Biotech Stock Mailbag: Panacos

The Biotech Mailbag is open, although one week late. Travel and the start of earnings season forced me to miss my deadline, so I apologize. Let's move quickly to your emails.

I'll begin with an email from Bruno E., who writes:

"I own a small position in Panacos Pharmaceuticals(PANC). In the beginning of the year I saw your recommendation to buy Panacos, but I assumed it was largely dependant on the [J.P. Morgan Healthcare] Conference. I would like to know what you think about it, and what are your reasons for the recommendation."

Bruno's email flew into my inbox a week or so before Panacos' announcement Wednesday that it sold the experimental HIV drug beviramat to Myriad Genetics for the oh-so-low price of $7 million. Rumors that Panacos threw in a set of steak knives to sweeten the deal have not yet been confirmed.

Panacos shares got hit hard on the beviramat sale. The problem is that Panacos didn't get much for beviramat -- it was fire sale, plain and simple --and speculators had recently bid up Panacos on a bet that the entire company would be sold. When that didn't happen, the speculators bolted.

As Bruno mentioned, I did add Panacos to the Biotech Select model portfolio at the end of December when the stock was trading at 12 cents. I, too, was making a small bet that the company would sell beviramat or one of the other HIV drug assets for a meaningful sum, or better yet, find a suitor to acquire the company outright.

So, Panacos did a deal, but it just wasn't at terms that mean much. The $7 million in proceeds from beviramat give Panacos some financial breathing room. The company has about $10-$11 million in the bank (my estimate) or about 19 cents a share in cash. We'll have to wait for the company's next conference call for some guidance on the new burn rate, excluding beviramat.