Description

Myriad pharmaceutical is an interesting net-net spin-off with a value as much as 3x its current price of ~$4. First, the Company will have approximately $7.40 in net cash value on the balance sheet once a transfer from the parent is made. While I won't claim it is a secret with everyone following spin-offs, it is only in one pro-forma balance sheet. Second, Azixa has a NPV value of ~$5-6 per share even assuming low probabilities of success, a 2 year time to develop and a $60mln annual cash burn solely for this drug (they have other drugs in development). One must clearly weigh the risk of management misusing the cash. I believe that there is enough margin of safety given they have their hands full with existing developments.

Azixa

Azixa is a drug which is being developed to treat primary and metastatic brain tumors. These are problematic cancers with high mortality rates. I valued it using Temodar (Schering) as a comp which is a $1bln+ drug with rapidly growing sales. I valued Azixa by: 1. assuming ~$1bln in sales for each (several people in the industry have confirmed this sales opportunity in the event of success); 2. Assuming a probability of success of 5% for each and a joint probability of success of 2.5%; 3. Using a 10% discount rate (obviously one would want higher, but I leave it for you to adjust the NPV accordingly); 4. I assume a quarterly cash burn of ~$15mln.

Risks: The primary risk is that management blows the cash.

Catalyst

*Balance sheet publications

*Phase 2 results in 4Q2009 for Azixa