Myrexis (MYRX) to Liquidate
This was one of my early investments and to date one of the more disappointing. When I initially invested (post-spinoff from Myriad Genetics) MYRX shares were trading at about $4.00, only about 57% of the $7.00 cash per share on the balance sheet. This looked like an ample margin of safety at the time, but I was pretty much of a greenhorn when it came to investing in biotech stocks. That was mid 2009, and, in retrospect, clearly I was wrong both about the margin of safety and about management’s intentions and/or capability. Live and learn!
Last week the company issued a press release announcing Board approval of a liquidation plan. The release disclosed that the plan calls for the company to distribute all available cash (between $2.72 and $2.91 per share) as soon as shareholder approval is obtained. On reflection I realized that this means the company burned through around half of its cash and investment hoard in 3 years! What did we shareholders get for that ‘investment’? The press release made no mention of any assets (intellectual or otherwise) to be disposed of by the company after the initial cash distribution, though I expect further information will be forthcoming in the shareholder proxy material.
I am contemplating doubling down on my investment at $2.75 a share or below. With some cash floating around from my sale of BBEP units and interest on idle funds providing practically no returns, this kind of short-term, non-market-correlated investment seems appropriate. The investment proposition is this: at worst I would receive $2.72 in the initial distribution which should take place some time early in the first quarter of 2013, and at best, the initial distribution will be at the high-end, $2.91, providing a return of 5.8% in say three months. That means I would be investing at most $.03 per share for the possibility of further upside if some of the withheld cash ($12 million in the low distribution scenario) is left over at the end of the liquidation process and/or a buyer can be found for some of the intellectual property developed with shareholder’ $100 million investment. That seems like a pretty good proposition to me since projections made under a liquidation scenario are generally very conservative.
This is not a happy ending for my MYRX investment. I’m down 36% on my initial investment with little prospect of substantially improving the return; I’ll be lucky to end with a 30% loss on the position if I end up ‘doubling down’ even under the most sanguine of scenarios, but I will have learned something. To invest in a net-net in the biotech area you have to be sure of management’s track record and incentives. During the development of my investment thesis I should have given more weight to management’s background and precluded the investment because top managers had NOT previously been involved in a SUCCESSFUL small, stand-alone biotech startup. Furthermore, the mangement incentive structure was not right; management had options but didn’t own enough of the company (skin in the game). And finally I should have acted immediately and sold my position when MYRX bid for Javelin in the Spring of 2010 as management made little attempt to explain and justify this incomprehensible move, a further indication that management’s interests were simply not aligned with those of shareholders.