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.