|NVLX: The minnow that just ate the barracuda|
|By Rob Goldman|
|Friday, 24 June 2011 04:20|
This is the same penny stock I first covered in early May when it was trading at the $.02 level. After my coverage on BioMedReports two weeks later, the stock rose as high as $.10 before settling at it's current $.06 where it has been building a nice base line, getting ready to climb higher on more positive news- which we expect more of shortly.
The company has been shifting from a nutraceutical firm under terrible management into a pure biotechnology company with new leadership that just armed itself with a late stage product when it recently acquired a potentially blockbuster pancreatic cancer treatment technology form the Company’s founders. The deal has been funded with an up-front cash payment of $500,000. A restricted stock component, priced later, will represent the payment at closing. The transaction is expected to close in 60 days, following the completion of due diligence.
What does this mean for Nuvilex?
This acquisition changes everything and adds even more value to a company that is not only aggressively re-inventing itself, but still mostly off the radar-screen. SG Austria’s flagship platform technology has been reviewed by dozens of medical journals and publications and proven and verified in trials, studies, and most importantly, revenue generation. The applications are numerous, as are the tentacles in which the platform has reached, which have resulted in upfront and milestone payments, along with a likely pipeline of future payments.
Nuvilex will now have:
What Does This Mean for the Stock?
It may be difficult to quantify, but it is a huge, huge, win. We can provide a quantifiable valuation when we have a better handle on what the focus the new entity will implement, the existing revenue forecast for 2011, the pipeline of revenue from existing arrangement, and then understanding the underlying value of the platform technology.
Qualitatively, Nuvilex has a treatment that has produced stellar Phase II clinical trial results, along with a preclinical anti-cancer agent. SG Austria owns a broad platform technology with diverse applications that have been proven and verified in tests and trials and from major European pharmaceuticals and research organizations paying upfront fees and agreeing to future milestone payments. Hence, there is tremendous underlying value of the technology and value in the near-term and future revenue streams.
We view this transaction as akin to a smaller company in a similar space acquiring a much larger, highly regarded rival, with a valuable knowledgebase, proprietary technology assets, and a future revenue stream, but one that has hit its ceiling due to funding or leadership/operational issues. It is the essence of a public market company realizing substantial value via a private market transaction.
Quantitatively, if our previous baseline valuation was $0.30 then Nuvilex may be worth at least more than twice or three times that figure. How many firms at this stage are generating revenue? Ninety percent are bleeding cash! How many are one-trick ponies with limited technology, limited early-stage trial data, limited personnel, limited reputations as also-rans, and no relationships with major pharmaceutical players. This transaction may put Nuvilex in that upper 10-20% of biotechs with no currently approved products but incredibly valuable, revenue-generating technology, and a late-stage cancer treatment candidate.
The only downside we see at present is focus. From the outside looking in, Dr. Ryan and his team will have to be savvy any not enter into a go-to-market strategy with too many products in too many segments. Prioritization and monetization are keys to success, in the near term.
We strongly recommend purchase at current levels and we believe that the stock has caught its breath on the way to its reaching its rightful place at a revenue-generating, late-stage biotech valuation. Our price target remains at $0.50, with a likely substantial upward revision after the closing of the transaction.
Rob Goldman has 20 years of investment and company research experience as a senior research analyst and as a portfolio and mutual fund manager. During his tenure as a sell-side analyst, Rob was a senior member of Piper Jaffray's Technology and Communications teams. Prior to joining Piper, Rob led Josephthal & Co.'s Washington-based Emerging Growth Research Group. In addition to his sell-side experience Rob served as Chief Investment Officer of a boutique investment management firm and Blue and White Investment Management, where he managed Small Cap Growth portfolios and The Blue and White Fund. Goldman produces research via two formats: Goldman Select Research and Goldman Opportunity Research. The Select product represents the Firm’s internally generated stock ideas while the Opportunity product represents sponsored research reports. This coverage tends to be dominated by early-stage health care, technology and energy sectors. Six month or three month subscriptions can be commissioned by publicly traded company management, investor relations or consulting firms, investment banks, or related parties. Full disclosures and report details are available at goldmanresearch.com