a fundamental analysis of biota

Hi all, I deviate more to technicals due to my short term style,
but bta indicates potential, and so i researched the following.
Any corrections or additions are very welcome.


According to Biota's Announcements:
Biota will recieve $32.3Mil in royalty for $462Mil in sales this
quarter.

This implies a total sale of 19.05 Million Relenza Packs and a
royalty rate of 7.14% per pack,at a price of $24.25 per treatment
pack. I.e $3.46 per day's treatment.

And So biota recieves $1.70 per pack sold.

For the last quarter BTA will get 32.3 Million in royalties.
Meaning $129 Million for current year at this rate. Gsk has
ramped up production To?/By? 60mil packs per year. But if
assuming the production is ramped TO (not by) 60mil, then
at this rate biota gets 60mil packs * $1.70 = $102 Million
per year in royalty.

Therefore before costs, for 175 Million shares on issue

EPS @ $129 Million Royalty = 73 cents or
EPS @ $102 Million Royalty = 58 cents for just relenza royalties.

LANI and other products are an added potential.

So EPS after subtracting costs of $33Mil(from last year less
litigation) & adding other income of $16Mil, it becomes

EPS @ $((129Mil - 33Mil) + 16Mil) = 64 cents &
EPS @ $((102Mil - 33Mil) + 16Mil) = 48.5 cents

Now lets take the tax out @ 30%

EPS 1 = 44.8 cents &
EPS 2 = 33.95 cents respectively

Therefore, the price, as per above stands at :)

Per EPS 1 = $6.72 per share
Per EPS 2 = $5.09 per share


Imo this second royalty rate should be steady in foreseeable future,
as GSK knows tamiflu is becoming resistant, they have ramped up the
production by/to 60Million Relenza packs per year. & also GSK the
2nd largest pharmaceutical manufacturer is not irrational or absurd
to invest such ammounts of cash and efforts in increasing production
if they were not eyeing sufficient long-term gains which should
primarily come from tamiflu's resistance and general awareness of
governments to diversify their stockpiles.

At this rate, by the time the patent lapses in / end of 2013, Biota
should have banked app $560Mil/$425Mil in royalties of just relenza.

So many factors favor Biota / Relenza especially:
1. Governments are not just stockpiling for this outbreak, but for
future ones too and with tamiflu's resistance, the orders should
keep coming even after this outbreak is over.
2. Tamiflu is becoming resistant by the virus, so Relenza demand
keeps increasing. And should result in higher cash flows, from the
normal flu seasons as tamiflu becomes resistant.
3. LANI has, i think, great potential if the trials are successful.
A few reports from Japan seem to give very positive indications on
LANI.
4. It is still quite a while till patent lapses for biota, although
that does negate a very long term hold for this stock in a sense,
unless LANI comes up successful.


Noting point 2, if tamiflu does become resistant and presents more
side effects, than Relenza should deliver an increase in the steady
cash flow (even with the nonexistent advertisement ) and even after
this outbreak. Remember current relenza's market share is like 13%,
now consider tamiflu useless ? where do the sales jump to ? maybe
this answers in part why Gsk has ramped up production.


Now the only possible competition that remains are the vaccines, but
they have subtle issues as well:
1. they are not developed yet
2. they are not known to be effective against current flu strains
3. most importantly, governments are already spending a lot on
stockpiles of Relenza and tamiflu. for them to spend on vaccines
especially with current economical situation, there needs to be
another major outbreak after this. and since the strain keeps
changing, there are suggestions that a global flu vaccine may
not be possible.(vaccine cannot be developed in time for this
outbreak anyway according to Gsk.)



At the current price of $1.24 BTA is worth only $216 Mil. Very Humbly
Priced IMO. 60 Mil packs gives royalties of $102 Mil Per Year or at
current rate of $32.3 Mil * 4 Quarters = $129 Mil)(Not including
royalties from china, if they get any)



So I think Biota has a nice fundamental BUY to it, and also technical/chartists buy as well.


Therefore in Conclusion

1. I think biota is very cheap
2. Biota should keep generating steady cash flows
3. Biota cash flows should keep increasing with increased awareness of
tamiflu's resistance
4. With more countries stockpiling due to continued spread and especially
for possible future outbreaks, a high demand should remain steady
5. It is a good takeover target since at current cash flow rates, only
two years of royalties equal current total market capital of $216 Mil
6. In 2007, when the eps was just 11.2 cents, the average share price
(high+low/2) was around $1.5. So current price is undervalued (we
already have from last quarter an eps of 18c (less costs))
7. (Not sure on this) after the flu season is over in countries with cold
weather, it can easily spread and increase in number to warmer countries
when their seasons turn winter due to international travelers. Countries
like Taiwan, India & Dubai(/other rich oil countries) (some of these
countries even have it now but at low levels due to hot season) (assuming
flu is not contained by then)


So my minimum and the most pessimistic price mark for biota is $3.5 per share
for just royalties without considering LANI and other assets. And a much
higher SP on the optimistic side.


Comments/Corrections Welcome. :)


Notes:

I hold biota, and intend to buy more at current levels.
I am not qualified enough to give financial advice.
The above is not financial advice. Please Do Your Own Research.