November 21, 2011

The Skinny

In Dermapalooza I began a discussion about the pending psoriasis Phase 2c trial results. Many rightfully are very focused on the top-line numbers (and the substance of the related clinical data report). I am as well. I am, however, even more focused simply on the timing of the information release. Think of the press release that accompanies this event as a starting gun going off.

When I hear the shot, I know the data is being shared with two groups: the prospective licensees (buyers) of the dermatology business and the equity research analysts. Within, I hope, a short period of time, we should expect the company -- given the interest expressed by a number of interested parties -- to receive a term sheet. Thereafter, in order to facilitate the process, the financial adviser will be formally engaged, of which we will learn through another press release. The investment banker will shepherd the process through the closing of this transaction.

In my view, closing the deal (from the time the first term sheet is extended) could be as short as a couple of months to as long as 6 or more months. I expect timing on the order of 3 or so months, mainly because the digital data room in which all dermatology-related and some corporate information resides has been well visited by these prospective licensees.

What I do not know, however, is how management will manage the information flow beyond the press release announcing the engagement (hiring) of the investment banker. Will we hear about final deal parameters when the transaction closes? Will we hear about these parameters when the term sheet is finalized, but before the deal is closed?

So, when the press release announcing the top-line results is issued, very likely before year-end, I would expect the transaction to close in or before the end of Q1 next year. As one of the key near-term drivers of valuation (together with immunology), the share price also may begin its ascent when the starting gun goes off.

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