MYRX .063 - No brainer. Article:
- Huge bidders trying to out bid each other. I bet they acquire a pharma company soon IMO:
MYRX - Myrexis: Cheap Opportunity On Proven Management Team
Editors' Note: This article covers a stock trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.
Thesis: Since distributing most of its assets to shareholders, Myrexis (NASDAQ:MYRX) has been left for dead despite possessing one final valuable asset-a net operating loss carryfoward. The Company is currently valued at $5.4 million, just a fraction of its $147 million net operating loss (NOL) carry forward. The Company's CEO Jonathan Couchman was brought on to monetize this asset. Since joining, Couchman has brought on a former colleague, Michael Pearce, as a director. Both men have extensive experience monetizing such assets, which could potentially generate substantial returns for shareholders uncorrelated with the market.
Background on Myrexis: On 06/30/09, Myriad Genetics spun-off its cancer research and drug development business to shareholders. After spending two and a half years and millions without much success, in February of 2012, the Company decided to suspend all pre-clinical and clinical programs and pursue strategic alternatives. Subsequently on 11/09/12, MYRX announced its plans to liquidate. However, the day the special shareholder meeting was set to take place (on 01/23/13) to vote on the liquidation, the Company announced it decided to cancel the meeting and instead declare a special cash dividend to shareholders of $2.86 per share. On that same day, the Company named Jonathan Couchman as Director, President, and CEO to pursue other strategic alternatives-namely to monetize its NOLs. After going ex-dividend on 02/19/13, the stock fell to $0.17.
Investors have abandoned the Company after it paid the dividend despite the fact that it still possesses an extremely valuable asset with a proven management team.
How to monetize NOLs: It should be noted that there are certain tax rules designed to circumvent "trafficking" of NOLs. Section 382 of the Internal Revenue Code states that if a "change in ownership" occurs the NOL would be subject to annual limitations, which would significantly reduce its value. A change in ownership occurs if one or more "5% shareholders" increase their ownership in the company by more than 50 percentage points over a three-year testing period. For instance, if a 10% shareholder increased his position in the Company to 60% (a 50 percentage point increase), the NOL would be subject to annual limitations.
Obviously with Section 382 in place, the obvious method to monetize a NOL is to acquire an asset with taxable income to offset the losses-this way, a change in ownership never occurs. The second method to monetize a NOL is to be acquired by another company. Of course, this would likely trigger a change in control, which set annual limitations on the use of the NOL. Despite the annual limitations, a company in MYRX's situation is still an attractive target for private companies looking to go public via a reverse merger. The two most obvious reasons to go public through a reverse merger are that it's faster and generally cheaper than a traditional IPO. Fortunately for MYRX shareholders, Couchman and Pearce have completed both types of transactions.
Given that the investment thesis is essentially predicated on Couchman and Pearce monetizing the NOL, it is important to get a good understanding of both people:
Couchman: Couchman graduated with a Bachelor's in Finance from Chico State and currently serves as Chairman, President, CEO, and CFO of Xstelos Holdings, Inc. (OTCPK:XTLS). Prior to that, Couchman served as Chairman, President, CEO, and CFO of Footstar, Inc. until January 2012, at which point Footstar shareholders were converted to XTLS shareholders. Couchman also previously served as director of Golf Trust of America and was involved with their liquidation and subsequent merger with Pernix Therapeutics (NYSEMKT:PTX). In addition to his various board duties, he also serves as manager of various funds/partnerships he founded including Couchman Capital LLC, Couchman Investments LP, and Couchman International Ltd.
Pearce: Pearce has served as Chairman of Pernix Therapeutics Holdings since March 2010. He also currently serves as a principal in Relevant Therapeutics LLC and is a majority shareholder in Hatteras Equity, an acquirer of distressed real estate assets in North Carolina. Acting as Chairman and CEO, Pearce led the repositioning of Golf Trust of America, Inc., which ultimately led to its acquisition (more in this later). From the mid 80s to the early 2000s, Pearce held various leadership in several technology and communications companies such as Hyundai Electronics America, Librex Computer Systems, Ventana Communications, and VocalTec Communications (NASDAQ:CALL). In addition, throughout his career, Pearce has served on the boards of various private and public companies such as Swiss Precision Corporation, Reliability, Inc., and Spatializer Audio Labs, Inc. Suffice it to say, Pearce's experience in various companies over the years affords him with an excellent network to extract value from MYRX.
As previously mentioned, both Couchman and Pearce have a proven track record for monetizing NOLs. I will now detail their prior experience in monetizing NOLs.
Golf Trust of America: As the name suggests, Golf Trust of America, Inc. (GTA) was a real estate investment trust (REIT) formed to acquire upscale golf courses throughout the U.S. On 02/28/01, after a review of strategic alternatives, GTA's Board unanimously decided to liquidate the Company. By mid 2007, GTA had sold most of its assets and was left with a very valuable $85 million NOL. In the fall of 2007, Michael Pearce was brought on the board and shortly followed by Couchman. The Company then began evaluating ways to monetize its NOL. On 10/06/09, the Company announced a plan to merge with Pernix Therapeutics , a specialty pharmaceutical company focused on pediatrics, in the form of a reverse merger. Michael Pearce was responsible for identifying and negotiating this transaction.
By the time Couchman joined GTA as director on 12/14/07, the stock traded at $2.14. Following GTA's last asset sale on 09/26/08, the stock had fallen to $1.50. By the time the merger closed, the stock hit $1.99 and surged to $5.00 the day after it closed. The overall return from the moment Pearce joined the Company (on 09/13/07) to the day after the Company closed the merger (on 03/10/10) was 150.0%. Obviously in this case, Pearce was able to extract significant value from GTA's NOLs through a reverse merger.