Hold Rating on XOMA’s Acquisition of Generation Bio: Balancing Immediate Cash Offer with Potential Future Returns

In a report released today, Farzin Haque from Jefferies downgraded Generation Bio to a Hold, with a price target of $5.00.

Farzin Haque has given his Hold rating due to a combination of factors surrounding the acquisition of Generation Bio by XOMA. The offer from XOMA includes a base price of $4.29 per share, which is below Generation Bio’s pre-deal trading price of approximately $5.40. However, the inclusion of a Contingent Value Right (CVR) provides potential additional payouts, which could help bridge the valuation gap.
Despite the unanimous approval from Generation Bio’s board, the company’s financials indicate complexities. The cash position at the end of the third quarter was $89.6 million, but liabilities and obligations such as wind-down costs and lease commitments complicate the distribution of book value, which stands at $50.6 million or $7.5 per share. Furthermore, Generation Bio’s pipeline, while diverse and possessing strong intellectual property, is still in early development stages, requiring significant progress to realize value. These factors contribute to the Hold rating, as the current offer secures immediate cash with potential future returns through the CVR.