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Post# of 19309
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DewDiligence

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DewDiligence

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Re: None

Monday, 10/02/2006 5:43:33 PM

Monday, October 02, 2006 5:43:33 PM

Post# of 19309
Overall, I’m neutral on the LFB deal.

Good news:

GTC will now have $57M in cash come January, plus or minus a couple of million This figure comes from summing GTC’s prior guidance for cash at year-end (paragraph 3 of #msg-12428542), LFB’s $25M equity purchase, and LFB’s $2.6M term loan. (The $57M figure excludes any cash that GTC might realize from the exercise of warrants issued in prior financings.)

Thus, if one defines cash rich as having more than $50M in cash on the balance sheet, GTC will be cash-rich for the first time in a very long time (perhaps ever). This will remove one of the biggest psychological hurdles for investors and it may allow the share price to finally move northward.

Bad news:

For giving up 20% of the company on a post-transaction basis, GTC is not getting as much as I would have expected. A transgenically produced rhFVIIa should be able to under-price NVO’s NovoSeven and it may well become a decent-selling product in due course, but we’re talking about a potential product launch circa 2013 (my estimate), and seven years is an eternity in this business.

Moreover, I do not especially like the kind of loose, open-ended collaboration that GTC and LFB inked, which allows each partner to decide on the fly the degree to which it will fund the program. GTC has had a less than stellar experience in this kind of collaboration with Fresenius on the albumin program, and I would have expected GTC to opt for a tighter, more focused deal with less potential for a future disagreement.

--
That’s my knee-jerk reaction to today’s announcement. I’ve been out of the office all day and am just catching up; will post more about the deal this evening after suitable reflection.

“The efficient-market hypothesis may be
the foremost piece of B.S. ever promulgated
in any area of human knowledge!”

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