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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
NEW YORK--(BUSINESS WIRE)-- 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:
