This was worth attending.
Firstly the slides and the accompanying opening commentary were identical to those presented to the JMP securities meeting. You can view them on the BOTA site. There was little in the formal presentation of note.
Also, you need to note that I'm simply recollecting and interpreting the meeting. Those safe harbour statements apply here too.
There was some initial verbal angst directed at the absent Chairman around the organisation of the NABI reverse merger and the subsequent halving of shareholder value in the process. Russ Plumb took it on the chin. Actually, he refused to accept the invitation to apologise on the Chairman's behalf : "Give it a year".
Here are the highlights
LANI
ROW Phase 2 LANI trial results in due in a year: top line results in late June/early July 2014, probably announced a bit after that.
Start Phase 3 depends on FDA reviews through late 2014, but Phase 3 could go through to 2015-16.
LANI patent extends to 2024. Delivery device patent a little longer. They seemed unconcerned about the 7-8 years of patent life due to the requirements of generics to provide combination of delivery device and drug.
HOWEVER they have had significant discussions with DS about the ROW rights. There were two important facts revealed:
1. That they are aiming for 80-90 BOTA v 20-10 DS revenue split.
2. They are aiming for a deal that can be announced before or around the time of the Phase 2 results
This essentially supports my long held view: there is no way to assess the value of the company if the revenue split is not made clear to the market. I was convinced that they were finally engaged in delivering this important outcome.
In a year, the best outcome would be a successful Phase 2 clinical trial result, the announcement of the revenue split, and a rating of the company.
There is a long way to go to that happy day: DS have to come to the party; the trial results have to be good. The market for antivirals needs to be stable enough to assess (and although it wasn't mentioned, generic tamiflu may play a role there).
Its also possible that after Phase 3 they will keep the stockpile rights and monetize the seasonal drug with a deal, rather than employ a sales team and sell into the US market.
VAPENDAVIR
Vap is an effective antiviral.
However the management team feel that the impact of the outcomes shown in the Phase 2 trial will not result in a reimbursable product i.e no-one will pay enough for the drug to justify the expenditure in further trials and marketing. The overall benefit just wasn't strong enough. Also the need to assess whether HRV was the cause of the symptoms was too onerous, and if not the % of people with symptoms who have HRV is not high enough.
They are looking toward alternative applications and these are both hospital based (and possibly IV although we didn't specifically ask them that):
1. Severe HRV caused asthma exacerbations requiring hospital admissions
2. Viral meningitis (for which there are no current treatments, and this is often caused by enteroviruses against which Vap is active)
They are considering spending a modest amount (8 millionish) on Phase 2 trials in either of these areas. Maybe.
SHARE PERFORMANCE
They have faith in their capacity. Their Inhibitex legacy has bought them the ability to meet most US institutions who still feel warmly toward them.
They believe that institutions will support their vision for the company, especially once there is news to announce. The overseas experience of LANI and US fully funded trial components are uncommon in biopharmaceuticals.
But liquidity is a problem. Essentially, institutions can't get enough shares on market without severe distortions. There are few shares traded and tradeable.
Why?
Because 60% of the shares are still owned by 10,000 Australian shareholders who can't, or won't trade their shares on Nasdaq. A massive overhang. The only people US institutions can buy from are essentially other US institutions. Or Hunter Hall I guess.
Something that was entirely predictable from the outset.
So the company is looking at liquidity.
The obvious answer was put to them - dual listing. It was categorically ruled out. The reason: none, just ruled out.
The other obvious answer is for the share price to increase enough to shake some Ozbiotans to sell. But its chicken and egg: share price won't move unless institutions buy, and institutions won't buy if there aren't big parcels on sale.
The Board are actively considering other avenues. What other avenues are there to consider? They didn't specify, just that the Board was actively considering this issue.
My fear? And this is without any foundation at today's meeting, just my speculation: that we have been primed about the purchase of a revenue generating program. So, BOTA buys a program and raises capital from US funds at any old share price to increase liquidity. Diluting small Australian shareholders. Again.
We know that 70 million cash is a nice buffer, but won't buy much of anything. But yet even today, we are still told we don't need to raise capital.
I hope I am wrong. In which case, the experts can help me: what other strategies are there to increase liquidity?
In summary, it was a good meeting. Mr. Patti seems a tough negotiator. They both appeared genuine and knowledgeable. If a fund got that briefing they would feel pretty confident about the company's prospects.
I did, despite the pitfalls laid out clearly in front of me.
If I remember anything else I'll post it. If you were there and you disagree, post it as a comment.
Tuesday 30 July 2013
Friday 26 July 2013
Hunter Hall sells down; Australian shareholder meetings
That didn't take long: Hunter Hall have sold down a substantial part of their Biota holding.
They are down to 2 million shares or just on 7% of the company.
My very rough reckoning says that they took substantial loss on those shares.
