Myriad Pharmaceuticals, Inc. (MYRX): Interesting Spin-Off Opportunity
Posted on August 29, 2009
I have never posted a biotech stock idea on this website, since quite frankly I don’t really have any expertise, or should I say “pattern recognition”, for that area of technology investing.
However, the other day, I stumbled upon Myriad Pharamceuticals (MYRX - current price: $4.60), which seemed like an excellent opportunity, even for biotech neophytes, like myself. It’s not clear you even have to understand anything about biotechnology to recognize the potential of MYRX.
MYRX is a spin-off from Myriad Genetics (NasdaqGS:MYGN), a company specializing in gene-based cancer diagnostics. Following the spin-off MYRX, with about 24 million shares outstanding was funded with $188 million in cash from the parent company. Just running the numbers quickly will show a market cap of around $110 million, versus cash of $188 million, implying a negative enterprise value of nearly $80 million!
Of course, in a rational world, I’d could easily argue that the majority of biotechs should trade beneath cash, since they are nearly all cash guzzlers and very few end up making it to a cash-flow positive stage. However, in reality, very few (perhaps only a handful) biotechs trade at negative enterprise values for reasons that are too lengthy to get into in this post.
So why is MYRX trading beneath cash? The reason, of course, has to do with the nature of this particular spin-off. Many institutional holders of MYGN (which has an operating business) are forced to sell MYRX, because it is an R&D enterprise, and they are not permitted to invest in this type of company. This forced selling is what is causing the negative enterprise valuation of MYRX. The selling has absolutely nothing to do with any investors perception of the future of MYRX. As such, the price of MYRX cannot possibly reflect the value of the company’s pipeline, and therefore presents an attractive investment opportunity . As the forced selling abates over the coming months, and a new biotech-friendly shareholder base forms, the stock should rise quickly to a valuation more in line with other biotech peers and the potential of its various drugs.
For those who are interested in a more detailed analysis of MYRX, I suggest reading this article from Morningstar:
http://finance.yahoo.com/news/Money-For-Nothing-This-Stock-ms-882557794.html?x=0&.v=1
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Today 9/9/2009 I purchased shares in MYRX at $4.45 per share. I was lucky to have purchased shares in Facet Biotech (FACT) some at $10.03, and some at $8.58 before it rocketed to $16+ per share. I believed so much in the Facet Biotech prospect that I violated one of the basic investment rules (don’t add to a losing position). I bought in Facet at $8.58 while losing from the position I had acquired at $10.03. But I saw the potential so clearly, I couldn’t resist. I sold at $15.77 per share to play it safe, but this transaction sure sparked my interest in rather small farmaseutical companies cut off from larger ones and given cash to burn for a while. MYRX, like FACT has good prospects.