Keryx Biopharmaceuticals Inc fka KERX

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XTL: From boom to gloom. Why? No reason

31.7.06 | 12:18 By Efrat Neuman

The share price chart for XTL Biopharmaceuticals (LSE, TASE: XTL, Nasdaq: XTLOF.PK) looks like a ski slope. Since March the triple-listed drug development company has lost 65% of its value.

In the last week the slide gained momentum: XTL lost another 15% on the Tel Aviv Stock Exchange, London and Nasdaq, lowering its market cap from a peak of $200 million to $50 million.

Investors feel they're not in the loop. Unless you understand biotechnology you can't understand the company's announcements. Also, the departure of chief financial officer Jonathan Burgin (to Radcom) in July did nothing to bolster confidence.

Capital market sources say that investors feel a lack of information has created a crisis of confidence. Israelis are the biggest group of investors, more than 50%, though XTL is run from the U.S.

It is not that XTL doesn't release announcements: it does. The problem is more that investors don't understand what it says, and don't understand the ramifications, and feel that nobody's around to explain matters.

So to explain matters, the company insists that nothing untoward has happened: "It's a psychological thing," declares CEO Ron Bentsur. "There is a negative sentiment that feeds on itself. There is no logic here: the share price is ridiculous. Valuing the technology minus the cash at $20-25 million is ludicrous seen against the company's skills."

The American market frowns on small biotechnology companies, he adds, and whatever the reasons, last week the share sank on high volumes of trade.

Bentsur admits that maybe the company could do a better job of explaining what it does to Israel's investors, and says he will visit Israel soon for that purpose. "But nothing bad has happened," he insists: "On the contrary. The company is advancing every day." The only thing that has to stop is the southward plunge of its share price.

High expectations and speculation

The negative momentum in XTL was birthed by the high expectations surrounding it in the past, and the spike in its share price. At the end of 2004, a group of investors headed by Alex Rabinovitz (a managing partner at DS-Apex) seized control of the company and booted out the management, installing fresh faces. The media feasted on the story and a following shareholders meeting was acrimonious.

As the drama unfolded, the company announced an efficiency drive and the share price began to climb. The Rabinovitz group brought in industry veteran Michael S. Weiss - the chief executive of Keryx Biopharmaceuticals - as chairman. It seems that his main mission was to pitch the share: Weiss is a known biotechnology figure in American circles, and he has the right connections. The working assumption was that he'd bring in American investors who would lift the share price skyward, as happened with Keryx.

And indeed, XTL shares began to attract attention. From 20 pence per share (in London) in November 2004, XTL doubled to 40p by May 2005. In July 2005 it dual-listed in Tel Aviv, and became quite the flavor of the month among speculators. By August it had reached 50p per share.

A year ago, Weiss visited Israel on the occasion of XTL's dual-listed and he had a lot of bombastic statements to release. At the time, the company's market cap was about $120 million.

The key is goal-oriented efficient management, Weiss said, and predicted a market value of $350 million within a year or year and a half. Once it starts selling its drug for hepatitis C, little XTL could be worth more than a billion dollars, he predicted.

In September the company's value touched $190 million and Weiss predicted that it would increase as investors came to know the company.

Somehow that didn't happen.

XTL counted on the American market and in August 2005 it listed for trade on Wall Street. As September started, its share price rose to 60 pence. That was its peak, and the point from which its fortunes started to deteriorate.

The Wall Street magic didn't work

Keryx's market cap skyrocketed 600% in two years. At the end of May 2006, XTL did manage to raise $30 million from American institutional investors, but its share price failed to take off. From its September 2005 peak, its share price has lost 76% of its value. From its May offering, it's down 50%.

Biotechnology is not like software: progress is hard to pin down and explain. XTL is no startup: it's an industry veteran with 13 years under its belt. Yet its revenues are minimal and profitability is a dream. For 2005, the company, which works out of Rehovot with 40 workers, admitted to losing $14 million, after losing $16.5 million in 2004. The company has drugs under development but watchdog approval for its flagship medication for hepatitis C is not on the horizon yet.

Not a dream

Recently the company released another announcement that added to the confusion investors feel. XTL had licensed HepexB, a drug candidate for the prevention of re-infection with Hepatitis B following liver transplantation, to one Cubist Pharmaceuticals in June 2004.

In December 2005, Cubist announced the positive results of a Phase 2B study with HepeX-B, based on which Cubist planned to meet with the FDA to discuss a proposed Phase 3 trial design.

But XTL recently said that Cubist had decided to halt development of HepexB.

Bentsur explains that the United States Food and Drug Administration had demanded a large sample of patients for the Phase 3 trials. But the demand rendered the trial economically unfeasible, he says, hence Cubist's decision to cease development.

"We shall look into the matter and see whether there are loopholes," he says. "The deal with Cubist was signed more than two years ago and so far they have spent $17 million on development."

On the bright side, he jokes, better Cubist spending $17 million "than us".

Weiss doesn't appreciate comparisons between XTL and another Israeli drug development company, the ill-fated Pharmos, which saw 70% of its value evaporate overnight in December 2004 after dexanabinol, its flagship drug to treat traumatic brain injury, flopped its clinical trials. XTL sells experimental data, not dreams, Weiss sniffs.

To be fair, while Pharmos stock collapsed overnight, in the case of XTL it took four months.

Bentsur says he will explain to Israel's investors exactly what is happening with the company, what its schedule is, and what value it creates. "They will understand that despite the negative trend, the company has a father and mother and the potential to become great," he says. If anything he feels that the dip has created a fantastic opportunity to get into XTL stock, and counsels anybody considering an exit, to think twice.

The Murray Brean investment bank also feels the share price doesn't reflect the company's potential. In a review last Thursday, it wrote that the plunge in share price is entirely unjustified. It believes that investors were over-reacting to political and economic events in the Middle East and created a great opportunity to get into the stock. Its 12-month price target for the stock is 70 cents, and that's a howling 130% over XTL's opening price yesterday.

Oh, and by the way: This is what XTL says about what is does.

"XTLbio is engaged in the acquisition, development and commercialization of therapeutics for the treatment of infectious diseases, with a focus on hepatitis C. XTLbio is developing XTL-2125 - a small molecule, non-nucleoside inhibitor of the hepatitis C virus polymerase - presently in Phase 1 clinical trials in patients with chronic hepatitis C. XTLbio is also developing XTL-6865 - a combination of two monoclonal antibodies against the hepatitis C virus - presently in Phase 1 clinical trials in patients with chronic hepatitis C. XTLbio's hepatitis C pipeline also includes several families of pre-clinical hepatitis C small molecules. XTLbio is publicly traded on the Nasdaq, London, and Tel-Aviv Stock Exchanges." Get it?

http://www.haaretz.com/hasen/spages/744732.html

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