Biotech Values

[DewDiligence]

IDIX is granting NVS a third seat on IDIX’s BoD, which will be increased from 9 to 10 directors. In return for this, NVS has waived its right to participate on a pro rata basis in future IDIX financing transactions and has waived its right to have NVS’ shares of IDIX registered for resale. These agreements became effective yesterday and are reported in an SEC 13D/A filing today:

http://sec.gov/Archives/edgar/data/1093649/000110465909033984/a09-13882_1sc13da.htm

What does all this mean? Several things:

• NVS has retained 100% of its 31,309.498 shares of IDIX common stock. Due to the 2.5M shares IDIX issued to GSK as part of the IDX899 partnership (#msg-37350098), NVS’ equity stake in IDIX declined from 55.6% to 53.0%.

• NVS does not intend to sell any of its IDIX shares on the open market, even though NVS had the contractual right under the prior agreement between NVS and IDIX to have its shares registered for resale. Under the new agreement, NVS has waived its registration rights, and hence NVS’ shares of IDIX could be sold only as part of a major transaction such as a merger or buyout.

• Subject to market conditions, IDIX is likely to pursue a financing transaction. IDIX has not yet used any of the $100M shelf registration in Form S-3/A filed on 10/17/08 and could do so as soon as the SEC declared the shelf registration “effective.” (The SEC has not yet done this because IDIX asked the SEC to defer the effective date of the shelf until IDIX files another S-3/A to give the SEC the go-ahead.)

• By waiving its right to participate on a pro rata basis in any IDIX financing under the shelf registration, NVS is implicitly allowing its equity IDIX stake in IDIX to fall below 50% for the first time since 2003 (when the original partnership deal between the companies was inked).

• If NVS’ equity stake falls below 50% due to a new IDIX financing, IDIX will for the first time become a buyout candidate for a prospective suitor other than NVS.

All told, these changes have both bullish and bearish features for IDIX investors . Whether the net result is bullish or bearish is open to debate.