Is MYRX a biotech value play?


Myriad Pharmaceuticals (NASDAQ: MYRX), is a spin-off from Myriad Genetics (NASDAQ: MYGN) which was effected in June 2009. MYRX is focused on developing an R&D stage pipeline (with cash burn). MYGN is focused on a service business providing genetic testing (profitable). MYRX is valued at less than cash, where the clinical stage pipeline is essentially better than free. Is this a biotech value play?

MYRX plus points:

  •  Enterprise Value (EV) negative: -$40million as of June 3 2010 (based on last qtr). So, negative value ascribed to pipeline, business valued at less than cash. Based on subtracting cash, equivalents and marketable investment .
  •  Clinical stage pipeline, cancer focus, with one compound in Phase 2 and one in Phase 1:
    • Azixa: for Cancer. Novel, small molecule, dual mode of action: microtubule destabilising agent and vascular disrupting agent. Currently in two Phase 2 trials for glioblastoma (orphan drug status), and a Phase 2 trial for metastatic melanoma.
    • MPC-3100: for Cancer. Hsp90 inhibitor, in Phase 1 for solid tumours, lymphomas, leukemia’s. Orally bioavailable, no dose limiting toxicity reported to date.
  • Cash runway until 2013. At June 2009 spin-off, $188million cash and marketable securities transferred into MYRX. Cash burn rate was approx $50million-$60million per year. This would give around 2 years cash runway from May 2010. However, in June 2010, MPC-4236, a phase 2 program for HIV was suspended – according to a company release this was to position the company to a cancer only focus, enhance cancer clinical trials, and reduce cash burn to give a runway until 2013 (around 3 years).   
  • Strong balance sheet – gives added flexibility in any potential transaction (i.e. do not have to do a deal urgently).  As of Mar 31 2010, balance sheet showed $143million net positive (cash, equivalents and marketable securities). Also a $4.4 cash payment due from Javelin following failure of merger (see below). No debt.
  • Unloved by institutions who were previously investors in MYGN. As of Jun 3 2010, MYGN has market cap of $1,8bn, EV $1.35bn, so, much larger than MYRX. Institutional investors in MYGN primarily interested in profitable service business, therefore slow price decline as these sell off; creates value play.
  • Value institution of note acquired shares in MYRX AFTER spin-off: First Eagle Investment Management own just under 9% of outstanding, as of Dec 31 2009 (2.1 million shares, value c. $10million at time of purchase). Over 60% held by institutions.
  • Low share price (c. $4) –at a price of sub $10, this is likely to have less institutional following, creating better value play and opportunity for patient investors.  
  • Similar situation to Facet Biotech (spin-off from PDL Biopharma in 2008) – acquired by Abbott for $722million (and EV + $450million). Immediately pre-acquisition, Facet was valued at about $380million ($272 million cash, $100+ million EV), giving shareholders who owned in advance of announcement a 60%+ return. Included pipeline of late ph II for MS spasticity, mid to early stage clinical cancer pipeline. Key difference was that Facet had already rebuffed acquisition offers from Biogen Idec (and had lead compound partnered with Biogen Idec) and was publicly “in play” according to SEC filings, with advisers appointed.


MYRX negative points:

  • Management incentivisation typical of loss making biotechs – largely pay, bonus and stock awards, but senior management actually holding limited equity. CEO, Adrian Hobden, has 163,000 shares as of April 2010, market value around $800k. Historically, he seems to treat options largely as salary – acquiring largely to exercise. Probably not an undue concern though, since unwise to have so much personal wealth in a biotech (compared to an incentivised manager in a profitable co. – indeed he owns 234,000 shares in MYGN, market value around $5.5million).
  • Still a loss making biotech, with prospect that any of the pipeline programs could fail at any time. Though, even if this happened, currently there is a negative value ascribed to all programs, so much would have to go wrong before it sunk further below cash value (though as time passes, cash burn does mean cash value will fall).
  • Recent pursuit of merger with Javelin Pharmaceuticals (AMEX: JAV) nixed at late stage. Javelin had a NDA stage pain product (Duraject). Javelin instead accepted a substantially higher offer from Hospira (NYSE: HSP), utilising cash instead of MYRX’s proposed paper transaction. This would have been a useful add-on with near term sales potential, but doesn’t limit options for MYRX going forward. Also, by withdrawing from the deal, Javelin will pay MYRX a termination fee and related expenses of $4.4 million.
  • This is likely to be a volatile ride. The shares are currently in a downtrend, and could well fall further before any potential recovery. Though, at the current price there does seem to be good value.

Also note, as of July the company is to be renamed Myrexis.

Summary

As a spin-off, the intention of MYRX’s ownership was to realise value in a clinical stage pipeline whereas previously it was hidden in a much larger services based business (MYGN). Selling off by investors interested primarily in the profitable parent business has created an interesting value play within MYRX. MYRX now has a negative value ascribed to a clinical stage pipeline with small molecule, novel compounds in cancer.  It also has a negative enterprise value and a strong balance sheet with around 3 years cash runway.

It could realise value in multiple ways: as a target for potential acquisition; continue to progress its own pipeline while actively seeking potential partners for licensing; use its cash or paper to acquire other late stage compounds (management have already demonstrated through the nixed Javelin transaction that they are mindful not to overpay for late stage assets). Downside risk is limited (as far as any biotech can be) since even if there are pipeline failures, these already carry a negative forward value at the current price. It also has support from a renowned value based institution.

This post is by Raman Minhas, CEO of ATPBio, and first appeared on ValueStockFocus

All information and data from SEC filings and Yahoo! Finance.

Opinions expressed are solely the authors. Nothing in this note is an investment recommendation and you should do your own research. The value of shares can go up or down. The author owns shares in MYRX at the time of writing.

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One thought on “Is MYRX a biotech value play?

  1. A few months after writing this article (November 2010), I sold out of my position in Myrexis at a 20% loss, selling price around $3.63. The main reason for selling was while initially it looked like good value, with an enterprise value of -$40million (i.e. you get the assets for nothing and $40 million extra cash), it broke one of my key investment rules – it’s not profitable. As with all cash burning biotechs, the cash hoard continues to go down. Meanwhile, the market still hasn’t ascribed any value to the programmes. At the time of this comment (Sept 2011), MYRX is now valued at $2.75 (a further 25% drop from my selling price). The lesson – stick to your investing rules.

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