What to do with your Ziopharm (ZIOP) shares

We have published quite a few articles about Intrexon (NYSE:XON) since their IPO in August 2013 because they are a major contender in the area of synthetic biology with a founder who has a proven track record of building and selling multi-billion dollar biotech companies. Since the IPO, it’s just been an interesting company to watch as they go about dabbling in everything from pet cloning to apples that don’t brown. If you’re an Intrexon shareholder, you would have woke up this morning to the news that Intrexon is issuing a special dividend of Ziopharm Oncology (NASDAQ:ZIOP) shares. Being given shares in a company you know nothing about is somehow frustrating because now you’re required to perform some due diligence on what you’ve been given or liquidate it.

Back of the napkin calculations show that what you’ll be getting is really not that significant for the average retail shareholder. The dividend is comprised of 17,830,305 shares of Ziopharm to be distributed to Intrexon shareholders of record on June 4, 2015, with the distribution taking place shortly after in mid-June. At Ziopharm’s last closing price of $10.75, this means the total consideration of the dividend is just over $191 million. If we divide that consideration by the 108.5 million shares Intrexon has outstanding that would give us $1.77 per share. So, for every hundred shares you own of Intrexon (a $4300 position at today’s price) you’ll be given $177 worth of Ziopharm stock. While that is a meaningful 4% yield, you are now stuck with a relatively insignificant position in a company you perhaps know little about.

Ziopharm first came across the radar of many investors this year when their share price jumped over +50% on the news that they had struck a deal with leading cancer center MD Andersen and their partner Intrexon for the exclusive rights to intellectual property for cancer immunotherapy.  ZIOP’s performance over the past 1 year has been strong with shares up over +220% bringing the Company’s total market cap to $1.38 billion:

Ziopharm_ZIOP_Chart

In March of this year, Intrexon and Ziopharm announced a deal with Merck to develop cancer immunotherapy (CAR-T) products. Terms of the deal as stated by Intrexon are as follows:

Pursuant to the Merck Agreement, we (Intrexon) will receive an upfront fee of $115.0 million, up to $826.0 million of potential payments for development and commercial milestones for the first two products, and royalties ranging from the lower-single digits to the lower-double digits of the net sales derived from the sale of products developed under the Merck Agreement. We may also receive further cash fees upon certain technical milestones as provided for in the agreement as well as in the event that Ares Trading selects additional targets beyond the initial two targets. We will pay ZIOPHARM 50 percent of all payments received for upfront fees, milestones and royalties under the Merck Agreement.

That’s close to a $1 billion deal with upside evenly split between both companies. Because of the terms of this agreement, investing in either company will give you the same amount of cash flows from the deal. It would appear then that there is no real advantage to be had in keeping this small number of Ziopharm shares unless perhaps to avoid short term gains on selling it. It wouldn’t be a surprise to see some selling pressure on Ziopharm (NASDAQ:ZIOP) following the dividend in June as Intrexon (NYSE:XON) shareholders look to liquidate these small positions.

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8 thoughts on “What to do with your Ziopharm (ZIOP) shares

    1. Could you please edify us on what the CEO of XON said?

      If I own 100 shares of XON, and I receive this dividend at today’s closing price, that’s $164 compared to my Intrexon position of $4419. Even if those ZIOP shares double, it’s hardly a meaningful gain relative to my larger position in XON.

  1. OR you might consider rounding up your position to add to a very promising cancer treatment utilizing CAR-T technology. Per the Griffin research report.

    1. CAR-T is very exciting indeed. There are quite a few companies playing in this market as mentioned in the following article:
      https://www.nanalyze.com/2015/04/investing-in-cancer-immunotherapy-companies/

      As for the Griffin research report, Ziopharm is their banking client. Per the below statement in the report:

      Griffin Securities expects to receive, or intends to seek, compensation for investment banking services from the Companies in the next three months.

      1. Yes, Griffin is one of their banking relationships. More importantly is that Randall Kirk (google him) is another benefactor and has stated there is no intention to sell even one share of the 11million he stands to receive from this distribution. He is pulling all the strings in this relationship. Jim Birchenough over at BMO Capital also recently reiterated his buy opinion with a more subdued price target of $15, still a 65% premium to today’s deflated price.

        1. Yes, Randall Kirk is a very successful entrepreneur and we’ve written a number of articles on his company Intrexon such as the following:

          https://www.nanalyze.com/2014/10/intrexon-can-now-clone-your-pet/
          https://www.nanalyze.com/2015/03/intrexon-aquires-an-arctic-apple-that-doesnt-brown/
          https://www.nanalyze.com/2015/02/intrexon-acquires-therapeutic-protein-biofactories/

          Mr. Kirk will hold a significant position by size as a result of the dividend. Retail investors with smaller positions won’t unless as you said they round up their positions, though the amount will be significantly more since the ZIOP position will only represent 4% of the underlying position in Intrexon. There’s no reason ZIOP won’t go on to be a success although they face quite a few competitors in that space. If I wanted exposure to cancer immunotherapy I would buy a basket such as we outlined in the below article for diversification:

          https://www.nanalyze.com/2015/04/investing-in-cancer-immunotherapy-companies/

          You could then substitute ZIOP for any name in the list and overweight them if you are bullish on ZIOP versus their competitors.

  2. I imagine XON holders are anxious for their shares, they’re already down over $1 since this piece was written….their value is diminishing week by week.

    1. After such a rapid run up it shouldn’t be a surprise that it’s gradually falling until it finds a new support level.

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