Annual report

The annual report is out and makes for comprehensive reading. Nasdaq listing has that in its favour, even if some of the disclosures are a little formulaic. However, an analyst reading that annual report would have a fairly comprehensive background briefing.

A few features worth considering.

1. Biota will look to partner its HRV (vapendivir); gyrase antibiotic; and remanant Hep B compounds. Only gyrase has any potential, I think.

2. In my view, they will use a in-license purchase to achieve two goals: buy some income; and (of more relevance) raise capital to make that purchase thereby introducing more institutions onto the register and presumably more "liquidity" into the market. Whether they offer current small shareholders an opportunity to engage in that capital raise and at what price is unknown. Dilution will occur. Mr. Fox assured us that a capital raising wasn't required before the merger, but that assurance will probably go the way of other missteps in this process. The SP will probably drop again.

3. LANI patent on the chemical structure only runs to 2017. The combined entity (active drug and inhaler) has a patent till 2021. The possibility of patent extension is discussed at length and so it should, because the lack of haste in bringing this compound to market was suboptimal. That might extend the patent by another few years. Interestingly the patent on the inhaler (hovione) runs to 2029. The rest of the compounds aren't that relevant, because I doubt they will find a buyer for any of them apart from maybe Gyrase which has patent coverage to 2027.

4. The share price performance relative to Nasdaq biotech is absolutely terrible.

5. Everyone ripped cash out of NABI before the merger: its shareholders and certainly its executive officers. All paid for by Biota shareholders, at great cost.

6. There are 44 million dollars in tax credits in Australia and 23 million in UK. I am not an accountant, but that's 67 million in value gifted by Australian shareholders into the merger. It's not clear how that can be monetised. Biota should have found a way to pass that benefit to Australian shareholders before the merger. If those credits are lost, it represents further incompetence around the merger.

It's also interesting that Mr Plumb and Mr Patti didn't receive their whole bonus entitlements because they didn't achieve all their targets. In other words, they were actually set some stretch targets prospectively and judged against them. This is very unusual for we Australian shareholders, because our executives are much better  - they seem to achieve all their targets every year. Wow.

The agenda items will inevitably pass.
I was interested in the comments regarding the position of Chairman. The justification for separating the CEO and Chairman positions sounded a bit strained.

The institutions will update their holdings today, so we'll see what if any interest has occurred over the last 3 months.

In Japan, the government has passed legislation allowing the establishment of individual investment accounts where 10,000 dollar per annum per person can be invested in risk assets (i.e stocks mostly) which will be income and capital gains tax exempt for 5 years. The law will run for 5 years. Commentators suggest a surge in the otherwise dormant Japanese market. Again, I wonder if DS will find the capacity to raise capital easily and buy some businesses. Like BOTA.

Speak again soon

Yawn, and not just because it's late

the annual results announcement and associated webcast went off with a whimper.

Let's work backwards.

Only two analysts asked questions: Guggenheim and Bioscience Managers. I think Bioscience are newish to the Biota register. But only two analysts was a bit embarrassing.

And the questions were hardly incisive. One about the risk to the trial of a slow flu season, the other about currency hedging strategies.

The Q&A session at the Melbourne shareholder update a couple of months ago was far better. The critical issue of DS royalties wasn't addressed by the analysts and it remains the single most important corporate issue facing the executive. It was addressed at the Melbourne meeting.

As for the results, there has been some deck clearing. Lots of options and shares issued (to old and new management) resulted in significant increases in general administrative expenses, and hopefully these won;t be there next FY.

The cash balance at the end of the 2014 year will be less than originally projected: around 57-62 million. Severance has affected that figure, along with Aussie dollar changes.

Clinical programs

Vapendavir will now be partnered or co-developed. All the reasons Patti raised for not proceeding with VAP were entirely predictable prior to spending 20 million on the Phase 2b:

1. HRV only causes 30% of common cold events
2. There is no simple fast POC (point of care) test for HRV so you have to enrol lots more people than are eventually included in studies.
3. That means studies have to be very large. Also means that without such a test, doctors won't use the drug.
4. As a result of 1-3, registration path extremely difficult.

In the final analysis, the decision to pursue VAP Phase 2b trial was as bad ( but slightly less expensive) as the decision to not settle litigation with GSK.

If there is no partner, it will be quietly shelved forever.

RSV

They are pursing a couple of other fusion inhibitors. They will identify a couple of lead compounds and then start preclinical work including animal and in vitro toxicology. Very very early stuff. Probably designed to just keep a couple of their better scientists in the company for a bit longer, because there is no other science happening.

No mention of gyrase tonight.

So, 2 programs (not sure if that includes VAP) other than LANI Phase 3 trials. Phase 1 LANI in children and asthmatics. Major board changes. Cash burnt a bit faster than expected.

Not sure how much visibility has increased.

Good night

Viropharma probably not a buyer of BOTA anymore...

...because it's in play.

A possible trade sale to Sanofi or Shire has been raised in "confidential" talks. Obviously Goldman Sachs want as many potential bidders to know about the unsolicited approach.

The shares have risen 28% in response.

There seems to be a little excitement/cash in the biotech/pharma market at the moment. Or is that just my wishful thinking?

Meanwhile DS are having problems with its Indian generic company Ranbaxy, who keep running foul of FDA on its manufacturing standards.

Not like the nice clean factory BOTA has.

Peter Cook resigns from Biota Board

Peter Cook is no longer associated with Biota except as a major personal shareholder and option holder.

His resignation from the Board was announced today.

Having an immediate ex- CEO on the Board was unusual, unless he's the owner of the company.

Mr Cook also didn't have a biotech background (apart from Biota). It's possible this was a transitional Board appointment, but my guess is it wasn't designed that way.

The Board now retains Jim Fox and Richard Hill as the sole Australian shareholders. In fact, Mr Hill (who represents Hunter Hall) is American. In essence Jim Fox is the sole representative of unaligned Australian shareholders on the Board. However, the past Board was full of Australians and they cared very little for the benefit of small, non-executive shareholders.

The vestiges of its past are being lopped back hard. We'll see from the annual report how far the total Australian operation has been pruned back.

After the pruning, we'll look for regrowth.

Full year results next week

September 18, with a conference call.

Not much action on the share price, although volumes consistently a little higher.

It will be interesting to see if any analysts attend the conference call.