grazingbull

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    • Icahn Steals The Future of Enzon Pharmaceuticals [view article]
      interestingly.. this type of asset valuation stuff has been done before and it didnt work out as planned..

      go back in time check out ICN - Ribapharm spinout deal.... irony of ironies.. Ribapharm also had a very nice royalty streem from the same Schering Hep C drug that ENZN is tied to..

      Ribapharm got some 500MM in debt and a nice royaltry stream, etc.. eventually, and when the royalties for ribavirin started to decline (as is most natural), Ribapharm crashed (say from 20 bucks to 5 bucks) and was taken private again by its parent at 4x ebitda.

      so... i dont see how póst spin enzn can hold up its market cap of 400 million plus 275 MM in convertible debt which is essentially a 700 million enterprise value, and against this value you have 60 MM in clean, tax free EBITDA per annum and for the moment.. this is a 11 to 12x multiple and with no evident growth from the 4 minor drugs and 75% of royalty rights... these guys will spend then next 5 years paying down the 4% convertible (which has a maturity of 2013), and then they will probably crash and burn like any biotech supernova.

      at that point, if you were a patient spinoff investor, you still might have some value left if the pipeline is successful.. at clinical pipeline r&d of 70 to 80 million, they will last about 2 years with current consttellation.. there better be something good buried within here.

      if any other firm develops competing Hep C therapies, the enzn story could be over much sooner than expected.

      it is extremely unlikely that someone will buy post spin enzn.

      this is desperate hunting for returns. make people believe for one quarter, 1 year or 2 years that there is somethign in it..

      its a wager, thats all there is. and i guess why not split the wager into two bets. its quite evident that going forward with R&D program of 70 to 80 MM pér annum will annihilated stock market value, if enzn is unsuccessful in its clinical trials. the spinoff will provide something of a value lifeboat and allows the spinoff to secure more financing from outside parties. this is essentially what they have done with the monetization of royalties.. secure outside financing. given that biotech CFOs have to be creative, this deal is better done today than in 2 years.. right now people have no way to assess if the pipeline candidates are any good or bad, so you might be able to secure 50 MM in outside financing for the spinoff itself. two years from now investors will be all focused on the results of these clinical trials. 2008 will tell us more in this regard.

      spinoff is high tech is a very tricky thing to say the least.. for lack of better knowledge speculative investors might give this so called enzn pipeline a value of 100 to 200 million, merely on the basis that they dont know what the prospects of the drug candidates are.. this however is far off from making an educated investment decision. if ever i get into enzn it will be just for the play money allocation.       May 09 09:41 AM
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