What should you do when biotech companies trade below cash and have early stage assets in development? While each case is unique (e.g. did it crash after a failed trial or did investors not approve of a reverse merge into a cash-rich shell), I sometimes wonder, what should a company do when this happens. If the cash/share is worth more than its current price, should you simply close shop, give the cash back to shareholders, and find new investors to take the existing projects forward?  Could you buy-back shares, take the company private, and continue development without the external burden of public pressures? Or, perhaps, the company should simply continue to push forward and try to create greater value by continuing development? There is probably a fun analysis in there somewhere and I have no idea what the answer is, but perhaps the discussion has already begun. There was a article in July’s In Vivo, entitled “How to create a lasting peace between biotech management, shareholders, and employees,” that may have already touched upon this. I don’t have access to the article and have no insight to the context, so if you have a PDF, please forward!

What got me curious in this scenario was Myrexis ($MYRX) and why someone would own the stock now. They have a $74 MM market cap (25.8 MM shares outstanding, 5/4/11 x $2.86/share, 9/13/11) with $116 MM in the bank at the end of June. This gives them a negative $42 MM enterprise value (EV = market cap + debt – cash), or $4.50/share in cash, which is a 57% premium to their existing  price.

Their cash burn was $34 MM during their fiscal year ending June 2011, and management has guided to a lower cash burn during the June 2012 fiscal year.  They had guided to $7.2 MM in cost savings on their March 29 reorganization announcement and had expected to spend $12 – 13 MM on their Azixa – GBM program (Rodman Conference), which they suspended last week during their quarterly results. Management has indicated that as they ramp up development of their lead asset (MPC-0767) and pre-clinical programs, there will be increased costs as well. If we are really conservative and assume just $10 MM in savings, it reduces burn to $24 MM, or $2 MM per month over the next fiscal year.

Program wise, they have one program in clinical development, MPC-3100, a daily, orally-available HSP90 inhibitor that is not based on geldanamycin, for solid tumors, and two preclinical programs, one of which is expected to enter clinical trials during calendar 2012. They expect to present Phase I data 4Q11 (perhaps in November at EORTC;  trial started back in April 2009), which should be positive (effect on tumor) and hopefully comparable to (or better than) SNTA’s ganetespib (STA-9090). As mentioned above, they plan to take MPC-0767, a pro-drug of MPC-3100, forward into clinical trials for solubility and formulation advantages, and will likely need to first run a small trial to show equivalence. By the end of 2012, assuming $2 MM/month burn, they should have $104 MM cash, or a little over $4/share, plus, Phase I tumor response data. It will be interesting to see where investor’s take the stock.

So, here we have a company that was spun out of Myriad Genentics ($MYGN) to develop therapeutics, and has recently discontinued their most advanced program to focus on earlier stage compounds, Depending on the data, one would expect $MYRX to get some credit for MPC-3100 in November if the data show signs of efficacy and safety. Unfortunately, 2012 does looks to be slow, with respect to data, as they look to transition from MPC-3100 to MPC-0767, and get two pre-clinical assets into the clinic.  We are unlikely to see any additional data until 2013, after they burn through more cash.

If we think about analogs, Synta ($SNTA) comes to mind. When their lead compound elesclomal was suspended in Stage IV metastatic melanoma in 2009, their value dropped to $46 MM (33.9 M shares outstanding, 11/7/08 x $1.36/share, 2/27/09), but they had $89 MM cash at the end of 2008. This gave them an EV of roughly negative $44 MM with a HSP90 inhibitor (STA-9090, ganetespib; a once or twice weekly infusion) in pre-clinical development – interesting coincidence in targets. By the time they initiated a P1/2 trial just a few weeks later, they were worth $68 MM, comparable to where $MYRX stands today, with pending Phase I data. As of 9/13/11, $SNTA was worth $189 MM (49.5 MM shares outstanding, 7/29/11 x $3.81/share), with their valuation fluctuating between $100-260 MM,  since they announced positive Phase II data in NSCLC.

MPC-3100/MPC-0767 does have the advantage of being an oral formulation over ganetespib’s infusion, but it is at least two years behind. We do not yet know about MPC-3100’s efficacy profile, but one would expect that the $MYRX must have some confidence in the data to drop their only other clinical compound, Azixa. We do know that HSP90 has been an active target of interest for partnerships (see $KOSN and $INFI), but does not mean anything today.

While $MYRX trades below cash, it doesn’t scream buy right now – they will need to continue spending cash to drive towards data, , so I think I’ll just follow along until the picture clears up a bit. I’ll be looking for gradual clinical progress and a greater control on burn rate.