state of play

I think we're all here because of one of the following reasons:

1/ We believe that Biota will eventually get there and we will make a very nice profit
i.e. BTA is an investment (long term)

2a/ We hope that Biota will eventually get there and we will make a very nice profit
i.e. BTA is a reasonably good calculated risk

2b/ We hope that Biota will eventually get there and we will either profit, break even or get out at a small loss
i.e. BTA is like an each way bet in the Melbourne Cup

iii/ We've given up and are prepared to ride it through for what it is worth
i.e. a lottery

I've been prepared to give management the benefit of the doubt in the past and like most, have been disappointed with the results and with the message that I have been getting.

I've recently been in touch with Jim Fox and the message I got was that since he has come on board in the last few years, there has been a change in long term planning behind the scenes and that we need to consider the bigger picture scenario with Biota. I still get the feeling, unfortunately, that more material PR is not of immediate concern to them. While I did not get into detail about anything in particular with Fox, this is my take on things.

Biota is a drug discovery company and they are not pumping out new drugs every year. Therefore, its almost a matter of putting all your eggs in one or two or three baskets over a medium to long range (e.g. Relenza, LANI, BTA798-Common Cold Cure), plus a few others.

So it is VERY important that management sort out the best approach to maximising their return over a period of time (projecting into the future).

In the past, the Biota management rationale has been to sell the drug at some early-mid stage through its clinical development and achieve a fee to secure the license (e.g. some 10's of millions, or maybe more) and some sort of trailing royalty once/if the drug makes it all the way through to commercialisation - but in the scheme of things, by this time, what Biota will have received is very small in proportion to what the licensee takes e.g. GSK and Relenza.

I'm led to believe the Biota business model has changed since Jim Fox has come along and they are now prepared to consider holding their 1, 2 or 3 long term development drugs far closer to maturity and possibly even take them to market.

In this way, Biota will be taking control of their own destiny.

RELENZA

Even though GSK appear not to have done much with it, they will have made over $1 Billion in the lifetime of the product. There appears to be not much that can be done (or mgt are now prepared to do) with GSK - the deal was done and the marketing litigation settlement in the end was VERY poor and GSK has Biota over a barrel.

With LANI in the wings, I believe Biota will let Relenza run its course with GSK.

With Stockpile rebalancing, there is going to be a boost in sales and GSK may very well pump it for all it is worth before LANI comes online and Biota will benefit - if we don't see much in the way of rebalancing toward Relenza i.e. GSK not putting in the effort, all the better for Biota and LANI when it is released (ROW).

There is also the possibility of a Pandemic before LANI is launched (ROW) and we will see large Relenza sales and a big spike in the BTA SP (as we did last time) at which time, long term holders may very well take their money and run.


LANI

This is the next big thing for Biota.

As discussed earlier, Biota made the big mistake with giving Relenza away to GSK and expecting them to take over the world with it. What a big mistake, in hindsight.

So now Biota have a $231m contract/grant with the US Government to cover the costs of taking LANI all the way to commercialisation. The market has not valued this money into the SP yet, but it will, once LANI gets closer to market. Biota have sent out all the signals to the market that it intends to contract out the manufacturing of LANI in the USA and take it all the way to market, where they will certainly take a good chunk of the stockpiling market from Tamiflu - do your own sums - Relenza currently has 5% of the Influenza antiviral market. Even if LANI takes 50% of the market, that is a 10-fold increase in sales and with Biota taking LANI to market and even with a Royalty share arrangement with DS (after all expenses - i.e. the reverse of the Japan arrangement), Biota will see revenues conservatively 30-50 times greater than what it sees from Relenza - so we are talking many $100s of millions of dollars minimum per year once LANI gets to market and grabs stockpiling sales.

If I was Biota management, I'd be quietly negotiating with the HHS (remember, they are now Biota's partner) and getting into advance discussions (together with the HHS) with the FDA and in advance on LANI stockpiling arrangements - if they can stretch out the expiry of their Tamiflu and Relenza stocks as far as they can, barring a pandemic in the meantime and then buy up LANI on some long term arrangement, then the initial sales of LANI could be far greater than we anticipate.


BTA-798 - CURE FOR THE COMMON COLD

This is a potential Ace of Spades for Biota.

They appear to have followed the above philosophy in not selling BTA798 off (cheap) at the Phase IIa stage - this appears to have the potential to be a massive revenue spinner and so why wouldn't Biota try to take it all the way to market by retaining as much ownership as possible. Indicators are that Phase IIb will be a success and then Phase III trials will follow. Early mid 2012 will give us a good indicator on where things are headed.

NASDAQ and Piper Jaffray

The above two drugs - LANI and BTA-798 are both well progressed enough through the pipeline to start exciting the US market. There is work being done behind the scenes to get closer to the US. I think it is obvious, with the BARDA grant and US contracted LANI manufacturing and with discussion about Piper Jaffray and possibly spinning off some of the pipeline, that NASDAQ is not far off. With conservation of cash flow, Biota might well spin BTA-798 off and take on a big partner (perhaps 20-30%) to achieve an upfront windfall. However, current holders must be handomely rewarded - I'm sure there will be all sorts of interesting options being discussed behind the scenes.

Alternatively, if a Nasdaq float of Biota achieves great Institutional traction, they might be able to hang on to BTA-798 completely.

I anticipate a pre-Nasdaq announcement in the next 6-12 months. This implies a move of head office to the US.

This implies a change in management and most of us will get our wishes in that respect.

I have to keep reminding myself that Biota, like most Biotechs is not a 100m race specialist, its more like an Olympic marathon runner - competing once every 4 years and in the meantime and during the big race,it can be boring for spectators - we are all sitting in the stadium, waiting for that last lap where we will finally see the runners entering the stadium and hopefully, Biota will be at the front of the pack. But in the meantime, we'll see updates of the runners on the big screen - I guess each stride by itself is not as critical as a 100m runner's stride, but hopefully, the right strategy is in place and we will be getting indicators of where Biota is headed with LANI and BTA-798 (The cure for the common cold) over the coming final half of the race.

Back to the start of this post and to the reasons why we are all here, I'm still prepared to give Biota the benefit of the doubt and I still believe that Biota will eventually get there and I will make a vey nice profit.

BTA is still a long term investment despite what I believe management have done in the past - I believe that like a ship being turned into the harbour, the wheel is already in motion, but don't expect to get a minute by minute update on things.

As shareholders, we can keep whinging, but if we're still here for any of the above reasons, at worst, I guess we have some belief in Biota's potential.