Replies to post #140658 on Biotech Values

[GrthzGd]

The following NABI/BGA.AX story from the Aussies' perspective shows how NABI was able to do some arbitrage of its own:

(Reuters) - Australian flu drug maker Biota Holdings has agreed to take over U.S. firm Nabi Biopharmaceuticals to create a $258 million group and move to the United States, where investors value biotech research more highly than in Australia....

Under the reverse takeover, Nabi will buy all of the shares in Biota for new shares in the name of Biota Pharmaceuticals, which will be listed on the NASDAQ, with existing Biota shareholders owning 74 percent of the merged company and Nabi investors owning 26 percent.

"We believe this is a necessary step to increase our options for the development and commercialisation of our product portfolio and will ultimately improve the recognition of the underlying value of our product portfolio for our shareholders," Biota Chairman Jim Fox said in a statement.

Biota's shares last traded at 96 cents, a fraction of their peak above A$9 hit in 1999 when it won U.S. approval for its first drug, Relenza, an inhaled drug to treat flu. Relenza failed to live up to its promise as it ran into competition from Roche's Tamiflu drug.

Nabi last traded at $1.85 a share. The stock was trading above $5 a share last July before its anti-smoking vaccine trial failed.

Biota receives royalties on Relenza, another flu drug Inavir, and is developing a new generation of flu drug laninamivir, with a pipeline of other research and more than $100 million in cash.

I.e. the NABI management traded a dead-in-the-water biotech with no pipeline for a nice chunk of a foreign company seeking access to US markets and capital.

[wallstarb]

NABI value based on BTA:ASX should be about $2.16 currently

BTA market cap of AUD 160m which implies the combined company worth $222m USD ($160m AUD/0.74)/0.97 (USDAUD exchange) = $223m USD.

This implies the AFTER NABI cash dividend stake is worth 26% of $223m or $58m ($1.38 a share). Based on my spreadsheet NABI currently has NET CASH of $90m - so given the current burn I am estimating $33 - 34m cash will be returned to NABI shareholders before the merger or $0.78 a share (based on 42.9m shares)

Currently at $1.60 a share you are buying a 26% interest in the new company valued at $1.38 for $0.82 which is about a 40% discount. It valued the NEW Biota/NABI @ $140m that will have $100m cash and no debt/liabilities to speak of. That values all of their IP (3 revenue generating compounds and 2 late stage (phase 3) drugs @ $40m.

This seems as good a risk reward as I have seen since TSPT in March of 2009 when it did the reverse merger and was under $3 and had over $6 a share in cash and a PDUFA in 6 months.

While this math is a little "convoluded" I think that NABI now is a cheap way to buy into a succesful antiviral/flu pipeline with a large contract ($230m) to develop laninamivir in the US as a next gen flu vaccine.