In my opinion, the combined entity of Sequana and Arris, which will be named Axys, will be a real star over the next few years. It will have approximately 29 million shares outstanding multiplied by $9.75 (current price of Arris) which will create market cap of $282 million. The combined entity will have cash on hand as of the end of September of approximately $110 million. We are then left with a scientific value of $172 million. There will be approximately 400 employees of which 315 will be in R&D with 120 holding PhDs.
The idea behind Axys is to create a drug-development machine which will go from gene-discovery, which was Sequana's strength, to the drug deveopment capabilities and chemistry of Arris. Thus, under one corporate roof, will have been created a company that can go from identifying a gene involved in disease to understanding the functionality of the gene to creating potential drug candidates.
Currently, the combined companies have corporate collaborations with approximately 8 large drug companies with a potential value of $500 million, the most current deal being Sequana's collaboration with Parke Davis of approximately $103 million with $50 million guaranteed funding over 5 years in the area of CNS. I believe the management feels that by creating this unique scientific platform, it will allow Axys to negotiate much better deals with the large farmers going forward since they will be able to come to one company to get expertise in many different scientific areas. There is also the potential for them to enhance the 8 current collaboratoins that they have since they can now offer their partners substantially more than when they originally negotiated the deals.
John Walker who is the new CEO was named one of the best 6 CEO's for protecting stockholder interest and value in the September issue of Money Magazine. This is because he was able to operate Arris with very small operating losses since its inception. By the way, this I believe was Mr. Walker's vision in putting this deal together, and it makes a lot of sense, and you will see more combinations like this in the future.
In conclusion, Arris is as oversold as it has been since the time it became public, and it has gone down recently for the wrong reasons. When Wall Street better understands this deal, its value will increase dramatically and I believe over the next 12 to 18 months we will have a company whose value will be in excess of $20 per share.
Cheers! |