However, it's still difficult to know what it means. In the face of a (announced) significant redemption on their funds they have been sellers of several stocks. Nevertheless, it was a big sell down.
Other issues:
What does it mean for their board representation: 7% is now hardly a key holding.
Who bought their stock? We won;t know unless it becomes a substantial holding although it looks like anything over 1% is reported in the US.
The CEO is coming to Australia. That's pleasing and he should be welcomed.
Many of us have been to these local presentations in the past. They shared very little and hardly engaged shareholders. And if we looked at the content we'd discover just how little of those presentations have subsequently resulted in anything positive for the company.
Still, nothing worse than a near empty seminar room. You can understand the message that sends to the executive team.
If you can't make it, let me know your question and I'll raise it.
And if you have time, we may get together afterwards to acquaint ourselves over a coffee nearby.
They are down to 2 million shares or just on 7% of the company.
My very rough reckoning says that they took substantial loss on those shares.
However, it's still difficult to know what it means. In the face of a (announced) significant redemption on their funds they have been sellers of several stocks. Nevertheless, it was a big sell down.
Other issues:
What does it mean for their board representation: 7% is now hardly a key holding.
Who bought their stock? We won;t know unless it becomes a substantial holding although it looks like anything over 1% is reported in the US.
The CEO is coming to Australia. That's pleasing and he should be welcomed.
Many of us have been to these local presentations in the past. They shared very little and hardly engaged shareholders. And if we looked at the content we'd discover just how little of those presentations have subsequently resulted in anything positive for the company.
Still, nothing worse than a near empty seminar room. You can understand the message that sends to the executive team.
If you can't make it, let me know your question and I'll raise it.
And if you have time, we may get together afterwards to acquaint ourselves over a coffee nearby.
Saturday 20 July 2013
Ownership matters; and Short Game vs Long Game
There was a significant cross of 1 million shares this week, and a slight momentum in the share price followed. My bonehead analysis is that market insiders knew who the buyer was and were pleased. If not, the fact a current holder was selling a million would have caused the price to drift south. There have been 2 significant share crosses in the last weeks.
But I see no new notices regarding ownership. So, while I'm waiting, I thought I'd quickly summarise the current ownership profile to the best of my knowledge.
Hunter Hall owns 3,267,905 (11.6%)
Landon Clay and East Hill own about the same (11.3%)
For some reason neither appear in the institutional ownership summary in nasdaq
Nasdaq reports the remaining institutional holdings owning 10% between them: these include Dimensional, 683 Capital, Gabelli, Rennaisance, and Towerview in the top 5. Aside from Dimensional who have sold a few, the rest have been steady holders.
That puts significant institutional holdings at about 34%.
Problem is that almost all of those institutions hold shares as a result of their holding in the pre-merger entities: HH and East Hill in Biota, the rest in Nabi. And, if we're being accurate, East Hill came on the register via Biota's purchase of their gyrase program, although they did buy more Biota afterwards.
I guess the other issue is that these funds haven't been in the market at sub-3.50 either.
Let's wait and see who's either joined us, or left us, in the last few weeks.
LONG GAME VS SHORT GAME
Hunter Hall and East Hill have played the long game and lost. They continue to play the long game. Like most of the rest of us. But as Galbraith said "In the long run, we're all dead". Even if BOTA comes good, as we hope it does, the sunk opportunity costs have been tremendous.
If the short game is buying programs, it will be more of the same: Biota keeps buying assets that lose cash, generate no value, while the long game on influenza gets further away. Starting their Phase 2 last winter, rather than this winter, would have made a tremendous difference to the LANI program.
What Biota haven't been able to do is play the short game: sell programs or sell deals to develop their programs. That's the short game that gets investors excited and gets share prices moving. They bought the gram positive program and it's dead. They couldn't or wouldn't sell their Hep C program when it might have been worth something in the midst of the Hep C gold rush 2 or 3 years ago. They let go of influenza rapid diagnostics long ago, when that would have now been an excellent cash earning adjunct to their long game.
They have the following assets to sell while playing the long game:
Gyrase/gram negative
Rhinovirus
RSV
They should sell these programs or deal these programs, while we sit in LANI's waiting room.
And the other great short game strategy: do the Rest of World deal on LANI. Announce it. Then we can wait with some certainty about the outcome, and the analysts can do their sums on incomes.
But I see no new notices regarding ownership. So, while I'm waiting, I thought I'd quickly summarise the current ownership profile to the best of my knowledge.
Hunter Hall owns 3,267,905 (11.6%)
Landon Clay and East Hill own about the same (11.3%)
For some reason neither appear in the institutional ownership summary in nasdaq
Nasdaq reports the remaining institutional holdings owning 10% between them: these include Dimensional, 683 Capital, Gabelli, Rennaisance, and Towerview in the top 5. Aside from Dimensional who have sold a few, the rest have been steady holders.
