ACADIA earnings, page-113

It baffles me, they surely know something which we do not know. Are they not comfortable with the outlook of Acadia (if they were to opt to sell their stakes)?

mpec

Perhaps if I provide a bit more explanation, your concern might be eased.

Baker Bros. Advisory is a private hedge fund that makes sizeable investments, primarily in listed biotech companies. It has holdings in around 120 stocks. Acadia is its fourth largest holding. With their 26.34% stake and Board membership in Acadia, it’s fair to say that Baker Bros. steer the direction of the company.

In January 2016, when Acadia went to the market seeking to raise US$300m (Nuplazid was approved by the FDA just a few months later) the Baker Bros., who were already invested, offered to increase their investment by US$75m.

With strings attached, as seen in a subsequently filed Registration Rights Agreement...

On January 6, 2016, in connection with the offering reported under Item 8.01 below, we entered into a registration rights agreement (the “Registration Rights Agreement” with 667, L.P., Baker Brothers Life Sciences, L.P. and 14159, L.P. (the “Baker Entities”, all of which are existing stockholders of ACADIA and are affiliated with two of our directors, Julian C. Baker and Dr. Stephen R. Biggar. Under the Registration Rights Agreement, we agreed that, if at any time and from time to time after April 5, 2016, the Baker Entities demand that we register their shares of our common stock, par value $0.0001 per share, for resale under the Securities Act of 1933, as amended (the “Securities Act”, we would be obligated to effect such registration. Our registration obligations under the Registration Rights Agreement cover all shares of our common stock now held or later acquired by the Baker Entities (including approximately $75.0 million of shares that the Baker Entities have agreed to purchase at the public offering price in the offering reported under Item 8.01 below), will continue in effect for up to 10 years, and include our obligation to facilitate certain underwritten public offerings of our common stock by the Baker Entities in the future. We have agreed to bear all expenses incurred by us in effecting any registration pursuant to the Registration Rights Agreement as well as the legal expenses of the Baker Entities of up to $50,000 per underwritten public offering effected pursuant to the Registration Rights Agreement. The Registration Rights Agreement is filed as Exhibit 4.1 to this report and the description of the terms of the Registration Rights Agreement is qualified in its entirety by reference to such exhibit.

The Registration Rights Agreement, which lasts for 10 years, must be filed with the US Securities and Exchange Commission (SEC). This is done through filing a shelf registration statement

The primary advantages of a shelf registration statement are timing and certainty. An effective shelf registration statement enables an issuer to access the capital markets quickly when necessary or when market conditions are optimal…..a shelf registration statement can only be used for three years (subject to a limited extension) after its initial effective date. Under the current rules, new shelf registration statements must be filed every three years …

WHAT’S THE DEAL? Shelf Registration Statements & Shelf Takedowns Mayer Brown 2020

So, the 2019 shelf registration statement was expiring while there was still four years left to run on the 10 year Registration Rights Agreement. As a hedge fund with sizeable exposure to ACAD, Baker Brothers would be negligent not to file a new shelf registration statement, as they are entitled to under the 10 year agreement. Having solid exit strategies in place is a vital consideration for hedge funds, especially with respect to very large positions.

Were I the Baker Bros. I certainly wouldn’t be selling at a time of share price weakness, unless forced to by circumstances. If by early next year the healthcare sector has recovered somewhat and if Nuplazid is approved in a second indication in August, followed by trofinetide approval early next year, then I might certainly consider if an optimal time had come.

But as for NEU investors, at this point, nothing has changed – the Baker Brothers have had this right/option to sell their stake in Acadia since NEU first became involved with Acadia in 2018. This latest filing just reminds us.