Bionex Share Discussion Threads

[russianlinesman] 25/11/2003 13:17

rivaldo

there is a post on PDT board from Katy re Chris Evans, which mentions Ark. No conclusions to draw but I know you are still holding BNX even if everybody else has lost interest again.

[james111] 17/11/2003 08:04

interesting post/link thanks optimist

regards james

[optimist at large] 17/11/2003 07:59

Further Ark progress announced today:

[geniusjohn55a] 08/11/2003 09:42

Anyone heard anything regarding the Ark floatation ??
The rumour went out a few weeks ago and no announcement yet....


Cheers
John

[hallucigenia] 07/11/2003 18:22

Cracking stuff RL - you belong over on fool.co.uk! ;-)

I'm not sure there's a problem. Surely we have


1997 £250k [seed funding - some Ordinaries?]
Feb 1998 £3m [13,968,498 Ordinary less the seed funding - 25p/share?]
April 2000 £15m [15,033,846 Ordinary 'A', 100p/share]
August 2001 £14.5m [ 9,756,757 Ordinary 'B', 150p/share?]

Bionex have 1,000,000 Ordinary 'A' Shares (from Abingdon) and 135,135 Ordinary 'B' Shares acquired directly.

Out of interest, what's the deal on the prefs ?
And what's the potential dilution from staff options?

Both quite important if you're trying to work out how much Bionex will hold after any putative IPO. My guess over on TMF was for a £90m cap after raising £35m - I guess that something around 150p would be fair value, but they might try and hype it up a bit above that.

H

[rivaldo] 04/11/2003 10:00

Gmanhi, fantastic stuff - hmmm, "iffy" - a technical term?!

RL, excellent stuff as usual. Great digging, but the net result remains the same - until (if or when) Ark floats, answers will remain unclear. In fact, even then more digging will be required, as since BNX apparently owns just less than 3% any RNS on float will not disclose BNX's holding/percentage.

A couple of specific points:

- I think your cost total of £3.2m is toppy. Add up the figures again in post 1 (from the prospectus) and (allowing for exchange differences) they'll probably come to around the £3.05m fixed and current asset investment cost in the March accounts, less provisions of £358k.

- As noted in post 1, I'm not worried about BNX's dilution. It only starts to become a factor at 2.5p, and the point of the opening post was to bring to peep's attention a temporary discrepancy between price and value.

- I would love to make a mint, but I'm happy with any profit, believe me!

You can now pick BNX up at a valuation of around £2.2m (at 1.4p), maybe much less with a decent broker.

Given £1m of cash, an investment portfolio excluding Ark which was valued in the depths of the downturn at around £1.1m, plus Ark, which at cost is worth £1.55m, BNX may be worth £3.6m.

BNX may also be worth £5.2m if Ark floats at double BNX's in price.

BNX may also be worth £1m if all its investments fail and it turns into a cash shell.

So it depends on your attitude to risk. As part of a wider portfolio, and of course at the right price, BNX offers me (IMO) short-term high potential upside and low downside given that cash retention appears to be a priority and that it's highly unlikely there'll be no winners or recoveries from the portfolio.

The interims will be interesting. They can't be far away, and will hopefully provide further visibility on Ark and the rest of the portfolio.

[gmanhi] 04/11/2003 09:22

good post....this one sure looks iffy for the time being, at least.

[russianlinesman] 04/11/2003 08:19

Rivaldo and OBR,

I have now had a look through the Ark accounts for 2002 (4 Pounds seems a small price to pay for a bit of useful knowledge).

As you can see there are 13mil ords, 15mil Ord As and 9.7mil ord Bs. Assuming these all convert 1 to 1 on an IPO (I will come to this below), then Bionex owns just under 3% of Ark.

As per Rivaldo's earlier post, Bionex owned 200k worth of Ark at a valuation of 47.5mil pre money, and then acquired 1mil shares from Mountcashel, then valued at 1.35mil.

We know Ark has raised money 3 times, 3mil in 1997, 15mil in 2000, and 14.5mil in 2001. It would seem then that Bionex's 200k worth of shares were acquired in the 2000 issue, when MCL invested its million pounds.

This is where I get stuck on the valuations. I would expect to be able to match the classes of shares to the funding rounds, but the numbers are beating me at the moment.

