Thursday, September 25, 2014

Regado Biosciences Should Trade Up Over 30% within 3-5 Months

Sometimes Wall Street just needs a bit help to see all the free money around it.  The current share price of Regado Biosciences is one example of that.

As discussed in an earlier blog entry, aptamer company Regado Biosciences recently was forced to permanently hold development of their only asset to speak of, the antithrombotic Revolixys kit, aka REG1.  As a result of that, the company disclosed yesterday that it would wind down all activities associated with this program and conduct a strategic review of the company’s future which the company says ‘could maximize returns for Regado shareholders in the near future’.  

At the end of that re-organization period, projected to be at the end of 2014, the company should have $50-55M in cash and no liabilities to speak of.  The company has 34 million shares outstanding, and given its spectacular 90% drop in valuation over 6 months, there is little risk that this will be diluted much from the exercise of options and warrants.

In other words, the company will have $1.47-1.62 cash per share and is currently trading at $1.17 per share.  That is, the shares are trading at a 20-28% discount to the cash it will have when it can start over its biotech adventure with a clean slate (meaning the shares would have to rise 26-38% to equal cash on hand). 

This 26-38% upside is my base case that I am confident that RGDO will achieve over the next 3-5 months with relatively little risk- just as the result of investors realizing that the discount does not make any sense.  The upside should be much more if management and the Board could find a new biotech asset that can generate some excitement. 

The major risk to this free money scenario would be that class action lawsuits by disgruntled shareholders (who, of course, knew all about the risks involved in biotech investing) will cost the company a significant amount of cash, but in this instance it should be relatively easy to thwart off the ambulance chasers given all that had been known about Revolixys kit, including the rare acute immune reactions seen in phase II.

(Following paragraph added on Sep26, 2014)  A lesser risk (because that only happens once in a blue moon in biotech) to the numbers would be in case the company actually decided to return its cash to shareholders and close up shop.  Under that scenario, the Series F Convertible Preferred Stock Holders would claim and thereby take off $10M from the cash balance.  

You would not believe it, but with the valuations of small biotech companies being quite depressed right now, it is a buyers’ market again for numerous assets.  Given that in similar situations (lead drug has failed, pipeline otherwise weak), biotech companies like Celsion and Oncothyreon have recently opted for RNA Therapeutics assets, and not least because Regado Biosciences is already an RNA Therapeutics company, chances are that the asset will be an RNA Therapeutics one.


Maybe Marina Biotech would be an interesting shop to visit, given that it has a lot of different technologies on offer, has a history of giving away their assets for cheap, and since Marina could use some cash.  Another target might be the RNAi assets of Novartis.

Disclosure: I had been long RGDO at sub $1, but went longer still today after management provided more clarity last night on the Revolixys close-down costs.  It certainly beats the 0.2% interest you might get these days in a savings account. But remember: do your own due diligence before investing.

17 comments:

tettrazini said...

The major risks are year end bonuses to the executives and/or the company starts over its biotech adventure with a new developmental program.

Anonymous said...

Wall St saw the money before it precipitated the spectacular 90% fall in order to get control of it.

How is it you are happy to call this out with a heavy disclaimer but have made no mention of approx. 50% gains in ALNY over the last three months?

Beware the bust out. Hence the disclaimer I say.

Anonymous said...

Sure, stocks selling for less than cash are good all things being equal but things aren't equal. People still want positive drug prospects with a biotech, not a bank. It would have been better if you emphasized why you still think the company may have good prospects rather than mainly focusing on cash.

Anonymous said...

QLTI did something vaguely similar in returning a bunch of money to shareholders. Circumstances were a bit different and it took an activist investor to lead the charge.

Dirk Haussecker said...

'People still want positive drug prospects with a biotech, not a bank.'

That's exactly what I think is happening here with the low stock price. The prospect that management can find a decent biotech story for not much money is not priced in at all. I think that's shortsighted.

Anonymous said...

Reverse an Aussie bio in to it. They're all broke and as cheap as chips with many at PII, beginning PIII.

Which one would you rate Dirk?

Anonymous said...

Plastic please reverse a sock into it.

Anonymous said...

Benitec would be an ideal fit, don't you think?

God knows they need as much help as they can get to fight the patent claims and prosecute Voyager for infringement. ROFLMAO.

Dirk? Any opinion?

Anonymous said...

I own Benitec. Weren't they legally required to file the annual report to shareholders by end of September?

Anonymous said...

To the previous poster, can I respectfully ask what planet it is you are actually living on?

Nobody needs to file a thing when they no longer exist...except in name.

Anonymous said...

The report is due by law by the end of October on all planets. This is the site to come for to get the most Benitec hate.

The tech is beyond solid, they will learn how to become a better clinical company and BLT longs will be happy they held. NSCLC is paid for and TT-034 as well, why the hate?

Anonymous said...

'The report is due by law by the end of October on all planets.'

End of October is still 4 weeks away.

Anonymous said...

33.61 mil outstanding shares / cash 40 mil after Preferred 10 mil thats $1.20 per shares

Anonymous said...

RGDO I went in at 1.03 should have sold at 1.18 the first day, but I did sell for profit and take this VERY shaky money off the table. Good luck on this one, but the upside is NOWHERE near what you think it is DH. Way to crappy a company and management are crooks, still very real possibility it goes to .50 to .70 ahead of all the lawsuits (deserved). BTW DH using RNAi on cholesterol is NEVER going to be the method as it obliterates it all versus a knockdown to beneficial levels. Cholesterol is amazingly beneficial and it looks like ESPR has a blockbuster for dealing with statin intolerance. Good luck RGDO longs, that is one stinkin dog!

Anonymous said...

.50-.60??..where did you get that number from? I dont think so..going to 1.50 soon

Anonymous said...

.50-.60 look at other bio stocks..lolcompany has cash to shops..if or when trials restarts rgdo sky rocket..its all about risk/rewards..yes you will be crying sold at $1 ..for me longs and patience..will payoff bigtime..

Anonymous said...

RGDO is looking like it ain't going anywhere except burning cash...good luck but there are a ton of better places to be than waiting on par value to pay off....glad i did a two day quick hit and got OUT!

By Dirk Haussecker. All rights reserved.

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