CA - 2024 - Liquidia Burford And Roivant

2023-12-20 12:00:32 ET

Summary

• Liquidia Corporation is worth at least $15 in a win.
• Roivant Sciences is worth at least $12 per share.
• Burford Capital Limited is worth at least $20 per share.

Value & Event Driven Investing

I recently spoke for a half an hour about three things that could happen in 2024 to reveal the value of our favorite stocks, taking about five minutes for each actionable, edgy idea, then leaving 15 minutes for questions. The topic: underpaying for securities based upon their price and their expected value. You can watch here:

Looking Ahead to 2024

I'm not a soothsayer predicting the future. I'm a counter looking for where prices and value diverge the farthest. Like all value investors, I try to buy $1s for $0.50. As an event driven investor, I look for situations where there is a path to getting back my $1. What kind of events? Mergers, acquisitions, spinoffs, special dividends, contingent value rights.

There's more to life than money. But there isn't more to investing. I want my companies to make money. Then I want my money back. I spend a vast amount of time and resources hunting for such rare situations. The events test my rebuttable premises. No value traps here. I'll be right or I'll be wrong. And I am involved enough to put my thumb on the scale.

Litigation

We are doing a lot of work on M&A, on CVRs, and on ESG, or should I say on being a counterparty to ESG-focused investors. For the right price, I'm a service provider to ESG investors: happy to buy what they have to sell and happy to sell what they have to buy. But none of that is my focus today. Today, I am here to discuss another of our top interests: litigation.

Roivant

First up: Roivant Sciences Ltd. (ROIV), a biopharma company. Roivant's sale of Telavant to Roche (RHHBY) is scheduled to close around next month, leaving ROIV with $8 per share in cash and $4 per share in public securities, mostly Immunovant (IMVT). They are probably going to sell IMVT in 2024. IMVT is up about 188% over the past year and the market has simply not kept up with the look through to Roivant.

Why I care: In addition to their cash and liquid securities on their balance sheet, they have Covid vaccine IP litigation against Pfizer ( PFE ) and Moderna ( MRNA ) worth $5-10 per share of royalties (a settlement would probably be at the low and full win at the high). I bought a significant amount of shares in several secondary offerings, including when founder Vivek Ramaswamy sold a block when he began his presidential campaign.

Burford

Secondly: Burford Capital Limited (BUR). I've liked and owned this equity for a long time. Last quarter, they benefitted from a litigation involving a plaintiff that beat Argentina on all legal issues (Argentina stole an oil company without compensating its rightful owners in a manner consistent with their contractual rights). The Argentina case decision was the best possible outcome for Burford Capital. This litigation alone is worth substantially more than the current share price and that's before valuing the rest of the balance sheet and the asset management value.

All told, it could double from here after this decision is paid. Argentina recently elected a terrific new president who could help catalyze a settlement that is fair to both sides. It could help the country regain international credibility as a legitimate, creditworthy actor. I own the equity and have helped finance this litigation.

Liquidia

Third and finally for today: Liquidia Corporation (LQDA). United Therapeutics Corp. (UTHR) has a monopoly on a treatment for a few types of Pulmonary hypertension. The drug's brand name is Tyvaso and active ingredient is Treprostinil. They charge from just over $100k to over $350k per year because they can. In capitalism, profits draw competitors the way gazelles draw lions in the Serengeti. But United Therapeutics doesn't want competition. They don't want to compete on price. They could sell their drug for a small fraction of the price but don't. Their primary protection racket is the Food and Drug Administration, whose expensive and lengthy reviews make it nearly impossible for most small market entrants. Only the bigger players can survive their hazing rituals. Big pharma doesn't complain too much because it keeps market shares concentrated. Big government and big business is often a win win for both, if terrible for their customers.

But in 2020, Liquidia was ready to challenge this monopoly by bringing to market Yutrepia, generic inhaled Treprostinil. Their product would be better and cheaper than Tyvaso. United Therapeutics could compete on quality, compete on price, or get the government to help protect their monopoly. They went with the third choice. They filed a lawsuit that blocked Liquidity getting to market by claiming that Liquidia violated two patents and another that the entrant violated a delivery-related patent. These claims were weak, but that didn't matter to United; what mattered was that they could hobble a competitor for years. The process is the punishment. United got monopoly pricing for years at the cost of lawyer bills. This was a great deal for them.

But now it is coming towards an end. After messy and protracted litigation in multiple venues, United is running out of delay tactics. There is around a 90% chance that Yutrepia will get to market by the end of next year. Today, Liquidia has less than a half a billion dollar market cap. Tomorrow (or more accurately within the next few years), they could have more than that in Yutrepia sales. This is one of my largest investments based on a rebuttable hypothesis that Liquidia will sooner or later beat United's patent challenges, get to market, and split a $3 billion market as well as get expanded indications for Yutrepia. If that happens, shares are worth at least twice their current price. I have a high confidence that we get there next year. Where should it trade today? Based solely on the value of Yutrepia, fully discounting litigation and timing risk, it should trade at least at $9 today and in the teens by early next year. Beneath $8 is a material discount to its expected value and an actionable opportunity.

2 More

The above are three of my five favorite litigation opportunities for 2024. Want two more? I can't discuss either yet, but as soon as I'm able (based on current professional conflicts) then I will disclose them first on our Investing Group (see below). One is my (actually my long-suffering wife's) now largest personal equity exposure. Like the above, it is a litigation with a 2024 catalyst.

The second is one where I own a significant stake in both their equity and in strategic financing to help them get to their litigation catalyst. I'm friendly with management; I like the CEO and have high hopes and expectation that we'll get a win on liabilities, significant damages, then have a shareholder-friendly return of some capital and strengthening of their balance sheet.

Caveat

I have a view on each of the above litigations, but in Roivant, either I could be wrong or a judge could be wrong. Same with Liquidia. In Burford, we already won, but I could be wrong that a reasonable settlement would be in both parties' interests or I could be right and they could fail to see it and settle.

Conclusion

I look for opportunities to buy dollars for fifty cents then get my dollar back. I think I found three in Roivant, Burford, and Liquidia. I own two more but those will be exclusively for StW members until their catalysts are further played out or their value is more fully priced in.

TL; DR

I own ROIV, BUR, and LQDA; you might want to too.

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