Assuming the 2001 round was the highest valuation, we can assume the Ord Bs were issued in this round. There are about 10mil Ord Bs which would give a valuation of about 1.45p ish per share for that funding round. This fits with the option exercise prices for the directors, which go from 1 Pound (for those issued in 2000), 1.38 (2001) and 1.48 (2002).

So far so good, but this would then lead me to believe the Ord As were the 2001 funding round, valued at around 1.38p per share. However, we know 15mil pounds was raised, but there are about 15mil Ord As.

If we assume the original funding of 3 million bought a 30% stake in Ark then, this explains why there would be 10 million ordinary shares. (in fact there are 13mil, so it seems the 3mil pounds bought maybe 25%)

In a sense, this is all history, and therefore not so relevant, but there remains OBR's mystery of the conversion price of Ord As and Ord Bs on an IPO. This is not solved by reviewing the accounts. However, there is a clue if you look at note 2.

In 2001 Ark expensed its share options, giving a 3mil plus hit to the accounts. In 2002 they accounted for a credit of 1.1mil, being "in respect of share options which have been granted or will be granted at less than fair value".

This would seem to imply that the share options issued in 2002 were issued at more than fair value, hence the credit in the accounts. i.e. (still with me?) the options issued to directors at 1.48 were above what was deemed fair value by the auditors.

Now, leaping in the dark a little, what this would imply to me, is that the Ord Bs and Ord As would have anti-dilution protection. If the IPO gets away at a valuation of less than a certain price (let's say 1.48p per share, but could be any number), the conversion ratio will be adjusted so that the Ord As and Ord Bs get more than 1 to 1 ordinary shares.

Since we don't know what the minimum IPO valuation is, which would enable the rights to convert at 1 to 1, we do not know what potential dilution will occur on an IPO. This will be clear in Ark's prospectus (if they ever get that far).

And back to where we were, which class of shares does BNX hold in Ark? If they have the 'right' ones then they will be beneficiaries of the anti-dilution. Maybe they have both ordinary shares and ordinary As.

All very murky, and this together with all the director options, means a valuation of BNX's stake in Ark is going to be completely impossible until we get the Ark prospectus.

SOME OTHER THINGS

Sorry, didn't mean this post to be so long, but....

1 - Rivaldo listed out Bionex's portfolio (post 1) with amounts paid. This all came to about 3.2mil pounds, yet the interim results are showing carrying value for unquoteds of 2.7mil, with no amended valuations. This can only (presumably) mean that Ark is in the books for 1mil ?

2 - Ark has 19 employees, and yet has 1.7mil of salary costs. The highest paid director earns 300k. I have no problem people earning proper salaries, but until a company is listed I would expect the salaries to be much lower - given they have all these options anyway. It all amounts to a low-risk bet for the employees. Wealthy enough as it is, they get super-wealthy if it comes off. If Ark runs out of money in 2 years, well bad luck.

3 - Despite the cash burn being 6to7mil pounds per year, the implication in the directors statement is that this will be higher this year. Further, when Ark raised its last 14.5mil, it stated that this would see it through 'well into 2003'. Wonder what the cash position is, and just how desperate they will be to get the IPO away (with the obvious effect on valuation)

4 - Not only does BNX have 157mil shares, it has options for another 20mil in 2006 and 20mil in 2010. These are highly dilutive again.

5 - Note that Ark has no revenues at all. When it was Eurogene, it made a big deal about earning consultancy money so it was almost profitable as it was. This seems to have changed and now Ark is using its money to pay some of its directors for consultancy services as well.

To conclude from my perspective, BNX will stay on my watch list in case we see a retreat below 1p again, but given what has been said before, especially lack of visibility on portfolio of investments, and all the options which cast grave doubts in my mind on corporate governance, BNX is at least fairly valued.

As previously said, I will of course be insanely jealous if you make a mint, but I figure I have learned a fair bit over the last 6-7 years and it is simply head over heart time.

[hallucigenia] 29/10/2003 23:54

>>Let's say BNX's stake in Ark is 2.5% (around 14% dilution),

I think you can only assume this if you have firm details of the terms of Ark's preference shares and the options. Until then, we can only guess - and I'm still happy assuming they get diluted to 2% pre-money. Of course, YMMV.

