Hi eWhartHog- mucho thanks for the reply.
<<...I can't see it as a great buy based on the balance sheet alone. Please advise me if I've missed something.>>
No, I'm probably the one who is missing something. I confess to being "balance sheet" challenged, so please be slow and gentle with me here because I'm not getting the point:
<<...you may have overlooked the preferred equity of $15.26 million at 3/31/99. This exceeds the cash and short term investments, and even total shareholders' equity of $4.68 million. Thus common shareholders' equity was negative, in excess of $2 per share.>>
Here's the filing for convenience:
edgar-online.com
Now, I don't get it. Under Stockholder's Equity on the balance sheet it shows a huge accumulated deficit of about $119M. Most of that is of course burn from R&D (which tells me something about the value of the company- unless one thinks they've completely just pissed away $80+ M in research, then it's hard for me to see why this has a market cap of only $5M). So now, rounding things, we have listed an accumulated deficit of $119M, preferred stock at $15M, and common listed at $108M. The sum of that preferred and common totals $123M, and taking out the accumulated deficit leaves $4M shareholder's equity, just as it stands on the balance sheet. So why would you want to take out $15M of preferred again and claim <<Thus common shareholders' equity was negative, in excess of $2 per share.>> That's what I'm not getting. Help!
You also wrote:
<<The class E preferred appears to be a floorless convertible.>>
As far as I understand things, they've issued different series of convertible preferred in the past, usually to big pharma corporate partners like Warner Lambert, for example; this is pretty typical for biotechs, and I don't think it's a particular concern. Now, as I also understand it, they did in fact do a toxic convertible last summer for $8 M. However, the bulk of that has either converted already or has very recently been bought back by the company leaving less than $2M of the convertible preferred outstanding. Having a toxic convertible at all is a bad, bad, awful, awful thing, but it's now at the point where it should be manageable- they have agreements in place with the holder controlling conversion of the rest. So, as I understand it, that's the only problematic preferred still out there.
<<The company lost $0.82/share in the March quarter, and warns it will require further financing to continue to operate. >>
As far as the quarterly loss and need for financing go, that's probably true of about 90% of the 300 or so publicly traded biotechs, so that doesn't bother me particularly- except that when your MC gets this tiny it's even more difficult to get the $. They supposedly are in advanced stages of discussion for their epilepsy compound, so a partnership there should help matters greatly- they've also reduced cash burn and they have several quarters worth right now.
Thanks for your thoughts!
Anaxagoras |
