Inhibitex: Best Value In Biotech
Alleine der Cashbestand macht die Firma interessant - mal beobachten...
Kurs $1.20 per share - cash per share is in the neighborhood of $1.75 per share.
It's quite an oddity when the words "Value" and "Biotech" are ever used or seen in the same sentence. Why? Well...biotech is in the business of hopes and dreams and the last time we checked those items were of little tangible value. Investors as well as patients are looking for new blockbuster medications that can save lives and create riches. However, it takes a mountain of money to take a drug from preclinical studies into Phase III clinical trials and if things work out...ultimately into the market place.
Globally the pharmaceutical sector spends an estimated $53 billion a year on research and development. Despite this massive amount of capital an average of less than 26 drugs per year have been brought to market in the last eight years.
According to the Tufts University Center for the Study of Drug Development, it can cost between $800 million to upwards of $1 billion to bring a drug to market and can take 10-15 years. The overall investment made in developing drugs that later fail testing, in some cases due to toxicity, is estimated to cost the industry in the order of $32 billion annually.
If $32 billion out of $53 billion results in failed drugs that means the chances of success are roughly 1 out of 3. That is pretty risky when the gamble is $800 million dollars. It is for this very reason the SmallCap MarketWatch has stayed away from biotech in most situations. In the very few circumstances where feel the inclination to be bullish, the underlying reason is almost always hard cold cash. The subject of today's edition, Inhibitex Inc. (INHX), is a company that had $59.5 million in cash at the end of Q1 2007 and a current market capitalization of $37.06 million. On March 8, 2007, the Company provided financial guidance for 2007, indicating its anticipated net cash burn for 2007 would be less than $11 million (press release). Assuming this is the case, Inhibitex should have almost $55 million in cash when the company reports earnings next week on August 9th. In case we forgot to mention, the stock closed yesterday at $1.20 per share while cash per share is in the neighborhood of $1.75 per share. We often hear people say that this company or that is "worthless" but here we actually have a case of being worth less than cash.
§
§ Background
Things at Inhibitex weren't always so dire. The company was actually founded in 1994 and went public in 2004 raising $35 million dollars at $7 per share. Based on the current 30.6 million shares outstanding the company was sporting a valuation of $214 million or over six times today's market value. The beginning of the end occurred in Q1 2006 when the company had disappointing news regarding their leading drug Veronate. This drug was being developed for the prevention of hospital associated infections in very low birth weight infants. As we mentioned earlier in this edition, biotech is a risky venture and Inhibitex's Veronate failed phase III clinical trials. Not surprisingly, this sent the stock into a tail spin from a high of $10.82 to a low of $1.42 down to yesterday's all time low of $1.20 per share.
This is where we have to give the management team at Inhibitex some serious credit. Instead of just sitting there shell shocked the company is actually trying to survive although things for shareholders have not prospered. In the past 52 weeks share of INHX are down 20% BUT it has been quite an improvement from 2006 as readers can see from the chart above.
Inhibitex has completely divested its interest in Veronate and has refocused resources on its MSCRAMM platform. The company has successfully restructured its operations reducing its burn rate from $9 million in Q1 ’06 to $11 million for all of 2007. It's never easy to make the hard decisions that enable a company to survive. In this instance, we think management has done a good job of trying to salvage what must have been a tremendous heart ache.
§
§ Regroup and Rebuild
Inhibitex is now focused in the novel antibody space. Novel antibodies are geared towards the prevention and treatment of serious bacterial and fungal infections. All of the company's current projects and licensing agreements are based on their proprietary technology MSCRAMM protein platform. One of the main functions of the immune system in the human body is to produce antibodies. Antibodies are proteins that attach themselves to infectious agents (pathogens) within the body. MSCRAMM is a protein that has been found successful to bind with different antibodies.
Going forward, the company has a couple strong drug candidates in its pipeline. First, Inhibitex's leading drug candidate is Aurexis, which has completed phase II clinical trials and has also been granted fast track designation by the FDA. Aurexis is an antibody that targets S. aureus or commonly known as staph infections. If the drug enters phase III or the company announces a pharma partnership there could be a tremendous upshot for the stock.
