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Chris DeMuth Jr.
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"It's not given to human beings to have such talent that they can just know everything about everything all the time. But it is given to human beings who work hard at it - who look and sift the world for a misplaced bet - that they can occasionally find one." - Charlie Munger I look... More
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  • Stocks To Watch Discussion Forum 6 comments
    Jul 10, 2014 8:01 AM | about stocks: CBS, OUT, GSIT, MNK, MNK

    Seeking Alpha contributors give readers an early look at stocks that could be moving today in SA Stocks To Watch. In this discussion forum, you can ask questions regarding my ideas or discuss other ideas that appear on StW. So far, this is what I have offered:

    Stocks To Watch Today: Jul. 9, 2014

    If anyone tries out Chris DeMuth's CBS/CBSO share exchange, let us know how it goes. Chris, a systemic arbitrageur, has a track-record with these kinds of opportunities.

    CBS (NYSE:CBS) - long - Chris DeMuth Jr.

    • You can exchange CBS for CBSO at a 7% discount on Wednesday.
    • If you own fewer than 100 shares, you can avoid proration.
    • CBSO received a favorable REIT ruling from the IRS for a conversion.
    • CBSO can be lent out at a very high rate for added yield.

    Stocks To Watch Today: Jul. 10, 2014

    GSI Technology (NASDAQ:GSIT) - long - Chris DeMuth Jr.

    • GSIT announced a Dutch Tender Offer priced at $6.50-$6.70.
    • At a cost of $6.50 per share, you can tender 99 shares at $6.70.
    • Holders of fewer than 100 shares are not prorated.

    Questcor Pharmaceuticals Inc (QCOR) - short - Chris DeMuth Jr.

    • The arbitrage spread of over $7 equals an annualized return of over 50%.
    • However, it is unclear whether the deal will close. Where is the amended proxy? It is currently almost a month late. Why?.
    • There is over a 25% downside in the likely event that the deal breaks. Buyer could be concerned with the insurers' skepticism towards Acthar.

    Any suggestions for other ideas that would be well suited for StW?

    Disclosure: The author is short QCOR.

    Additional disclosure: Chris DeMuth Jr is a portfolio manager at Rangeley Capital, a partnership that invests with a margin of safety by buying securities at deep discounts to their intrinsic value and unlocking that value through corporate events. In order to maximize total returns for our partners, we reserve the right to make investment decisions regarding any security without further notification except where such notification is required by law.

    Stocks: CBS, OUT, GSIT, MNK, MNK
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Comments (6)
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  • Oliver Rowe
    , contributor
    Comments (52) | Send Message
     
    CBS tender details are out.

     

    14.6% proration factor for non-odd-lot holders.

     

    Delivery expected by July 14th.

     

    Also, GSIT odd-lot doesn't seem worth it after commissions. Is there a better way to play it?
    10 Jul 2014, 08:25 AM Reply Like
  • jaginger
    , contributor
    Comments (629) | Send Message
     
    If you're looking for more suggestions, a stock I'm watching is $FRSH (from the short side.)

     

    Nice writeup here to get oriented: http://seekingalpha.co...
    10 Jul 2014, 08:56 AM Reply Like
  • Mongoose7916
    , contributor
    Comments (229) | Send Message
     
    A few things on your QCOR short Chris. What evidence do you have that the deal falling apart is a "likely" event? And while MNK may very well be concerned with their recent acquisition that isnt what they are telling the press.

     

    When Mallinckrodt bid for Questcor, Mallinckrodt’s chief executive, Mark C. Trudeau, played down the investigations. He said the company had conducted extensive due diligence into Questcor before announcing the deal. Asked whether the company was concerned about the increase in adverse events related to Acthar, a Mallinckrodt spokeswoman said the company was “aware of the safety profile of Acthar and conducted thorough due diligence in this area prior to announcing the transactions.”

     

    http://nyti.ms/1rYUaP0

     

    Additionally you state that there would be over 25% downside if the deal fell apart and as someone who has followed QCOR for some time I will say that is way off base. If this deal doesn't go through the fear from investors will drive the stock down at least 50% and possibly more. But then again I dont see any evidence of the deal falling apart. Chris not sure about your logic in following the massive short position which is already in the stock. For if you are wrong you will be covering north of $110 probably north of $120 considering how many shorts will have to buy the stock back. If you think the probability of the deal falling apart is greater than 60/40 then maybe it might make sense to be short but I honestly think you are accepting way too much risk at this point. Also I think any short argument that is based on insurance claim arguments needs to be very carefully considered. Spoiler alert insurance companies hate paying for anything. Ask the GILD shorts how well their insurance arguments and drug costs too much arguments have worked for them a couple of months from now. (I know comparing QCOR to GILD is apples to oranges, the point I was trying to make was about the way insurance companies bitch about anything they think they can get at a cheaper price.) Maybe it ends up working out for you but unless you have better info than myself to suggest your thesis is better than a coinflip I think you are wrong and I don't think it is a good idea.
    Disclosure:Long QCOR although my position has shrank drasctically from the time before the merger deal was announced.
    10 Jul 2014, 02:53 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (4602) | Send Message
     
