Greenbackd

CuraGen Corporation (NASDAQ:CRGN) is a net cash stock with an investor, DellaCamera Capital Management, disclosing a 5.6% holding in a 13D filed on January 15. At its $0.67 closing price Friday, CRGN’s market capitalization is $38.5M. We estimate CRGN’s net cash value to be 60% higher at $62M or $1.07 per share. The company is not generating any operating cash flow as it is a “biopharmaceutical development company,” so the challenge for DellaCamera Capital Management is to persuade the company to pay a special dividend or liquidate before it dissipates its remaining cash.

About CRGN

CRGN is a biopharmaceutical development company engaged in developing cancer treatments. It also has a portfolio of earlier stage assets, including proteins, antibodies and small molecules that represent potential treatments for cancer. The company’s investor relations website is here.

The value proposition

As a “biopharmaceutical development company” CRGN is burning cash in development and not generating any income or operating cash flow. Its value lies in its present $67M net cash position (the “Book Value” column shows the assets as they are carried in the financial statements, and the “Liquidating Value” column shows our estimate of the value of the assets in a liquidation):

CRGN’s $91.4M in cash and cash equivalents consists of $7.4M in cash, $40.4M in short-term investments and $43.6M in marketable securities.

Off-balance sheet arrangements and Contractual obligations

According to CRGN’s most recent 10Q, the company does not have any off-balance sheet arrangements. Its enforceable and legally binding obligations, along with future commitments related to all contracts that it is likely to continue, regardless of the fact that they are “cancelable as of September 30, 2008,” excluding those captured in the financial statements, are around $5.5M through 2011.

Deducting the $5.5M from the $67.6M in net assets leaves around $62M in liquidation value or $1.07 per share.

The catalyst

DellaCamera Capital Management filed a 13D notice on January 15 disclosing a 5.6% holding in CRGN. The filing is silent as to DellaCamera Capital Management’s purpose for the CRGN investment beyond the usual other than the following:

[DellaCamera Capital Management] intend to make themselves available to [CRGN] to discuss methods of delivering additional value to [CRGN]’s shareholders, including the possible alternative deployment of [CRGN]’s capital. [DellaCamera Capital Management] may seek board representation to assist in this endeavor.

Hopefully DellaCamera Capital Management can find an “alternative deployment of [CRGN]’s capital” before the company burns through its remaining cash.

Conclusion

As a net cash stock, CRGN’s current liquidating value is relatively easy to determine. At $0.67, CRGN’s liquidating value is around 60% higher at $1.07 per share. The more difficult step is to determine the liquidating value of the company if and when DellaCamera Capital Management is successful. We think that 60% is a substantial margin of safety for CRGN and so we are adding it to the Greenbackd Portfolio.

CRGN closed Friday at $0.67.

The S&P500 Index closed Friday at 850.12.

[Full Disclosure:  We do not have a holding in CRGN. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. Do your own research before investing in any security.]