Well, Ozbiotans, the only news to report is that there has been a lift in value for Australian shareholders of BOTA. The exchange rate of about 1.02 was used in the merger, and we are back at 0.96. The devaluation of the A$ has helped the valuation significantly over the last 2 weeks, and there may be a little more to come.
Although I voted against the takeover, I thought the exchange rate play was the only advantage, and Jim Fox made that point at the oddly uncontrolled last EGM.
But, in the end it was a frankly crazy way to get exposure to a forex play.
In the unlikely event that the Aussie dollar sinks to 50 cents US, we need another strategy. The SP is struggling at historic lows.
AAGM
The number of shares linked to Ozbiota is now well above 1%.
My intention is to hold an AAGM (Australian Alternative General Meeting) after the end year results are announced in July or early August. It will be in Melbourne. By then we should have the results, and a little more news to digest.
Between the results and the meeting I'll write to the Chairman, requesting a discussion regarding the company.
I'll also invite along some Biota experts to the AAGM meeting to help broaden the discussions. But the meeting will rely on your participation. I know that's not why most people buy shares, but for all the reasons outlined before, it helps all of us who are long BOTA to act outside the square.
Valuation of the Company
With the strategic review done, the valuation on the company has fewer components.
Hep C, and the gram positive program, are both valued to zero.
Relenza is dead and should be valued at zero.
Vapendavir has a significant cloud over it, and probably needs to be valued at zero for now.
The ex NABI compounds have no discernible value.
That leaves: GYRASE (gram negative program); RSV (but a new lead candidate); and LANI ROW and INAVIR in Japan.
The gyrase progam has some legs and hopefully will produce a deal. But valuation is difficult.
The patent life left on INAVIR is maybe 8-10 years, so possibly a $20 million valuation would be reasonable.
Again, it highlights the importance of a ROW deal for LANI. The market (and we) get some idea of the value of our company. The combination of seasonal and stockpile sales could reach 50% of tamiflu's market. While that's a fair assumption, it's difficult to assume that BOTA will earn 96% of that share of the income. Margins can be calculated then.
Without that royalty figure, the valuation is open to violent after shocks.
And I think that's why the market is avoiding it.
as recently as may 22 i read a phase 2 study on vapendavir which to me indicated the study was successful? did you get that read it?
ReplyDeleteYes, the vapendavir trial did report some encouraging results in March last year. Some of the papers from the study are trickling out now, but Biota essentially reported the findings to the ASX in March 2012.
ReplyDeleteThe trial studied asthmatic patients who developed rhinovirus and were treated with the drug. Patients without proven rhinovirus were excluded. There was a decrease in exacerbations of asthma in terms of reliever treatment requirements, symptoms and lung function. There was no difference in steroid use or admissions, primarily because the trial numbers were too small, I think.
It was encouraging.
But since the trial result was announced there has been no news on this compound until the strategic review.
The strategic review essentially said that the company was further considering it for another 6 months or so. Didn't exactly specify what that meant.
One problem is that not all common colds are caused by rhinovirus, and there isn't an easy diagnostic test for rhinovirus yet.
From a shareholders' point of view, the company spent 20 million dollars on the basis that there were potential partners/licensees and this would either attract new ones or add certainty and pricing tension to the deal.
But there is no deal 16 months after the study result (and almost 3 years since the trial was announced).
And as always, the patent clock is ticking.
It might be a great drug: but I want it sold to the market.
And if there was/is no market, those responsible for those decisions should be accountable for 20 million dollars.
Agree that without a ROW LANI licence agreement there is no way for any investor to properly evaluate Biota's value. Given that everything else is speculative I expect that this is the single most important item.
ReplyDeleteI'm inherently biased, as I'm long the equity. As a biased former institutional guy, I can say lack of communication from biotechs usually means one of two things..the drug/s dont work or they are negotiating a deal...
ReplyDeleteGeorge
ReplyDeleteA former institutional guy has a lot to teach us. Can you help us out here?
What would be the issues to a funds manager looking at Biota? You've gone long BOTA as an institutional guy: why? What's the balance between company people, technologies and cash?
And what about major institutional holders: Hunter Hall, for example, have been long BOTA and have essentially backed a number of very very poor decisions: from senior management selection, GSK litigation, NASDAQ move and seen the price tank. Do they become part of the culture? Or, if they are at odds with the executive and they can't make a difference with Board representation, why do they bother?
If they felt the company was worth twice its current value, why wouldn't they (with others or leverage) break it up?
Or as a funds guys, you might think these are the wrong questions! What are the right questions? What would an institution ask the CEO at a briefing?
Appreciate your insights.
Typically depending on benchmark a fund will be more cautious with in phase drug companies. You would have some small position and wait until there is more clarity surrounding outcomes. With a newly listed company, exposure to the investment community has to occur. There is a learning curve. Analysts at funds already cover many companies, so you would need a catalyst to get some guys covering it for the port manager. The market cap of the company is pretty small in this case and liquidity is poor. Those are not strong points to do the leg work necessary to reach an investment conclusion. The one thing this company has going for it is that they have cut costs and arent hemorrhaging cash, thats good.
ReplyDeleteThis investment is not significant to Hunter. Its alpha. Regarding backing poor decisions, its hard to tell, because although the decisions look poor in hindsight, they may not have looked poor at the time they were made. Rolling the board after they just came in seems aggressive. Would give them 12mos at least. Anyway we will more knowledge about the pipe then.
If I was a small cap fund manager specialising in biotech/pharma, this would be on my radar. However I would want to get more clarity on the cash flow from royalities going forward, i.e. row. I wouldnt be afraid of missing the first 20% looking for a 2 bagger. Once there is more certainty, I wouldnt be surprised to see more interest. Might make sense for the company to do a roadshow at small cap bio funds in the states, maybe they already have, but the stock doesnt appear to show that.