Today, I’m going to talk about the biotech sector and why it looks interesting.
Then, I will share 2 case studies.
In both cases, you didn't need to be a specialist to make money.
Finally, I will share some biotech names on my watch list:
Then, I will share 2 case studies.
In both cases, you didn't need to be a specialist to make money.
Finally, I will share some biotech names on my watch list:
First, let's talk about the Biotech sector...
It's in a bear market.
The biotech index is down 52% over 744 days.
Based on the length and intensity of historical biotech bear markets, we are probably nearing its end.
It's in a bear market.
The biotech index is down 52% over 744 days.
Based on the length and intensity of historical biotech bear markets, we are probably nearing its end.
There are other signs that now might be a good time to look at biotechs.
For example, a record number of biotechs are trading for less than cash on their balance sheet.
For example, a record number of biotechs are trading for less than cash on their balance sheet.
So the industry set up looks good.
Now let’s get to some case studies.
Now let’s get to some case studies.
$YMTX / $KA
“Special dividend” is a keyword that I like to monitor.
It usually unearths interesting opportunities.
On December 5, 2022, YMTX announced that it would pay a special dividend in the range of $1.34 to $1.43.
The stock was trading at $1.74.
“Special dividend” is a keyword that I like to monitor.
It usually unearths interesting opportunities.
On December 5, 2022, YMTX announced that it would pay a special dividend in the range of $1.34 to $1.43.
The stock was trading at $1.74.
Further, as part of a reverse merger process, YMTX shareholders would receive 12% of a new company called Kineta ($KA).
At the time, YMTX traded at $1.74.
I knew I was going to get $1.34 to $1.43 back via the special dividend.
I just had to ascribe value to Kineta.
At the time, YMTX traded at $1.74.
I knew I was going to get $1.34 to $1.43 back via the special dividend.
I just had to ascribe value to Kineta.
How much was Kineta worth?
A November 2022 press release stated that private investors were going to participate in a private investment in public equity (PIPE) which valued Kineta at $151.5MM.
A November 2022 press release stated that private investors were going to participate in a private investment in public equity (PIPE) which valued Kineta at $151.5MM.
I then multiplied $151.5MM x 12% and then divided that number by Yumanity shares outstanding.
That left me with a Yumanity Kineta Value Per Share of $1.67.
That left me with a Yumanity Kineta Value Per Share of $1.67.
Let’s summarize….
In early December, YMTX traded $1.74.
Investors would receive a minimum special dividend of $1.34 and the value of Kineta is estimated to be worth $1.67 per share.
This looked like a quick 73% return.
What about the downside?
In early December, YMTX traded $1.74.
Investors would receive a minimum special dividend of $1.34 and the value of Kineta is estimated to be worth $1.67 per share.
This looked like a quick 73% return.
What about the downside?
Worst case, $KA is worth $0 in which case, I’ve only received the $1.34 special dividend
This works out to 22% downside. Not good but not a disaster
But I knew that KA was worth SOMETHING.
KA was expected to have $49MM of cash or $0.53 per share of cash on its balance sheet.
This works out to 22% downside. Not good but not a disaster
But I knew that KA was worth SOMETHING.
KA was expected to have $49MM of cash or $0.53 per share of cash on its balance sheet.
So it looked like a good risk adjusted trade.
How did it work out?
Great!
I bought YMTX shares for $1.74 on Dec 15, '22, received a $1.43 on Dec 23, '22 and just sold my $KA shares for $7.09 (or $1.01 per YMTX share as there was a reverse split).
41% return in 2 months!
How did it work out?
Great!
I bought YMTX shares for $1.74 on Dec 15, '22, received a $1.43 on Dec 23, '22 and just sold my $KA shares for $7.09 (or $1.01 per YMTX share as there was a reverse split).
41% return in 2 months!
Alright now it's time for case study #2
Catalyst Bio ($CBIO)
In early '22, after difficulty raising capital for a phase III trial, Catalyst Bio decided to shut down operations and pay out cash to shareholders.
In Oct'22, the investment case for CBIO was extremely simple:
Catalyst Bio ($CBIO)
In early '22, after difficulty raising capital for a phase III trial, Catalyst Bio decided to shut down operations and pay out cash to shareholders.
In Oct'22, the investment case for CBIO was extremely simple:
$CBIO was trading for $0.54 yet the company had guided to future distributions of $0.64 (basic balance sheet math backed up this guidance).
Further, CBIO was attempting to sell a phase III hemophilia asset....
Further, CBIO was attempting to sell a phase III hemophilia asset....
I didn’t have high confidence that any proceeds would be generated from the hemophilia asset, but it wouldn’t take much to move the needle.
For example, a $50MM sales price would result in additional proceeds of $1.59 per share (almost 3x the then current share price).
For example, a $50MM sales price would result in additional proceeds of $1.59 per share (almost 3x the then current share price).
So the investment case was simple, high likelihood of good return (+19%).
Low probability of high return (+150%) in case the hemophilia asset sold.
Low probability of high return (+150%) in case the hemophilia asset sold.
How’d it work out?
This one is still playing out but here’s what happened since October:
This one is still playing out but here’s what happened since October:
1) CBIO paid out a $0.24 special dividend.
2) CBIO distributed a CVR that entitles CBIO shareholders to future cash distributions (My estimate: $0.32 per share).
3) CBIO will do reverse merger with GNI Group for 2.5% stake in new co worth ~$8.5MM or $0.27.
2) CBIO distributed a CVR that entitles CBIO shareholders to future cash distributions (My estimate: $0.32 per share).
3) CBIO will do reverse merger with GNI Group for 2.5% stake in new co worth ~$8.5MM or $0.27.
Add it all up and we paid $0.54, and we have received or will receive value of $0.83, a 54% return in ~6 months.
Plus, we have upside if the phase III hemophilia assets are sold.
Plus, we have upside if the phase III hemophilia assets are sold.
I haven't pulled the trigger on any other biotechs but there are a few that I'm looking at:
$SIOX
$SIOX
$MGTA
-$47MM EV, just announced strategic alternatives...
-$47MM EV, just announced strategic alternatives...
And a few more...
Any others out there?
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