DIA-B, PALLANE AND A FLEA IN THE EAR
July 13th 2009 02:53
Biotech Daily
Monday June 22, 2009
Daily news on ASX-listed biotechnology companies
Monday June 22, 2009
Daily news on ASX-listed biotechnology companies
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MARC SINATRA’S BIOGUIDE BRIEF: DIA-B TECH, PALLANE
Recently, I attended a lunch meeting on the $15 million capital raising as part of Dia-B Tech’s merger with Pallane Medical.
Asked for a comment on the merger, I said, among other criticisms, that the valuation was ‘insane’, as in insanely high. I then asked the journalist to change ‘insane’ to ‘excessive’ before quoting me.
Insane was the correct word and I shouldn’t have asked the journalist to change my quote.
Late last Friday, Dia-B Tech published a supplementary prospectus regarding the capital raising.
The first thing to note from the supplementary prospectus is that an independent expert report arrived at a value of $18.5 million to $31.4 million for Pallane, compared to a value of $85.5 million implied by the prospectus and the market capitalization of Dia-B Tech.
The reason for this discrepancy according to the supplementary document is that the report assumed a licencing model, whereas Pallane prefers a go-it-alone model.
It also implies that the report fails to recognize the value to investors of a mechanism whereby the merged entity can, upon shareholder approval, buy-back shares issued to the Pallane-related vendors at a nominal price in the event that certain milestones are missed.
This buy-back plan, however, appears to have fleas since at best it will only lead to existing Dia-B Tech and subscribing shareholders to the capital raising owning more of a company with less value, from missing those milestones.
Theoretically, vendors could vote down any proposal to buy shares back from them, given they will control 85.4 percent of the merged entities voting power according to the IER, although conflict of interest may prevent them from doing so. Regardless, with the vendors holding 85.4 percent of the company, small shareholders will get little say in how the company is run.
Yep, insane was the right word.
Another source of fleas is that the raising doesn’t really seem to be underwritten for $12.5 million as has been claimed, since one of the conditions for the merger to proceed is for “not less than $10 million” to be subscribed for under the offer, with a minimum subscription for shares to be issued of $12.5 million.
The rest of the supplementary prospectus is largely confusing waffle combined with standard points.
Although not part of the supplementary prospectus, I decided to update my figures on the share price performance of listed companies which have Dr Michael Wooldridge on their board, since he will be the only existing Dia-B director retained by the merged entity.
In 2007, I found that investing $10,000 in each of four companies (Cogstate, Resonance Health, Dia-B and Australian Pharmaceutical Industries) as per his presence would have turned $40,000 into $21,000, representing an average annual loss of 24 percent.
Two years later, with an additional company in the mix (Prime Retirement Units), $50,000 would have been turned into just over $11,000, with an average annual loss per investment of 42.5 percent, on share price performance, not including dividends.
As I stare at the note on my desk reminding me to apply Advocate on the 15th of each month to my dog to control fleas, I can only wonder whether rather than writing considered opinions, I should be repackaging the generic active ingredient as the core technology of an IPO and/or back-door listing for development and sale as a global debugging, debunking, parasite and irritant-removal suitable for listed, listing and listless biotechnology companies.
Dia-B was unchanged at 1.3 cents.
Marc Sinatra
Analyst
email Marc Sinatra here
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