Valuing a company has parrellels to judging the beauty of a person wearing a mask. A lot is visible, but some will always be unknown. So a range of values is used to account for the unknown. Like beauty valuations are also subjective, a combination of art and science. My range of values for Biota range from $53M - $215M, with per share $0.70 - $1.20 looking like fair value and $0.30 as downside value. Keep in mind price can deviate considerably from value, including to the downside. Little has changed since my first quick valuation, 12 cent risk for 30-80cent reward with further possible upside and several possible catalysts. In the 2008 annual report Note 12 it is worth noting directors have stated “F2009 net cash inflow of approximately $12 million”.

Compounds and management under the microscope. A graphical pipeline for LANI, RSV and HRV and a cash flow issue. The pipeline is strong with compounds in PI (HRV), IIa (RSV) and LANI about to start PIII. A couple candidates are likely to progress this year.

This is part three in my Biota series. I attended the Biota AGM on Wednesday. The presentations can be viewed here and the results are available here.
Background. Biota is a small molecule drug development company which focuses on drug discovery. Their business model is to license early. To use a baseball analogy, Biota aim to get a lot of players on bases rather than swing for home runs like most biotech firms. Biota have one main revenue stream in the flu antiviral Relenza and three major products in development, LANI, …

Part One of my Biota analysis was an example of how I initially approach investigating a biotech. In short read the filings and company website to get a base idea of products, pipeline, management, cash and cash flow. Then determine a rough value to see if there is any point in digging deeper. As I concluded I saw a lot of assets and existing cash flow going for a bargain price. I initiated a position in a personal account on Friday. This is part two in my Biota series.
I have …

Markets hate uncertainty and Relenza provides it in spades. This could be an excellent opportunity and is worth further investigation. Downside risk is very low due to cash. Say maximum probable loss of 15 cents with upside of $1.15. That’s a preliminary risk to reward of 1/7.5. Over twice as good as I normally seek, but hey these are exceptional times and there are plenty of bargains to choose between. My initial valuation spreadsheet shows a risk/reward ratio of 1:1 to 1:5, i.e. excellent odds.