It wouldn't be a big surprise if a big name decides to get in bed with Inhibitex because it's happened before. There are a number of patient groups, including approximately 300,000 end stage renal disease patients in the United States, geriatric patients receiving chronic long term care, and patients undergoing certain elective surgeries, who are at risk of acquiring a staphylococcal infection. For these high risk groups, an active vaccine may be a less costly and preferred mode of therapy. Inhibitex entered into a license and collaboration agreement with Wyeth (WYE) to develop vaccines against staphylococcal organisms. The timing of today's edition is no coincidence because:
If Wyeth does not enter into Phase clinical trials for drug by July 31, 2007 they will have to start paying annual research fees of $1 million vs. $500k.
Considering that Wyeth has a market cap of $65 billion dollars we doubt anyone will lose sleep over half a million dollars. However, if a Phase I trial is initiated this should prove that the technology behind Inhibitex should be worth more than negative.
§
§ Product Pipeline
In January 2007, 3M (MMM) announced a licensing agreement with Inhibitex for the development of various diagnostic products. 3M plans to utilize MSCRAMM protein targets for use in their diagnostic products to detect Staphylococcus aureus (S. aureus) and other bacterial and fungal pathogens. Inhibitex will receive license fees, future milestone payments, financial support of further research and development activities and royalty payments on product sales that will exceed $4.0 million in cash considerations over the next five years.
Despite having the MSCRAMM technology as a back to Veronate, Inhibitex announced an acquisition in April of this year. The company plans to acquire FermaVirPharmaceuticals (FMVR). Under the terms of the agreement INHX will issue .55 shares for each of FMVR’s 20.8m shares outstanding. Assuming the deal goes through, an additional 11.44 million shares will be issued valuing the FermaVir acquisition at $13.728 million in stock. Deals happen all the time in the biotech world but we were scratching our heads and wondering why Inhibitex would buy FermaVir?
FermaVir lacks capital which is a good explanation of why they would want to have access to INHX's cash coffers. After spending some time on FermaVir's website the company looks like it has a distinguished management team and a respectable preclinical pipeline. Their strongest drug candidate is FV-100, which is a nucleoside analogue for the treatment of shingles. This drug is expected to enter Phase I in Q3 ’07.
According to a recent (press release) preclinical data suggests that FV-100 may have favorable dosing and safety profile as compared to other currently available antiviral therapeutics used to treat shingles. The medical team behind FermaVir has previously developed antiviral drugs including Tenofovir, one of the world's most widely used nucleosides for the treatment of HIV. The management team behind FermaVir may just give Inhibitex the shot in the arm the stock sorely needs.
§
§ Conclusion
Let's keep things real simple here...Inhibitex should have about $55 million in cash or $1.75 per share when the company reports its second quarter results next week. Based on Monday's close of $1.20 per share the stock would need to gain 45% to reach its cash level. People need to understand that biotech and their underlying stocks are tremendous gambles because the drug approval process is slow and expensive. When things don't turn out well, like the Veronate failure, investors run for the hills as it should. But when is a decline too much....when is pessimism overextended?
Many one hit wonder biotech companies never really make it back after their leading candidate falls off the wagon. In our experience, many of the senior management teams at these "failed" biotech companies are ill equipped to run the business when things are bleak. These people are used to success... whether it be raising money from venture capitalists...doing the IPO...or getting good clinical results. It takes a different type of person to steer a ship when things are just not going your way. We commend Inhibitex on a good job of cutting costs, protecting cash, and spending money wisely. With an annualized burn rate of $11 million, INHX has over 48 months of cash left. Maintaining the discipline to acquire FermaVir for only stock was very smart.
§
§ Post merger:
* INHX will have approximately 42.5 million shares outstanding and based on yesterday's close of $1.20 the market cap would be $51 million.
* $55 million in cash
* Leading drug candidate Aurexis (antibody that targets S. aureus or commonly known as staph infections), which has completed phase II clinical trials and has also been granted fast track designation by the FDA.
* Potential Pharmaceutical Partner For Aurexis
* Partnership with Wyeth (possibility of Phase I clinical trial)
* Partnership with 3M
* FermaVir's FV-100 (which should enter Phase I trials in Q3 2007
In closing, the SmallCap MarketWatch believes that for a company worth less than nothing, shares of Inhibitex represent the best value in all of biotech...
Originalgrafiken, Texte und Links unter: smallcapmarketwatch.com
Ministerium für außerplanetarische Angelegenheiten/
Außenkolonienkontaktdienst
Alleine der Cashbestand macht die Firma interessant - mal beobachten...