That puts significant institutional holdings at about 34%.
Problem is that almost all of those institutions hold shares as a result of their holding in the pre-merger entities: HH and East Hill in Biota, the rest in Nabi. And, if we're being accurate, East Hill came on the register via Biota's purchase of their gyrase program, although they did buy more Biota afterwards.
I guess the other issue is that these funds haven't been in the market at sub-3.50 either.
Let's wait and see who's either joined us, or left us, in the last few weeks.
LONG GAME VS SHORT GAME
Hunter Hall and East Hill have played the long game and lost. They continue to play the long game. Like most of the rest of us. But as Galbraith said "In the long run, we're all dead". Even if BOTA comes good, as we hope it does, the sunk opportunity costs have been tremendous.
If the short game is buying programs, it will be more of the same: Biota keeps buying assets that lose cash, generate no value, while the long game on influenza gets further away. Starting their Phase 2 last winter, rather than this winter, would have made a tremendous difference to the LANI program.
What Biota haven't been able to do is play the short game: sell programs or sell deals to develop their programs. That's the short game that gets investors excited and gets share prices moving. They bought the gram positive program and it's dead. They couldn't or wouldn't sell their Hep C program when it might have been worth something in the midst of the Hep C gold rush 2 or 3 years ago. They let go of influenza rapid diagnostics long ago, when that would have now been an excellent cash earning adjunct to their long game.
They have the following assets to sell while playing the long game:
Gyrase/gram negative
Rhinovirus
RSV
They should sell these programs or deal these programs, while we sit in LANI's waiting room.
And the other great short game strategy: do the Rest of World deal on LANI. Announce it. Then we can wait with some certainty about the outcome, and the analysts can do their sums on incomes.
Saturday 13 July 2013
The Voice
We all got to hear the first words from the CEO of Biota during the presentation to JMP Securities' health conference early Thursday morning. It was a relief to finally hear the crackle of etalk about our company. Go to the company site and listen. I had trouble opening it, but clicking on the adobe flash option at the bottom finally worked for me.
A few thoughts.
He sounded a bit nervous, which I wasn't expecting.
To "old" shareholders there was very little new in the presentation. In fact, very little has changed in 2 years. That's not encouraging, but is to be expected when the executives have 70 million in the bank. Where's the rush, huh?
He did talk about the seasonal influenza market, something Mr Cook (the previous CEO) rarely did. Cook felt that a stockpile order every 10 years would be somehow enough.
He mentioned reducing cash burn to 5 million per annum, with a later goal of royalties matching expenditures. That was great news, but since royalties are lumpy, it's tough to call. The 7% margin on the BARDA contract is constant however: theoretically that's 16 million over 5 years. Nevertheless it's the first time cost control has been a focus for the executives, who liked to spend. Which is why we're in Nasdaq. Which if they didn't spend so much on the ASX, ah, chasing my tail gives me a view of my backside.
While we're on BARDA there was lots of interest in BARDA procurement and in BARDA fast tracking approval. Ultimately it's the FDA who calls those shots, and even in the case of an emergency, FDA would still be the arbiter in my view. These issues aren't worthy of including in any analysis.
Sadly, the earliest Phase 3 trials can start is the northern winter of 2015. We will hear about the Phase 2 in about a year's time. Time flies when you're on a patent clock and the disease comes around but once a year. I don't actually understand why, if Australia, Sth Africa and Sth America are all legitimate places to conduct clinical trials for the FDA, that the extensive Japanese clinical program is excluded?
Mr. Plumb spoke about looking to buy in other clinical assets, presumably ones that are in, or close to, market. But good assets are expensive, BOTA has only 60 million to spend, and the share price is too terrible to contemplate a raising.
Vapendavir is stalled while they look at other target risk markets. Which ones? Post transplant? Different diseases other than asthma?
He's right about oral versions of relenza: developers will need a complete and new clinical trials program because approvals are for the inhaled product. It will cost hundreds of millions to get approval for a molecule that is essentially generic. And you would be nuts to make a diskhaler with relenza in it. Glaxo were.
One last little point: early in the presentation he introduced the company as having a licence to develop LANI in non-Japan markets.
Um, I'm not sure that's strictly correct. BOTA are the co-owners of laninimavir with Daiichi Sankyo. There is no licence for non-Japan yet, as I understand it. And that leads me to the questions that weren't asked...
And there were plenty. This was a greenfield audience. The questions were fairly weak, and seemed to come mostly from the same one or two people. I got pretty irritated that it took so long to point out that Phase 3 was already paid for by BARDA. They nearly didn't!
Nothing about the BOTA royalty split with DS in non-Japan.
Nothing about doing research in Australia and business in the US.
