Description

IBPI is a very simple value story where you are buying a dollar of cash for 85 cents. This should provide a simple rate of return of 17% for an expected 3 – 6 month hold for an annualized return of between 34% and 68%. It doesn’t trade a ton of shares, but I have been able to buy a decent amount.

IBPI was a development stage bio-technology company that had its product fail in stage II of its FDA trial. The company has completely shut down it business and has no employees, rent or other expenses other than the expense of shutting down the business. There is one contingent liability left in the form of a shareholder lawsuit based on the failure of its drug. I believe that this lawsuit will either be dismissed or settled for the insurance coverage. The deductible has already been met.

While the company has a large NOL along with its cash, it was not able to sell itself as a shell. Insiders and large shareholders control about 60% of the shares and should act in our best interest.

As per the company’s 10Q for the June quarter the company will have between $47 and $48 million of cash at year end. At quarter end IBPI had $48.2 million. With a fully diluted share count of 11.1 million shares there is expected to be $4.2342 / share in cash against a current share price of $3.60. The key here is how quickly the cash is distributed and the range of expected rates of return provides a nice risk return trade-off.

Risks
1. The company decides to merge with another biotech company that is
looking for cash to fund drug development.
2. The company licensing a drug in development and restarting the
business. I view this as unlikely.
3. Lawsuit stretches out the payment of the remaining cash.

Catalyst

1. Distribution of cash.