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There's usually lots of Special Situations in the Biotrch sector



June 24, 2010 – Comments (1) | RELATED TICKERS: ENZN.DL

As I have said numerous times in the past, biotech definitely is not my area of expertise. Having said that, the complexity of biotechs and their propensity to wind themselves down aka liquidate when things aren't going well, sell their research in exchange for a revenue stream, horde cash because they burn through it so quickly, and the uncertainty surrounding whether or not a drug will be approved...or even work the way it is supposed to seem to often lead to interesting investment opportunities in the sector.

The other day I added shares of a super cheap biotech company called Enzon Pharma (ENZN) to my CAPS portfolio at $11.01/share. Here's why.

Enzon currently has a whopping $6.50/share in cash. 

It also is receiving royalty payments from Merck for its Hep C drug Pegintron. One can debate the current value of that cash flow, but I have seen estimates out there of around $3.50/share.

Add to that ENZN royalty payments from UCB Pharma for its arthritis drug Cimzia. Again, I have seen a current value of around $1.50/share estimated for this asset.

These three things alone are equal to $11.50/share, slightly above ENZN's current share price.  Everything else that the company has is essentially being given away for free, including a number of drugs that are in testing. As an added bonus the Board of Directors has new members who seem intent on increasing the value of the stock and the company announced a share buyback.

I have absolutely no idea if these royalty payment estimates are correct, but I have read enough about this company to have at least some confidence in them.  I am not comfortable enough to purchase many, if any biotechs in real life. Cash cushions are fantastic, but companies in this sector tend to burn cash...often at a rapid pace. This company is cheap enough that I am adding it to my CAPS portfolio.

Is anyone else out there familiar with ENZN?


1 Comments – Post Your Own

#1) On June 24, 2010 at 9:55 AM, TMFDeej (97.73) wrote:

Oops a typo in the title.  Oh well :).


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