Good salary, nice bonus — but why did biotech mogul David Hung gamble on Axovant?
The biotech’s stock ended up 23% as investors cheered the return of the legendary biotech dealmaker, not so long after his crowning achievement: A $14 billion buyout for Medivation.
That boost added $340 million to the market cap, which Axovant’s Vivek Ramaswamy — one of the savviest players to ever make the leap from hedge fund to biotech — immediately sought to cash in on with a $100 million shelf offering.
In return, Hung is in line for a pay package not much out of line with the industry standard. He’s getting a $550,000 salary plus a bonus equivalent to 60% of that to run a company with a near-term read out from a Phase III Alzheimer’s study. So up to $880,000, pretty good for an in-development biotech with a couple of assets in the clinic, but not grandiose either.
There’s also $115,000 to cover his relocation expenses thrown in, according to the 8-K. And Hung, who came out of the Medivation sale with about $354 million, is buying $10 million in securities.
So where’s the upside? Look to the options.
There are two options to buy 4 million shares at $15.13, with each option vesting over five years. There’s also a third option for 2 million more shares.
Now, if there’s a change in control, someone comes in and buys Axovant or Hung arranges a sale for a big premium, then all the options vest immediately upon change of control.
Axovant is engaged in the ultimate high-wire act in drug R&D. It’s walking the tightrope in a pivotal stage Alzheimer’s trial which looms over billions of dollars in wreckage from the past 14 years of failure. And they’ll know by the end of this year if their shot at 5HT6 worked or not.
If it works, the payoff will likely be in the billions. They don’t call experimental Alzheimer’s drugs a golden ticket — a long shot at a fortune — for nothing. The company’s stock would gyrate up. Hung already knows every big player in the field which would look to buy the company. And maybe that’s one good reason not to wait until after the readout to take the job, as Ramaswamy had offered to do.
The implications weren’t lost on Baird’s Brian Skorney:
The takeout of Medivation was the most hotly contested biotech deal last year, primarily due to Hung’s clear campaigning to get the highest price possible. We wouldn’t be surprised to see the stock run up strongly into the MINDSET data toward the end of September as a successful trial, which would be one of the only successful pivotal trials in Alzheimer’s in recent memory and possibly the biggest binary event of the year, could start a similar bidding war.
Hung certainly isn’t wondering where his next meal will come from. And it’s interesting to see him roll the dice once again on Alzheimer’s, after seeing Dimebon go up in smoke at Medivation.
This is one gamble, though, that may not take years to pay off. And the structure of the deal begs a simple question.
Just how long does Hung plan to stay?
Axovant shares are up another 4% in pre-market trading this morning.