    Author’s reply » Mongoose7916, thanks for the comments. I will try my best to answer them over time. Meanwhile, you might well be right about all of the above. I am especially convinced that you are correct regarding (MNK) management's current enthusiasm for the deal.
    11 Jul 2014, 08:23 AM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (4602) | Send Message
     
    Author’s reply » Questcor Reveals Adverse Events Data for Acthar for First Time: http://nyti.ms/1qQnwNB

     

    For years, Questcor Pharmaceuticals has highlighted the potential benefits of Acthar, its immune-system drug, while saying little about its ill effects.

     

    But according to a regulatory filing made by Questcor early Thursday, the number of patients reporting a so-called adverse event while using the drug last year represented almost 5 percent of prescriptions dispensed. The total number of events in 2013 reported by patients, who can experience multiple ill effects, was almost 14 percent of prescriptions, up from 9.1 percent in 2011.

     

    It was the first time Questcor, which has received a $5.6 billion takeover bid from Mallinckrodt Pharmaceuticals, had disclosed any problems experienced by Acthar patients, even though such information is of keen interest to investors. Questcor’s disclosure followed a report last month in The New York Times analyzing adverse events data on Acthar from the Food and Drug Administration.

     

    From Jan. 1, 2011, to Dec. 31, 2013, Questcor said, 1,022 patients reported 3,100 adverse events while on Acthar. The filing said that many users of the drug were seriously ill and faced life-threatening health risks. Acthar generates some 95 percent of Questcor’s revenues.

     

    The data, which was obtained under the Freedom of Information Act, showed 20 deaths and six disabilities since 2012 among patients reported to have been using Acthar and in which Acthar was recorded as “suspect,” or the drug most likely to have been associated with the event. From January 2000 through 2011, by contrast, 13 deaths involving Acthar were submitted to the F.D.A.’s adverse events reporting system. The F.D.A. requires reports of these events from drug manufacturers, but health professionals, patients and consumers can also report incidents.

     

    Among the reported effects in the data were abdominal pain, increases in blood sugar and renal failure.

     

    When asked last month why the company had not disclosed these events, a spokeswoman said that the safety profile of Acthar was well known.

     

    But securities lawyers said Questcor should have disclosed the adverse events associated with Acthar to investors. In 2011, the Supreme Court ruled that reports of adverse events among patients using a drug, even if few in number, were of interest to investors considering buying or selling shares in its manufacturer.

     

    Questcor did not respond to requests for comment about the company’s decision to change course and disclose the adverse events. The disclosure was included in the section of the regulatory filing discussing various risk factors associated with Questcor’s business.

     

    “Such events could subject us to costly litigation, delay, negatively impact or end our opportunity to receive or maintain regulatory approval to market Acthar, or materially impact our commercialization efforts,” the filing said.

     

    Asked on Thursday whether Questcor’s new disclosures would result in heightened oversight, an F.D.A. spokeswoman said, “Because this is an open compliance matter, we cannot discuss or speculate on future potential actions related to any Faers reports,” referring to the Food and Drug Administration’s Adverse Event Reporting System, whose acronym is pronounced “fares.”

     

    Last month, an F.D.A. spokeswoman said the agency was reviewing accusations by an independent research firm that the Acthar label did not accurately reflect the drug’s ingredients.

     

    Questcor bought the rights to Acthar in 2001 for $100,000. The F.D.A. designated it an orphan drug, one developed specifically for treating a rare medical condition, four years ago. It was approved for the treatment of infantile spasms, a relatively rare syndrome that develops in children under 2 and that can result in delayed development.

     

    Acthar costs $28,000 for a five-milliliter vial. In 2007, a vial cost $1,650.

     

    Recently, Questcor has aggressively marketed the drug to doctors treating other serious illnesses, including lupus, nephrotic syndrome and multiple sclerosis. It has done so without conducting extensive clinical trials proving Acthar is more effective for those diseases than other, far cheaper drugs, such as steroids. That is because Acthar was approved for use in 1952, before such trials were required by the F.D.A. and is essentially grandfathered in.

     

    Questcor previously disclosed that it is under investigation for its marketing practices by the Securities and Exchange Commission and by United States attorneys in both the Southern District of New York and the Eastern District of Pennsylvania.
    11 Jul 2014, 08:24 AM Reply Like
  • sheldond
    , contributor
    Comments (1201) | Send Message
     
    Chris,

     

    That doesn't sound promising for investors.

     

    D
    11 Jul 2014, 08:35 AM Reply Like
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