The struggling biotech which had filed for bankruptcy has signed off on the court’s transaction for $4 M. In addition to buying substantially all of Biopure’s assets, OPK also agreed to acquire Biopure’s 50% stake in a partnership that owns its headquarters and some laboratory space. That transaction will cost OPK $850,000.
The firm was once one of the state’s most promising biotechs. Hemopure, the blood substitute made from cow hemoglobin, long seemed on the verge of emerging as a life-saving breakthrough. But Biopure could never clear regulatory hurdles that would have turned the substitute into a mainstream medical product. Although the Navy was interested in using the experimental product to treat military personnel wounded in battle, the FDA consistently rejected efforts by Biopure and the Navy to test it in clinical trials, citing safety worries and other concerns (BsGlobe).
Biopure stockholders won’t receive much or any money from proceeds of the sale to OPK.
Investors are now asking more questions about the short, near and long term viability of healthcare stocks. In a slowly rebounding market, despite today’s volatility; there is a silver lining; smaller, leaner healthcare companies are emerging stronger from the past crisis.
- There is no quick fix,
- The market’s slow rebound is also an opportunity for investors,
- Share purchase must be focused on the questions related to clinical and regulatory viability as the market is currently dominated by behavioral forces and non-believing investors.
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Scientists, managements and investors get excited by a candidate compound’s potential; but small-cap companies can’t afford to singularly bring drugs through the FDA as development costs are about $800M. Thus, the definite need for partner initiatives; but deals needs to be better – benchmarked – to reward clinical utility rather than receipt of lengthy go/no-go options. A compound “if” it makes it through clinical trials to approved drug has about 5 years of good market penetration therefore deals need to be better compensated to create ROI and market value on an ongoing basis.
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Cash is king … in this environment. But, can too much cash be a “perceived” as a “liability” in light of mounting losses? Many have small-cap healthcare companies have hung on too long to their early development-stage programs. Biotechnology companies with cash are not failing but seem to be “floundering” with compounds that are not in demand for partner initiatives. Many trade at a very small premium or a deep discount to their cash – liabilities with little or negative value implied to their current compound or pipeline. Cash position should not be considered just a “cushion” for ‘iffy” clinical utility, dollars for continuity or for pipeline deficiencies; for example, too many pre-clinical compounds, compounds entering an oversaturated market and potential compounds out of pre-clinical with established proof of concept will require large and long clinical trials. Is the shareholder value potential too far out on the horizon?
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Every time the markets rebound, investors deliberate whether this marks the bottom for share pricing and if so, might it be time to get in. However, for those of us who remain skeptical; we have seen too many spikes in momentum, resistance, confidence and resilience as second quarter earnings were good but will it last?
Valuations provide indicators when compared to the rapid decline and slow moves to present market levels. Biotechnology, diagnostic and medical device innovation are risky business; development is expensive and regulatory hurdles i.e. risks are very high. Biotech companies spend millions on drug development that might not even achieve regulatory approval from the FDA. When reviewing and evaluating small cap healthcare companies, cash might keep them going but what are three (3) fast and easy indicators or tools of comparison.
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What does it mean? A newly resurrected term from Warren Buffett refers to executives using their own money to personally purchase and hold large stakes stock in the company they run. Executive staff members can talk all they want about confidence in their future prospects and platforms, but the best vote of leadership is putting their a percentage of their net worth on the line just like their investors!
CEO, BODs, officers “direct” share ownership should be a factor of significance, but should not be confused with option or grant holdings. I have in quarterly reporting been breaking out management holdings as a percentage of fully diluted figures believing this figure resonates in the execution of management strategies and losses going forward. Base salaries are still considered high in a review of depreciated share pricing and increasing losses but, I have noticed “some” reductions in executive comp. Might deferments or cuts in percentage of compensation define their commitment to sustainability?
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