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When it comes to the long-term sustainability of any company, the first variable I examine is the amount of total cash the company possesses as of its most recent reportable quarter. In this article I wanted to examine three micro-cap biotech companies, all of which have at least $25 million in total cash, possess market caps under $200 million and trade under $5.00/share.

Why have I chosen such specific criteria, you ask? The answer is actually quite simple. First off, I wanted to examine three firms which trade under the $5.00/share threshold simply because these companies are less likely to be on the radar of the larger institutional investors. Secondly, is the fact I've chosen to limit each company's market cap to under $200 million in order stay within the confines of the micro-cap classification. Lastly is the fact that I wanted to compare the total amount of cash ($25 million is of course the minimum for this screen) within each company to the combined total of their operating cash flow and free cash flow and determine a sustainability ratio.

Adventrx Pharmaceuticals (ANX): Based in San Diego, California, Adventrx is "currently focused on the continued development of ANX-188, an investigational agent that has potential to reduce ischemic tissue injury and end-organ damage by restoring micro vascular function, which is compromised in a wide range of serious and life-threatening diseases such as sickle cell disease".

On Tuesday, and from a fundamental perspective, shares of Adventrx which closed at $0.74/share, currently possess a market cap of $35.07 million, and a total of $39.90 million in cash on its books. In the past 12 months, Adventrx has a demonstrated a negative operating cash flow of $13.59 million and a negative leveraged free cash flow of $9.79 million.

After crunching the numbers, and dividing the company's total cash of $39.90 million by the total of both its operating cash flow and free cash flow which equaled $23.38 million, I've given Adventrx a sustainability ratio of 1.71, which equates to, in my opinion, a timeframe of 1.71 years until the company requests additional funding or initiates a secondary offering.

Recent Actionable News: On February 11th the company announced it had commenced dosing in its QT/QTc study of ANX-188. The study will assess whether or not the drug has an effect on QT prolongation, which can potentially lead to malignant cardiac rhythm disturbances, as part of an FDA requirement to assess cardiac repolarization for most new drugs having systemic bio-availability. The dosing is expected to be completed in the first quarter, and results are anticipated in the second quarter of 2013.

Repros Therapeutics (RPRX): Based in The Woodlands, Texas, and according to the company's website Repros is "a development stage biopharmaceutical company focused on the development of oral small molecule drugs for major unmet medical needs in male and female health". The company's primary product candidate Androxal, is an orally active proprietary small molecule compound that has completed Phase IIb study in men, which normalizes testicular function for the treatment of low testosterone due to secondary hypo-gonadism; and has completed a Phase II clinical trial for the treatment of hypo-gonadal men with type 2 diabetes.

On Tuesday, and from a fundamental perspective, shares of Repros which closed at $10.62/share, currently possess a market cap of $181.77 million, as well as a total of $29.58 million in cash on its books. In the past 12 months, Repros has a demonstrated a negative operating cash flow of $10.73 million and a negative leveraged free cash flow of $6.64 million.

After crunching the numbers, and dividing the company's total cash of $29.58 million by the total of both its operating cash flow and free cash flow which equaled $17.37 million, I've given Repros a sustainability ratio of 1.70, which equates to, in my opinion, a timeframe of 1.70 years until the company requests additional funding or initiates a secondary offering.

Recent Actionable News: On February 11th the company announced it would be conducting a 6-month 500 subject open label study as part of an FDA requirement for Androxal, and it's sent a "request for guidance" letter to the agency regarding two other pivotal studies on the drug as well. Additionally, the company also says it's requested an end of Phase II meeting before the end of April for its vaginal Proellex program for the treatment of uterine fibroids.

Tranzyme, Inc. (TZYM): Based in Durham, North Carolina, and according to its website, "Tranzyme is a clinical-stage biopharmaceutical company, which engages in the discovery, development, and commercialization of small molecule therapeutics for the treatment of acute and chronic gastrointestinal (GI) motility and is currently in the process of developing TZP-201 and TZP-301."

From a fundamental perspective and based on Tuesday's close, shares of Tranzyme closed at $0.60/share, currently possess a market cap of $16.56 million, as well as a total of $40.77 million in cash on its books. In the past 12 months, Tranzyme has demonstrated a negative operating cash flow of $26.81 million and a negative leveraged free cash flow of $16.65 million.

After crunching the numbers, and dividing the company's total cash of $40.77 million by the total of both its operating cash flow and free cash flow which equaled $43.46 million, I've given Tranzyme a sustainability ratio of 0.94, which equates to, in my opinion, a timeframe of 0.94 years until the company requests additional funding or initiates a secondary offering.

Recent Actionable News: On February 8th the company announced it will explore a possible sale of the company, less than two years after it went public. It should also be noted that two mid-stage trials of its development drug for stomach paralysis were recently halted due to lack of efficacy. Preceding the company news last Friday, was an announcement on January 8th that noted Tranzyme had completed its chemistry-based drug discovery collaboration with Bristol-Myers Squibb (BMY). As a result of the chemistry-based collaboration Tranzyme has transferred compounds from the joint research efforts to Bristol-Myers for further development across a number of different drug targets.

Potential Investors should note, and according to a company's 8-K filed on December 4, 2012, "Tranzyme, Inc. repaid all principal and interest and made aggregate final payments of approximately $12.9 million and $8.1 million to Oxford Finance LLC, a Delaware limited liability company, and Horizon Technology Finance Corporation, a Delaware corporation respectively, pursuant to the Amended and Restated Loan and Security Agreement dated as of January 31, 2012, by and among the Company, Tranzyme Pharma Inc., a Canadian corporation and wholly-owned subsidiary of the Company, Horizon and Oxford and terminated the Loan Agreement."

Final Analysis

For potential investors looking to establish a position in Adventrx, Repros or Tranzyme, I'd take a closer look at each company and keep in mind all of the necessary catalysts moving forward. Given the fact that all three companies have made considerable strides in terms of their respected lead-drug candidates, I'd look to establish a small to medium position at current levels and add to that position once future developments are announced.

Source: 3 Micro-Caps With Sustainable Cash Flows