Coffee smells great, but that's probably the vanilla and the cinnamon. Article tracks with my PIP value views pretty closely, but I don't expect much change in the price due to it. Everyone long and shorts thinks they can get some idiot to sell them shares at 1.70, and everyone long and short thinks they'll get a sale price north of $2. So we'll patiently trade for our yield - 18% swings each month is nothing to sneeze at, and neither is 5% swings each day. Wasn't that long ago when bears and bulls squabbled about a penny all day.
PharmAthene Is A Bargain: Significance Of Recent Legal, Pipeline, And Merger Developments
Dec. 29, 2013 7:35 PM ET | About: PIP, Includes: SIGA Jeff Eisemen
he flu product of its prospective merger partner (Theraclone Sciences) failed to reach its clinical trial's primary endpoint, after which the Department of Health and Human Services' Biomedical Advanced Research and Development Authority (BARDA) declined funding;
•PharmAthene terminated its merger with Theraclone; and
•the FDA placed a clinical hold on SparVax, PharmAthene's anthrax product.
There has also been a lack of news about the seven-year legal battle with SIGA Technologies (SIGA).
PharmAthene's prospects are rosier that they seem. Below I place each of the bulleted developments in context, and describe and interpret the legal briefs that both sides submitted on December 11. I then derive implications of all of these developments for PharmAthene's stock price.
The Termination of the Merger
I start with the merger, because if there is no merger, then there is no need to read about Theraclone's flu product. I wrote about how the synergy from combining the two companies' mission, strategies, organizational leadership and portfolios would enhance shareholder value here, and believe that the benefits to each side argue in favor of a merger. Before explaining why I still think a merger might be still on the table, let's review the three reasons that it was terminated.
By far the most important reason is the initiative taken by Prescott Group Capital Management, who owns more than ten percent of PharmAthene's stock. As they wrote in a letter to shareholders (emphasis theirs):
We believe that PharmAthene's SIGA litigation asset is hugely valuable and little credit for that value is given in the merger. How can the company's own "fairness opinion" adviser value all of PharmAthene at only $1.72 a share? PharmAthene properly notes in its own proxy statement that it has taken the position in Delaware court that its damages "may be as high as $1 billion dollars" (proxy page 36). For the proposed merger transaction with Theraclone, however, PharmAthene has taken the position that its SIGA litigation is worth only about 5% of this amount. According to the Proxy Statement, to reach this conclusion PharmAthene's financial advisor used a 100% probability for all of SIGA's positions as to cost allocations and revenue timing, as well as a 0%probability of any orders, domestic or foreign, beyond the very base term of the drug's current government contract (proxy page 102).
Shareholders are likely to become even more convinced that this "asset" is undervalued after reading my discussion below of what is in the latest briefs.
The second reason is also financial. PharmAthene will probably not receive any money from SIGA until July 2014 at the earliest. Theraclone has a serious cash shortage, and if the merger had been approved, it is possible that PharmAthene's financial position would become compromised in the short run, requiring it to make disadvantageous financial arrangements.
The final reason is the failure of TCN-032 to reach its endpoint in its Phase IIa trial and BARDA declining to invest in subsequent trials (discussed below).
In sum, the first reason is that PharmAthene seemed undervalued, the second was that an imminent merger with Theraclone seemed to represent a threat to PharmAthene's short term financial health, and the third was that the clinical trial results coupled with BARDA's lack of financial support seemed to imply that Theraclone was overvalued. Although I voted for the merger, I think that the first two of these reasons are