozyl and its associated royalty demonstrate
its inherent value:
“And with regards to the royalty stream, we
are confident in Reblozyl's commercial potential and ability to
expand into new indications. We believe it will become a
cornerstone therapy across a range of heme indications and has the
potential for multibillion-dollar peak revenue. The royalty cash
flows are financially attractive and provide the opportunity for
this acquisition to be accretive in the near term.”4
In the scenario of remaining independent, Acceleron could use
proceeds from Reblozyl royalty monetization to fund the continued
development of sotatercept in PAH and other indications through
multiple valuation inflection points for the Company.
***
We appreciate that some shareholders may feel pressure to tender
their shares simply because the Company’s disclosures give the
sense that the current Board may not be willing to go back to work
and continue to lead the Company forward absent this transaction.
If this is indeed the case, and the current Board is unwilling to
forego this undervalued deal and to pursue a standalone strategy,
Avoro would stand ready to take the steps necessary to help modify
the Board’s composition and add directors with relevant experience
and expertise to create improved shareholder value – including
recommending a new group of independent directors for appointment
to the Board.
We look forward to engaging constructively with Acceleron
management, as well as our fellow shareholders, in order to
understand other viewpoints and to further articulate our rationale
in the hope that we can be part of identifying a better path
forward.
Sincerely, Behzad Aghazadeh, PhD Managing Partner and Portfolio
Manager, Avoro Capital
About Avoro Capital L.P.
Avoro Capital L.P., is the parent of Avoro Capital
Advisors LLC (“Avoro Capital Advisors”) and Avoro Ventures
LLC (“Avoro Ventures”). Avoro Capital Advisors is an
SEC-registered investment manager located in New York City,
investing in public and private equity companies focused primarily
on life sciences and biotechnology. Managing Partner, Behzad
Aghazadeh PhD, has over 25 years of experience spent in scientific
research, healthcare consulting, institutional investment and
executive leadership within the healthcare sector, and is supported
by a team of seasoned professionals with advanced medical and
scientific backgrounds, and extensive investment experience in the
biopharmaceutical industry.
Forward-Looking Statements and Additional Information
This communication contains forward-looking statements.
Forward-looking statements are statements that are not historical
facts and may include projections and estimates and their
underlying assumptions, statements regarding plans, objectives,
intentions and expectations with respect to future financial
results, events, operations, services, product development and
potential, and statements regarding future performance.
Forward-looking statements are generally identified by the words
“expects”, “anticipates”, “believes”, “intends”, “estimates”,
“plans”, “will be” and similar expressions. These forward-looking
statements include, without limitation, statements regarding the
planned completion of the transactions contemplated by the Merger.
Although Avoro believes that the expectations reflected in such
forward-looking statements are reasonable, investors are cautioned
that forward-looking information and statements are subject to
various risks and uncertainties, many of which are difficult to
predict and generally beyond the control of Avoro, Merck or
Acceleron, that could cause actual results and developments to
differ materially from those expressed in, or implied or projected
by, the forward-looking information and statements. These risks and
uncertainties are enumerated in Acceleron's public filings and
recent public communications regarding the Merger by Acceleron and
Merck. In addition, the foregoing considerations and any other
publicly stated risks and uncertainties should be read in
conjunction with the risks and cautionary statements discussed or
identified in the public filings with the U.S. Securities and
Exchange Commission (the “SEC”) made by Merck & Co., Inc. and
Acceleron, including those listed under “Risk Factors” in Merck
& Co., Inc.’s annual reports on Form 10-K and quarterly reports
on Form 10-Q and Acceleron’s annual reports on Form 10-K and
quarterly reports on Form 10-Q and current reports on Form 8-K
filed with the SEC. The forward-looking statements speak only as of
the date hereof and, other than as required by applicable law,
Avoro does not undertake any obligation to update or revise any
forward-looking information or statements. Unless otherwise noted,
Avoro has neither sought nor obtained permission to use third party
statements reproduced herein.
_______________ 1 Raymond James Analyst Note, 10/4/2021 2
Available at
https://www.businesswire.com/news/home/20211013006045/en/Holocene-Advisors-Believes-Merck%E2%80%99s-Proposed-Offer-of-180-Per-Share-for-Acceleron-Significantly-Undervalues-Company%C2%A0
3 Available at
https://www.businesswire.com/news/home/20211020005321/en/Darwin-Global-Urges-Acceleron-Shareholders-Not-to-Tender-Their-Shares-to-Merck
4 Webcast, “Acceleron Pharma Inc Acquired by Merck & Co Inc
Call,” September 30, 2021, available at
https://s21.q4cdn.com/488056881/files/doc_events/2021/XLRN-USQ_Transcript_2021-09-30.pdf
View source
version on businesswire.com: https://www.businesswire.com/news/home/20211028005411/en/
Media Sloane & Company Dan Zacchei / Joe Germani
dzacchei@sloanepr.com / jgermani@sloanepr.com
Acceleron Pharma (NASDAQ:XLRN)
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