And not much for current shareholders. The US move has resulted in no other business development (obvious to the outside) for 2 years.
June 30 accounts should be out soon. There seemed nothing on the horizon that would create any value.
The analysts know that it's a 100 million dollar company with 70 million in the bank losing 5 million a year.
What did you think?
A few thoughts.
He sounded a bit nervous, which I wasn't expecting.
To "old" shareholders there was very little new in the presentation. In fact, very little has changed in 2 years. That's not encouraging, but is to be expected when the executives have 70 million in the bank. Where's the rush, huh?
He did talk about the seasonal influenza market, something Mr Cook (the previous CEO) rarely did. Cook felt that a stockpile order every 10 years would be somehow enough.
He mentioned reducing cash burn to 5 million per annum, with a later goal of royalties matching expenditures. That was great news, but since royalties are lumpy, it's tough to call. The 7% margin on the BARDA contract is constant however: theoretically that's 16 million over 5 years. Nevertheless it's the first time cost control has been a focus for the executives, who liked to spend. Which is why we're in Nasdaq. Which if they didn't spend so much on the ASX, ah, chasing my tail gives me a view of my backside.
While we're on BARDA there was lots of interest in BARDA procurement and in BARDA fast tracking approval. Ultimately it's the FDA who calls those shots, and even in the case of an emergency, FDA would still be the arbiter in my view. These issues aren't worthy of including in any analysis.
Sadly, the earliest Phase 3 trials can start is the northern winter of 2015. We will hear about the Phase 2 in about a year's time. Time flies when you're on a patent clock and the disease comes around but once a year. I don't actually understand why, if Australia, Sth Africa and Sth America are all legitimate places to conduct clinical trials for the FDA, that the extensive Japanese clinical program is excluded?
Mr. Plumb spoke about looking to buy in other clinical assets, presumably ones that are in, or close to, market. But good assets are expensive, BOTA has only 60 million to spend, and the share price is too terrible to contemplate a raising.
Vapendavir is stalled while they look at other target risk markets. Which ones? Post transplant? Different diseases other than asthma?
He's right about oral versions of relenza: developers will need a complete and new clinical trials program because approvals are for the inhaled product. It will cost hundreds of millions to get approval for a molecule that is essentially generic. And you would be nuts to make a diskhaler with relenza in it. Glaxo were.
One last little point: early in the presentation he introduced the company as having a licence to develop LANI in non-Japan markets.
Um, I'm not sure that's strictly correct. BOTA are the co-owners of laninimavir with Daiichi Sankyo. There is no licence for non-Japan yet, as I understand it. And that leads me to the questions that weren't asked...
And there were plenty. This was a greenfield audience. The questions were fairly weak, and seemed to come mostly from the same one or two people. I got pretty irritated that it took so long to point out that Phase 3 was already paid for by BARDA. They nearly didn't!
Nothing about the BOTA royalty split with DS in non-Japan.
Nothing about doing research in Australia and business in the US.
And not much for current shareholders. The US move has resulted in no other business development (obvious to the outside) for 2 years.
June 30 accounts should be out soon. There seemed nothing on the horizon that would create any value.
The analysts know that it's a 100 million dollar company with 70 million in the bank losing 5 million a year.
What did you think?
Wednesday 3 July 2013
Who's selling
An inordinate (well, about 200,000) number of shares crossed on June 28 at 3.40ish. Interesting activity over the last week to take the price down to $3 before this deal was crossed.
I've been waiting for a change in substantial holder statement to come out.
Nothing yet, but it will be interesting to see.
As you all know we shall get to see the CEO present the company to institutional investors and analysts on July 10.
We should all keep a little eye on Viropharma: watch for their announcements, any shift in strategy. I note they are presenting at the same meeting as BOTA but then they present at many such meetings. See what they have to say. BOTA has a lot of cash, just sitting there, no debt and a nice grant for 3 more years. VPHM are down to 90 million free cash (ex repayment of notes), have stopped their share buyback, and might be looking for an acquisition. Antiflu is not really the kind of disease they now concentrate on, but they have looked at anti-rhinovirus with pleconaril in the past. And they are now on the Board.
I've been waiting for a change in substantial holder statement to come out.
Nothing yet, but it will be interesting to see.
As you all know we shall get to see the CEO present the company to institutional investors and analysts on July 10.
We should all keep a little eye on Viropharma: watch for their announcements, any shift in strategy. I note they are presenting at the same meeting as BOTA but then they present at many such meetings. See what they have to say. BOTA has a lot of cash, just sitting there, no debt and a nice grant for 3 more years. VPHM are down to 90 million free cash (ex repayment of notes), have stopped their share buyback, and might be looking for an acquisition. Antiflu is not really the kind of disease they now concentrate on, but they have looked at anti-rhinovirus with pleconaril in the past. And they are now on the Board.
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