Ditto with the Bionex options etc @ 2.5p - they are still a big part of the story, does anyone know how much shareholders get diluted by if the shareprice >2.5p???

[rivaldo] 29/10/2003 11:03

Thx for the heads up Fur. Here's the link:



If peeps are interested, I replied to H's post above as follows:



In addition, a small variation in perception goes a long way in these cases. H estimates BNX's interest in Ark at 2%, but this would mean 30% dilution from its current 2.9% stake. I find it hard to believe that the VC's who've supported Ark to date would accept this.

Let's say BNX's stake in Ark is 2.5% (around 14% dilution), and Ark is worth £55m pre money as H suggests.

So:
(1) Cash of £1m
(2) Ark stake worth £1.4m
(3) Other investments at book value of £1.2m, let's say worth £800k.

That's a total NAV of £3.6m. Apply an investment trust discount of 25%, and £2.7m NAV represents around 1.7p per share.

It appears from trades over the last few days that much buying and selling is taking place within the spread, so it should be possible to buy at less than the current 1.6p offer.

H wrote well. But most here are grown up and are aware of the risks and volatility in micro-caps. NMS and spread in particular can be avoided with a decent broker.

I suppose my opinion is that yes, of course BNX is risky. But IMO there's relatively little downside here due to cash and value of investments, whilst upside could be great. Risk-averse types would be better waiting for the BNX interims which should be out in the next month or two, plus further news on a float (or not) of Ark. But by the nature of things, if float news gets out it'll probably already be in the price.

[fur] 29/10/2003 10:33

Ark got its patent apporved.

[regandjess] 27/10/2003 10:46

Very interesting, I wonder what BNX's 3% of ARK would be worth with a successful float of ARK, and I dont think there is any doubt it would be successful with this kind of news coming through.

[rivaldo] 27/10/2003 09:46

Hmmm..Ark is extremely busy at present. Following my trawl round the web sites I see Ark have released another piece of good news today:



"Ark Therapeutics granted first patent in the USA for EG009 in Brain Cancer Treatment"

I particularly like the bullish tone of the Notes to Editors (sorry, can't paste it so you'll have to look at it yourself!).

[rivaldo] 25/10/2003 16:30

Welcome wyd. After the recent surge volumes have dried up (with some profit-taking I suspect - hardly surprising). Let's hope for positive Ark float news soon.

In the meantime, here's an interesting PDF file I found with news/comment re Photo Therapeutics:



Extracts :
"Alderm LLC and it's exclusive manufacturing partner Photo Therapeutics Limited of Manchester,U.K. have received marketing clearance from the U.S. Food and Drug Administration (FDA) for the OmniLux Blue Light Emitting Diode (LED) system used in the treatment of dermatological conditions and specifically indicated to treat moderate inflammatory acne vulgaris.
According to James Kraushaar, president of Alderm, this marketing clearance represents "a breakthrough in terms of making this highly-efficacious and cost-effective LED technology available to medical dermatologists as an alternative treatment for acne which has no serious negative side effects. Once acne patients become aware of this new treatment, systemic drugs will certainly become less desirable options."

"Founded in 1998, Photo Therapeutics is a well-funded, private company based in the U.K., with distribution partners throughout the world. Co-founded by one of the largest cancer research institutions in the world, this company manufactures a unique line of LED devices (OmniLux andRevive) which are specifically designed for photodynamic therapy (PDT) skin cancer treatment,
general dermatology and cosmetic applications."

And a December 2002 newsletter:



Extract:

"SINCE ITS CONCEPTION, Photo Therapeutics has been working with leading dermatology researchers and pharmaceutical companies in Europe to commercialize the patented Omnilux LED technology. Currently, they have partnered with a major German medical lighting company for distribution in 31 countries, and are in strategic discussions with PDT drug companies in the development of enhanced drug delivery systems. Furthermore Photo Therapeutics is currently developing distribution partners [e.g., ALDERM] in North America to access both the physician and spa market segments."

[whoseyourdaddy] 23/10/2003 10:26

Guys

I have been keeping an eye on this one, and I read your comments with interest. Think I will take the plunge today as the price seems to be dropping a little!!

[rivaldo] 22/10/2003 22:20

Thx OBR (still can't believe that cash flow).

