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  • keep_investing keep_investing Mar 11, 2014 7:50 AM Flag

    WOW! 5 years of misfiled financials......good job ACT management!

    So this is the news we get! It's no wonder that a big pharma hasen't bought into ACT. And why should they, as it looks like the company is a path of self destruction, and they can just swoop in and pick whatever they want from the carcass.

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    • Re: It's no wonder that a big pharma hasen't bought into ACT.

      beareclawe • Mar 11, 2014 1:32 PM
      Re: .... Everyone on iCell talks about big pharma partnerships on the horizon too...I really don't think this is the case. What is their incentive?......

      LSR: Looking at your data sheets, I note that another catalyst you use is partnering. A small biotech company partnering with a large pharma is a very important factor, not just because of the financial and intellectual support but also because the large pharma is, in effect, validating that technology platform or approach for investors. But sometimes, after a partnership announcement, we see a selloff. Why?

      MH: This is an interesting dilemma. Small companies need new money, and an upfront payment from a pharma is a nice way of monetizing some of their assets. A partnership also validates the product or platform, and gives the biotech security. To your question: Many times the large pharmaceutical company requires so much in a deal—such as a high percentage of future revenues—that if an investor uses a discounted cash flow (DCF) model, the value of the small biotech shrinks based on that partnership split. While an upfront payment will be nice for the company and nice for management and operations, it does not compute into a very high present value as compared to what those future revenues would have been without splitting them.

      TLSR: Partnering is one more form of dilution, isn't it?

      MH: Yes, it is. I've heard this from investors and I've heard it from smaller companies: A lot of times they don't like to see partnership deals done the way they are. They'd rather see companies raise money in the marketplace because they give away too much to the pharmaceutical companies on future royalty streams.

      I also think many investors do not take future partnership splits into account enough when they're valuing a company. When we at Sagient look at a company's pipeline and put a valuation on its drugs, we try to assume what its future royalty agreements will be. A lot of times a small biotech only gets 20%, and that could really reduce the value in a DCF model. If you're only getting a 20% royalty, you need a billion-dollar drug to make up a decent valuation for yourself.

      I think investors would rather see companies raise money in the marketplace, bring their drugs to a later stage of development (closer to approval) and then sell themselves outright to a pharmaceutical company, rather than give away a lot of the rights to a product. The proof of that is you do see quite high multiples on merger-and-acquisition deals.

    • Yes then they can grab the kachina dolls or the electrified chicken..or the no end line results crossed eye cells..swoop swoop......:)

    • Good analysis before you bought KEEP!