Vaxgen Redux
by Michael Shulman
BiotechBlitz
Folks, this is right out of a made for TV movie, maybe. Maybe not.
Vaxgen (VXGN.PK) is one of those money sucking, never producing nothin’ biotechs that have broken more individual investors hearts and ticked off more institutional investors than most. It became famous, then infamous, as part of the bio-defense mini-bubble with potential vaccines for anthrax and smallpox. The key word here is potential. They never materialized.
It is something of a wreck right now except for one thing – it has north of $80 million in cash, a market cap of $18 million and convertible debt (if I got it right) of $30 million, giving the company a negative enterprise value of $32 million. The cash burn is supposedly down to $4-$4.5 million a quarter so the company has too many years of cash on hand.
Why is it so cheap?
Because it plans to buy/merge with Raven biotechnologies, a privately held outfit doing work in monoclonal antibodies that has a deal with Wyeth (WYE). It does not appear to be a great deal, I could be wrong, but Wyeth has not hyped it and has little to say about it – and, well, who needs another monoclonal antibody company, anyway? The shareholders have yet to vote approval. And this is where it gets interesting.
If I were a shareholder, I would vote no and return the dough to investors via a dividend or liquidation of the company. You think, maybe, some others have the same idea? The largest investor (15% +) I could find (using Yahoo data that is a few weeks old – remember this is a pink sheet company and may have unregistered shares floating around) is Gruber & McBaine, a San Francisco hedge fund.
I spent a tough hour with the Gruber part of this fund a few years ago talking about our ChangeWave Alliance and he is the Webster’s definition of, well, politely put, a no-nonsense guy.
Gruber & McBaine has been around a long time and made a lot of money, so it's hard to imagine a savvy investor like Mr. Gruber liking the Raven deal when so much cash might be available. C’mon, another monoclonal antibodies company?
I'm not the only one thinking this way – the stock popped yesterday, up from 42 cents to 55 cents.
Someone out there smells something brewing. If there is a shareholders revolt, the company – based on cash minus debt – is worth somewhere between a buck and a buck and a half per share if someone would force them to disgorge the cash.
The buzz is there -- I even got a call about Vaxgen from a killer of a hedge fund guy who specializes in little biotechs grossly undervalued because of unknown or rapdily changing financial conditions. This one hit his radar recently and it may have hit others.
So, have fun, do your own valuation analysis, don't forget to visualize what happens to VXGN's stock price if the shareholders approve the Raven deal. I am totally agnostic on this, I have no sense of the probability of the deal groing through – and I don’t buy, own or recommend this or any other pink sheet stock to anyone. Nada, never.
Not to mention I have done all of two hours homework on this one. But this kind of stuff, once in a while, is a lot more interesting than reading FDA panel minutes, right? Just thought you might find it interesting too.
BiotechBlitz is a regular contributor to BioHealth Investor
______________
BiotechBlitz
Folks, this is right out of a made for TV movie, maybe. Maybe not.
Vaxgen (VXGN.PK) is one of those money sucking, never producing nothin’ biotechs that have broken more individual investors hearts and ticked off more institutional investors than most. It became famous, then infamous, as part of the bio-defense mini-bubble with potential vaccines for anthrax and smallpox. The key word here is potential. They never materialized.
It is something of a wreck right now except for one thing – it has north of $80 million in cash, a market cap of $18 million and convertible debt (if I got it right) of $30 million, giving the company a negative enterprise value of $32 million. The cash burn is supposedly down to $4-$4.5 million a quarter so the company has too many years of cash on hand.
Why is it so cheap?
Because it plans to buy/merge with Raven biotechnologies, a privately held outfit doing work in monoclonal antibodies that has a deal with Wyeth (WYE). It does not appear to be a great deal, I could be wrong, but Wyeth has not hyped it and has little to say about it – and, well, who needs another monoclonal antibody company, anyway? The shareholders have yet to vote approval. And this is where it gets interesting.
If I were a shareholder, I would vote no and return the dough to investors via a dividend or liquidation of the company. You think, maybe, some others have the same idea? The largest investor (15% +) I could find (using Yahoo data that is a few weeks old – remember this is a pink sheet company and may have unregistered shares floating around) is Gruber & McBaine, a San Francisco hedge fund.
I spent a tough hour with the Gruber part of this fund a few years ago talking about our ChangeWave Alliance and he is the Webster’s definition of, well, politely put, a no-nonsense guy.
Gruber & McBaine has been around a long time and made a lot of money, so it's hard to imagine a savvy investor like Mr. Gruber liking the Raven deal when so much cash might be available. C’mon, another monoclonal antibodies company?
I'm not the only one thinking this way – the stock popped yesterday, up from 42 cents to 55 cents.
Someone out there smells something brewing. If there is a shareholders revolt, the company – based on cash minus debt – is worth somewhere between a buck and a buck and a half per share if someone would force them to disgorge the cash.
The buzz is there -- I even got a call about Vaxgen from a killer of a hedge fund guy who specializes in little biotechs grossly undervalued because of unknown or rapdily changing financial conditions. This one hit his radar recently and it may have hit others.
So, have fun, do your own valuation analysis, don't forget to visualize what happens to VXGN's stock price if the shareholders approve the Raven deal. I am totally agnostic on this, I have no sense of the probability of the deal groing through – and I don’t buy, own or recommend this or any other pink sheet stock to anyone. Nada, never.
Not to mention I have done all of two hours homework on this one. But this kind of stuff, once in a while, is a lot more interesting than reading FDA panel minutes, right? Just thought you might find it interesting too.
BiotechBlitz is a regular contributor to BioHealth Investor
______________
posted by Nico at
10:41 AM
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