Fur, I hope you're right, but today's market doesn't auger well. Let's hope it's a temporary aberration and Ark haven't mistimed it yet again!

[fur] 22/10/2003 14:58

I feel reasonably happy that something will happen re Ark float particularly as there is quite keen interest in biotec sector at the moment - alizyme raised more money today.

[old boy returns] 22/10/2003 12:14

Rivaldo & RL - re cash burn - No revenues are disclosed within the accounts so not sure if they have consultancy fees. However, they do give a lot of remuneration in the form of share options exercisable on listing (something I like to see as it is a great way of incentivising) which is charged to the P&L but which is a non-cash item. Also they do not have a cashflow statement (small companies exemption) so not that easy to follow cashflows. My £5M figure is after adding back the £800K of aborted listing expenses incurred as, hopefully, they are not an ongoing expense! To give a bit more detail the 2002 loss before tax was £7.1M but this was reduced to a post tax £5.7M by a recoverable £1.4M R&D tax credit. It was also after charging £1.4M of amortisation (of goodwill) and depreciation and the £800K of listing expenses and a £1.1M (non cash) credit relating to accounting treatment for share based compensation. After adjusting for non-cash and non-recurring items (I have assumed the R&D tax credit will be recurring) and movements in working capital I reckon they burnt £5M in 2002.

[russianlinesman] 22/10/2003 08:22

rivaldo,

We shall see re costs. However I reckon the CYA principles which govern the city will necessitate much work being re-done. Of course if they get the IPO away who cares.

Re the cash burn, Ark always reckoned it had low cash burn because it could earn consultancy fees (I think this was what the Finns were doing). Maybe OBR can see this from the revenue numbers. You are right - certainly less cash being burnt than OXB or ML Lbs for example, given comparable number of products. Even one product companies like Cenes seem to get through 3mil plus p.a.

[rivaldo] 21/10/2003 20:26

Many thx OBR for the info on Ark.

RL, I strongly disagree with you about the costs to be incurred on Ark re-listing - they should be much less than before. Much of the due diligence will no longer need to be repeated as the lawyers will have already performed it, the modelling for cashflow etc will be in place etc etc. Costs will be incurred, but they should be much reduced.

Talking of costs, I was amazed at OBR's figure for cash burn of just £5m per annum. Considering the extensive product pipeline, this seems incredibly small. Have a look at this extract from Ark's web site (and note the amount of programmes in phase II and 111 - I'm sure most quoted biotechs would kill for a development programme this good, except maybe AZM!):

"Products in Development

EG009 - a treatment for malignant brain tumours in Phase IIb development

EG006 - a treatment for cancer related muscle wasting (cachexia) in Phase III development

EG004 (Trinam™) - a product to prevent blood vessels blocking after vascular graft surgery, in preparation for Phase II/III development

EG008 (Kerraboot™) - a dressing device for the treatment of leg ulcers, currently undergoing finalisation for CE marking

EG005 - a treatment for the fat metabolism problem (lipodystrophy syndrome) associated with the most common therapy for HIV positive patients, currently in preparation for Phase II development

EG001 - a bio-degradable device placed around the outside of blood vessels for the localised delivery of therapeutic agents, currently in development as part of the Trinam™ project"

[old boy returns] 21/10/2003 12:59

Thx RL - I have the accounts but they do not give the conversion rate but rather state that "the Ord 'A' and Ord 'B' will be converted into Ords on listing based on the conversion rate immediately prior to listing". I agree that 1:1 seems logical but the fact that it is not given as such and states the rate at a point in time implies that it could be a variable rather than a constant. I am trying to get more details.

[russianlinesman] 21/10/2003 12:45

OBR, in venture capital deals, different classes of shares are normally converted 1 to 1 in either a trade sale or an IPO. Therefore I would be surprised if the conversion rate was anything other than 1 (otherwise you would deal with this by adjusting the price when you initially issue the different classes).

Re the pulled IPO, WestLB (i think it was) had done all the work and had circulated the prospectus within the City, so basically all the work was done. However, they will have to re-write the business and prospects sections, and my experience is that the advisers (tax, legal etc) will probably charge it all again.

Have you tried to get the company's annual accounts from the company's registry as this ought to tell you the conversion rate?