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Want to buy a dollar for $0.80? Sure you would, but as with anything that looks too good to be true, there's a catch.
Nabi Biopharmaceuticals (Nasdaq: NABI ) had about $100 million in cash and short-term investments at the end of the first quarter. The company got a $5 million milestone payment in April and is due another $5 million after the launch of Fresenius USA Manufacturing's Phoslyra. In the first quarter, the company burned through $8.6 million. Assuming the second quarter was the same, the company's cash position sits around $100 million.
But yesterday, it closed with a market cap of less than $80 million. The reason for the discrepancy? Like all companies, investors are anticipating the future value of Nabi when they think it will have burned through some of that cash on a worthless pipeline.
Nabi announced yesterday that its first phase 3 trial for NicVAX failed. The nicotine vaccine is supposed to help patients stop smoking, but the approximately 11% of patients that stopped smoking after taking NicVAX was similar to those that got placebo.
Another trial is scheduled to read out at the end of this year or early next year. But considering the first failure and a similar flame-out by a vaccine being developed by Cytos Biotechnology and Novartis (NYSE: NVS ) , the prospects don't look good. Nabi said it plans to decrease expenses, but there will still be some cash burn as the company waits for the second set of data.
Even under the best case scenario where Nabi gets a Christmas miracle, I doubt the company could gain FDA approval with just one positive trial. If InterMune (Nasdaq: ITMN ) couldn't make a 50% success rate work for a life-threatening illness, I doubt the agency would sign off on a smoking-cessation product.
Another trial would take well over a year to enroll and run, and working from a 50% success rate, there's no guarantee of a positive result on the third trial. Nabi's partner GlaxoSmithKline (NYSE: GSK ) has the option of developing a next-generation vaccine, so if the second trial comes back positive, the best strategy might be to move straight to the next-generation vaccine. In that scenario, Glaxo might acquire Nabi for a price slightly above the cash level since it would eliminate royalties Glaxo would owe to Nabi.
There could be value left in Nabi -- including royalties from the aforementioned Phoslyra -- but the ifs and the waiting will keep me from buying at this point.