A shot in the arm for Biota

It may be a clich that Australian scientists are good at science and poor at commercialising it, but there is substance to this. There is also substance to the view that Australian investors aren't good at understanding and valuing biotechnology.

Both those issues are factors in the decision by Biota Holdings to merge with Nabi Biopharmaceuticals of the US and relinquish its ASX listing.

The merger is more of a reverse takeover of Nabi by Biota than a true merger and, indeed, is more of a funding raising than a merger.

Nabi is a company that has a lump of cash, a modest royalty income stream and not much more, other than its NASDAQ listing. It is that cash and that listing that has motivated the Biota move.

Biota has been quite successful at developing flu vaccines through its near 30-year history – last year it received a $231 million cash grant to develop a vaccine for the US Biomedical Advanced Research and Development Authority as part of the US strategy of stockpiling vaccines against pandemics – but has generally pursued a royalty-only model under which its research and development has been commercialised by others.

The inhibiting factor for a relatively small company (with a market capitalisation of about $170 million) operating within a market that doesn't have much focus on biotechs other than CSL is funding.

Biota wants access to funding to allow it to develop and commercialise its drugs and the biggest market for funding biotechnology companies, and the market with the deepest understanding of them, is the US.

Nabi has a significant amount of cash, $54 million of which will be retained within the merged company. With Biota's own resources the merged group will have a US sharemarket listing and more than $US100 million of cash.

The merger will be effected by Nabi acquiring Biota in an all-scrip takeover, with the merged entity subsequently re-named Biota Pharmaceuticals. Biota shareholders will own 74 per cent of the enlarged group and Nabi shareholders 26 per cent.

In effect Biota is using the transaction to raise capital, increase the liquidity in trading of its shares, broaden its shareholder base and shift into a more biotech friendly and knowledgeable jurisdiction.

If shareholders approve the deal, Biota's chief executive, Peter Cooke, and chief financial officer, Damian Lismore, will relocate to the US and six of the eight board seats will be held by current Biota directors, underscoring the reality that Biota is the dominant player in the transaction.