Kurs $1.20 per share - cash per share is in the neighborhood of $1.75 per share.
It's quite an oddity when the words "Value" and "Biotech" are ever used or seen in the same sentence. Why? Well...biotech is in the business of hopes and dreams and the last time we checked those items were of little tangible value. Investors as well as patients are looking for new blockbuster medications that can save lives and create riches. However, it takes a mountain of money to take a drug from preclinical studies into Phase III clinical trials and if things work out...ultimately into the market place.
Globally the pharmaceutical sector spends an estimated $53 billion a year on research and development. Despite this massive amount of capital an average of less than 26 drugs per year have been brought to market in the last eight years.
According to the Tufts University Center for the Study of Drug Development, it can cost between $800 million to upwards of $1 billion to bring a drug to market and can take 10-15 years. The overall investment made in developing drugs that later fail testing, in some cases due to toxicity, is estimated to cost the industry in the order of $32 billion annually.
If $32 billion out of $53 billion results in failed drugs that means the chances of success are roughly 1 out of 3. That is pretty risky when the gamble is $800 million dollars. It is for this very reason the SmallCap MarketWatch has stayed away from biotech in most situations. In the very few circumstances where feel the inclination to be bullish, the underlying reason is almost always hard cold cash. The subject of today's edition, Inhibitex Inc. (INHX), is a company that had $59.5 million in cash at the end of Q1 2007 and a current market capitalization of $37.06 million. On March 8, 2007, the Company provided financial guidance for 2007, indicating its anticipated net cash burn for 2007 would be less than $11 million (press release). Assuming this is the case, Inhibitex should have almost $55 million in cash when the company reports earnings next week on August 9th. In case we forgot to mention, the stock closed yesterday at $1.20 per share while cash per share is in the neighborhood of $1.75 per share. We often hear people say that this company or that is "worthless" but here we actually have a case of being worth less than cash.
§
§ Background
Things at Inhibitex weren't always so dire. The company was actually founded in 1994 and went public in 2004 raising $35 million dollars at $7 per share. Based on the current 30.6 million shares outstanding the company was sporting a valuation of $214 million or over six times today's market value. The beginning of the end occurred in Q1 2006 when the company had disappointing news regarding their leading drug Veronate. This drug was being developed for the prevention of hospital associated infections in very low birth weight infants. As we mentioned earlier in this edition, biotech is a risky venture and Inhibitex's Veronate failed phase III clinical trials. Not surprisingly, this sent the stock into a tail spin from a high of $10.82 to a low of $1.42 down to yesterday's all time low of $1.20 per share.
This is where we have to give the management team at Inhibitex some serious credit. Instead of just sitting there shell shocked the company is actually trying to survive although things for shareholders have not prospered. In the past 52 weeks share of INHX are down 20% BUT it has been quite an improvement from 2006 as readers can see from the chart above.
Inhibitex has completely divested its interest in Veronate and has refocused resources on its MSCRAMM platform. The company has successfully restructured its operations reducing its burn rate from $9 million in Q1 ’06 to $11 million for all of 2007. It's never easy to make the hard decisions that enable a company to survive. In this instance, we think management has done a good job of trying to salvage what must have been a tremendous heart ache.
§
§ Regroup and Rebuild
Inhibitex is now focused in the novel antibody space. Novel antibodies are geared towards the prevention and treatment of serious bacterial and fungal infections. All of the company's current projects and licensing agreements are based on their proprietary technology MSCRAMM protein platform. One of the main functions of the immune system in the human body is to produce antibodies. Antibodies are proteins that attach themselves to infectious agents (pathogens) within the body. MSCRAMM is a protein that has been found successful to bind with different antibodies.
Going forward, the company has a couple strong drug candidates in its pipeline. First, Inhibitex's leading drug candidate is Aurexis, which has completed phase II clinical trials and has also been granted fast track designation by the FDA. Aurexis is an antibody that targets S. aureus or commonly known as staph infections. If the drug enters phase III or the company announces a pharma partnership there could be a tremendous upshot for the stock.
