BIOGUIDE BRIEF: ARANA THERAPEUTICS AND UNDER-10s CRICKET
March 12th 2009 22:47
Biotech Daily
Monday March 2, 2009
Daily news on ASX-listed biotechnology companies
Monday March 2, 2009
Daily news on ASX-listed biotechnology companies
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MARC SINATRA’S BIOGUIDE BRIEF: ARANA
Standing at square leg umpiring an Under-10s cricket match on Friday night, I watched a player attempt to run-out a batsmen using only his feet. I shook my head in disbelief.
Then I got a ‘phone call telling me Cephalon wanted to buy Arana for $318 million and the offer had been recommended by the only two independent directors on Arana’s board.
The shaking of my head accelerated and I am now in a neck brace.
Despite the pain, numbers were racing through my head – $182 million in cash, the purchase of Evogenix at an implied price of $154 million and $35 million or so in royalties to come in before their TNF patents expire – that’s $371 million in value right there.
And that doesn’t include Arana’s enviable pipeline consisting of a drug in two phase II studies for psoriasis and rheumatoid arthritis, two cancer drugs in the pre-clinical stages of development and a third about to start pre-clinical studies.
To make the deal even worse, Cephalon’s offer is basically contingent on the success of the soon-to-be-completed phase II psoriasis trial.
It seemed to me that it wasn’t just under 10 cricketers who used inappropriate methods to try to do their job.
To be thorough, however, I decided to look for reasons why Cephalon’s offer might be fair.
I considered the current financial crisis, looked for weakness in the antibody therapeutic markets and examined the sale of shares to Cephalon by two of Arana’s major shareholders. No good evidence was forthcoming.
Arana’s history, however, did seem to provide some clues. Arana has had a truck load of money since it received $178 million for its share of drug developer Domantis in January, 2007.
In November of that year, Arana’s chairman, Mel Bridges, resigned with only the Evogenix merger to show for Arana’s new found wealth.
A year later, CEO John Chiplin transitioned out of the job with the cash he could have used to accelerate growth still sitting in the bank. A new CEO still has not been appointed.
Arana must have looked for uses for its cash over the last two years and found none, leaving organic growth as the only way forward. Given the relatively early stage of Arana’s pipeline, this organic growth was also likely to be slow. In this light, I can see why Arana’s directors might favor a nice easy transaction to realize value quickly.
One could hope this is the start of a bidding war but it seems a highly risky move by directors to endorse an offer that substantially undervalues their company.
But even juniors cricketers won’t sacrifice a season for one good win and Arana shouldn’t sacrifice long term shareholder value for one easy pay-day.
Arana was up 54 cents or 65.1 percent to $1.37 with 5.3 million shares traded.
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