Biotech Values

[DewDiligence]

>...after their steep ascent, [do] you still see MNTA and IDIX as your primary upside vehicles? Any other companies you are especially enthusiastic about?<

MNTA, IDIX, and GTCB (in that order) are my three largest biotech holdings and will likely remain so for the time being.

The MNTA position was acquired in Nov 2007 at an average cost of $5.64, and I haven’t bought or sold any shares since. Despite the fact that the share price has tripled in less than a year, I consider MNTA a potential five-bagger from the current price if the FDA approves the Lovenox ANDA from MNTA/Sandoz and does not approve the Lovenox ANDA from any other company.

Moreover, MNTA has buyout vig. NVS is the most logical suitor (and MNTA’s largest shareholder with a 13% stake), but various other companies could be motivated to put in a bid. I’ll be surprised if MNTA is still an independent company two years from now.

The IDIX position is the result of many distinct purchases dating back to 2006, with purchase prices ranging from the teens to the twos. On account of the huge run-up (IDIX has been the best performing biotech stock in the entire market during 2008), I recently sold about one third of my position and now have a trade-adjusted cost basis of just under $6.

At the current price, IDIX is close to its fair value based on the fundamentals alone, IMO; however, I consider the buyout vig a sufficient incentive to continue holding a sizable position. NVS owns 56% of IDIX’s shares (at an average cost in the mid teens), and the standstill agreement between the companies expired in May 2008.

GTCB was once my largest biotech holding but it has slipped to third-largest, even as I added to the position during 2008, because the share price has fallen sharply while MNTA and IDIX have soared. I most recently bought on 8/8/08, which brought my average cost down to $0.84.

Inasmuch as GTCB lacks the cash needed to operate beyond late November or early December, something has to happen fairly soon. The possibilities are: i) an FoB partnership with a sizable up-front payment; ii) a financing deal; or iii) a buyout/merger. Although I don’t have much respect for the acumen of the company’s management, I plan to sit tight with my holding until the next card is played.

With one dog and two big winners comprising my three largest holdings, 2008 is shaping up to be a good year for my biotech portfolio. If GTCB can catch a break, 2008 could end up being my best year ever.

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p.s. The ReadMeFirst primers for MNTA, IDIX, and GTCB can be accessed from the iBox at the top of the main screen for the Biotech Values board.