We’ve been following CAPS (see our post archive here) because it trades below its net cash value and Biotechnology Value Fund (BVF) has a 13.42% holding. It’s an unusual holding for us because BVF’s holding is passive. CAPS is a development stage company that is spending its cash on the development and commercialization of two product platforms: AZX100 and Chrysalin® (TP508).
Ordinarily, we wouldn’t touch a position like this with a ten-foot pole. We entered into it because we’ve had some success in the past with BVF, particularly with our AVGN position. As BVF’s holding in CAPS is passive, BVF seems to be punting on the return from the product platforms and doesn’t view this as a liquidation play.
We’ve got no insight into the value of those product platform assets, so our holding in CAPS is tenuous. We’ll exit if the share price gets near the net cash value, or the cash burn reduces the net cash value to the share price. At CAPS’s $0.70 close yesterday, our position is up 16.7% since we initiated it. We last estimated CAPS’s net cash value at $43.8M or $1.07 per share. We’ve now adjusted that valuation to down $37.8 or $0.92 per share. At the current cash burn rate, we estimate that CAPS has six months before the cash burn reduces the net cash value to around the current share price.
The value proposition updated
The summary of our estimate for the company’s liquidation value is set out below (the “Book Value” column shows the assets as they are carried in the financial statements, and the “Liquidating Value” column shows our estimate of the value of the assets in a liquidation):
Off-balance sheet arrangements and Contractual obligations
There is no discussion in the 10K about CAPS’s off-balance sheet arrangements. CAPS’s only contractual obligation disclosed in 10K is for the company’s Tempe, Arizona facility and is $1.3M through 2012.
At its $0.70 close Friday, CAPS is trading at 76% of our estimate of its $0.92 per share net cash value. We’ll exit if the share price gets near the net cash value, or the cash burn reduces the net cash value to the share price. At the current cash burn rate, we estimate that CAPS has six months before the cash burn reduces the net cash value to around the current share price.
Full Disclosure: We do not have a holding in CAPS. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. Do your own research before investing in any security.