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