Receptos (RCPT) has been one of my favorite stocks for ages because it has a formulation for ulcerative colitis, Crohn's disease and multiple sclerosis, which are all billion-dollar markets. It is considered a non-promotional company. In the several timed I've had CEO Faheem Hasnain on "Mad Money" I have been struck by how under-promising he is, even though the data would certainly give him a lot to crow about.
And that's what's so amazing to me about the current takeover chatter. It is actually from an established firm: Wedbush, which raised its price target for the company yesterday to $348 from $211. I don't think it takes a genius to realize that this stock's not getting to that price target on its own. That's just an out and out statement that the company is about to get a takeover bid.
That this could be such an open secret is beyond me. But in keeping with the "anything goes" part of this market -- the one that saw a huge bid for Pharmacyclics (PCYC) recently, the one that saw a bid for Kythera (KYTH) today -- what's a deal for the $6 billion Receptos among friends?
When you get these kinds of situations there's tremendous illiquidity because it is impossible to short a company that could get a bid imminently. Yet that's exactly what you should be doing if you knew that one wouldn't be forthcoming.
Who wants to take that chance, though? I remember back at my old hedge fund I shorted a biotech stock, SyStemix, betting that its bone marrow drug wouldn't pay off. Sandoz didn't agree and the next thing you know it bought 60% of the company at a price that moved the stock $19 overnight. That was in 1991 and it was a huge loss for me.
"This takes us one step beyond traditional biotechnology," Dr. Max Link, who was CEO of Sandoz at the time, told The New York Times. He said that the Systemic process of purifying stem cells offered an "ideal vehicle" for treating genetic disorders. In the next few years, Sandoz tried and tried to make the therapy work but it never did. The SyStemix acquisition was a bust. It wasn't the ideal vehicle after all.
But it didn't matter. My quarter was trashed by an acquisition that I didn't see coming. I only knew that science was specious.
Receptos, on the other hand, has anything but specious science. The results of the tests so far are incredible, far better than the current standard of care. Plus, we even have a name associated with the bid, the new drug-starved AstraZeneca (AZN) -- again, something that makes perfect sense.
So you let it ride in one of the most smoke-fire situations out there, betting that Wedbush knows something and even if they don't, it could still be undervalued if everything hits pay dirt in this "anything goes" market.