It wouldn't be a big surprise if a big name decides to get in bed with Inhibitex because it's happened before. There are a number of patient groups, including approximately 300,000 end stage renal disease patients in the United States, geriatric patients receiving chronic long term care, and patients undergoing certain elective surgeries, who are at risk of acquiring a staphylococcal infection. For these high risk groups, an active vaccine may be a less costly and preferred mode of therapy. Inhibitex entered into a license and collaboration agreement with Wyeth (WYE) to develop vaccines against staphylococcal organisms. The timing of today's edition is no coincidence because:
If Wyeth does not enter into Phase clinical trials for drug by July 31, 2007 they will have to start paying annual research fees of $1 million vs. $500k.
Considering that Wyeth has a market cap of $65 billion dollars we doubt anyone will lose sleep over half a million dollars. However, if a Phase I trial is initiated this should prove that the technology behind Inhibitex should be worth more than negative.
§
§ Product Pipeline
In January 2007, 3M (MMM) announced a licensing agreement with Inhibitex for the development of various diagnostic products. 3M plans to utilize MSCRAMM protein targets for use in their diagnostic products to detect Staphylococcus aureus (S. aureus) and other bacterial and fungal pathogens. Inhibitex will receive license fees, future milestone payments, financial support of further research and development activities and royalty payments on product sales that will exceed $4.0 million in cash considerations over the next five years.
Despite having the MSCRAMM technology as a back to Veronate, Inhibitex announced an acquisition in April of this year. The company plans to acquire FermaVirPharmaceuticals (FMVR). Under the terms of the agreement INHX will issue .55 shares for each of FMVR’s 20.8m shares outstanding. Assuming the deal goes through, an additional 11.44 million shares will be issued valuing the FermaVir acquisition at $13.728 million in stock. Deals happen all the time in the biotech world but we were scratching our heads and wondering why Inhibitex would buy FermaVir?
FermaVir lacks capital which is a good explanation of why they would want to have access to INHX's cash coffers. After spending some time on FermaVir's website the company looks like it has a distinguished management team and a respectable preclinical pipeline. Their strongest drug candidate is FV-100, which is a nucleoside analogue for the treatment of shingles. This drug is expected to enter Phase I in Q3 ’07.
According to a recent (press release) preclinical data suggests that FV-100 may have favorable dosing and safety profile as compared to other currently available antiviral therapeutics used to treat shingles. The medical team behind FermaVir has previously developed antiviral drugs including Tenofovir, one of the world's most widely used nucleosides for the treatment of HIV. The management team behind FermaVir may just give Inhibitex the shot in the arm the stock sorely needs.
§
§ Conclusion
Let's keep things real simple here...Inhibitex should have about $55 million in cash or $1.75 per share when the company reports its second quarter results next week. Based on Monday's close of $1.20 per share the stock would need to gain 45% to reach its cash level. People need to understand that biotech and their underlying stocks are tremendous gambles because the drug approval process is slow and expensive. When things don't turn out well, like the Veronate failure, investors run for the hills as it should. But when is a decline too much....when is pessimism overextended?
Many one hit wonder biotech companies never really make it back after their leading candidate falls off the wagon. In our experience, many of the senior management teams at these "failed" biotech companies are ill equipped to run the business when things are bleak. These people are used to success... whether it be raising money from venture capitalists...doing the IPO...or getting good clinical results. It takes a different type of person to steer a ship when things are just not going your way. We commend Inhibitex on a good job of cutting costs, protecting cash, and spending money wisely. With an annualized burn rate of $11 million, INHX has over 48 months of cash left. Maintaining the discipline to acquire FermaVir for only stock was very smart.
§
§ Post merger:
* INHX will have approximately 42.5 million shares outstanding and based on yesterday's close of $1.20 the market cap would be $51 million.
* $55 million in cash
* Leading drug candidate Aurexis (antibody that targets S. aureus or commonly known as staph infections), which has completed phase II clinical trials and has also been granted fast track designation by the FDA.
* Potential Pharmaceutical Partner For Aurexis
* Partnership with Wyeth (possibility of Phase I clinical trial)
* Partnership with 3M
* FermaVir's FV-100 (which should enter Phase I trials in Q3 2007
In closing, the SmallCap MarketWatch believes that for a company worth less than nothing, shares of Inhibitex represent the best value in all of biotech...
Originalgrafiken, Texte und Links unter: smallcapmarketwatch.com
Ministerium für außerplanetarische Angelegenheiten/
Außenkolonienkontaktdienst
