Thursday, December 15, 2022

Sio Gene Therapies: Small Liquidation

In the IMRA post comments, I mentioned that Sio Gene Therapies (SIOX) (~$30MM market cap) was a likely liquidation candidate.  Sio Gene Therapies is one of the many pre-revenue biotechnology companies -- this one was originally focused on gene therapy for Parkinson's disease -- that has given up development and was pursuing strategic alternatives due to poor clinical results and/or tough capital raising conditions.  Often these broken biotechnology companies end up doing a reverse merger, but here the company never really had its own IP, they had licensed the IP from third parties and their NOLs are primarily domiciled in Switzerland where corporate taxes are low, thus limiting their value.  Other than a public shell, which isn't in much demand these days when SPACs are all liquidating and the IPO market is fairly quiet, SIOX has little value remaining outside of its cash.  This week, SIOX announced the board approved a plan of liquidation (requires shareholder approval).

The balance sheet is fairly simple at this point (9/30 10-Q):


They've already laid off most of their staff and gotten out of their office leases (no non-current liabilities are remaining), this should be a fairly straight forward liquidation.  The remaining cash burn should be limited to some remaining G&A and liquidation costs.  They do mention in the same 10-Q that "we continue to conduct one pre-clinical research and development program" but it must be small and likely easy to pause.  In addition to the above balance sheet, they do have a CVR-like payment of up to $7MM after their sale of Arvelle Therapeutics, while that's a nice lotto ticket, it also means the future liquidating trust might be around a while (unclear to me how long these milestone payments extend) which would lower the potential IRR.

The current market cap is about $30MM, versus a pretty liquid book value of $49MM ($0.66/share) as of 9/30, that gives plenty of room for G&A and liquidation expenses.  My guess (similar to a commenter in the IMRA post) is that we end up with ~$0.55/share, much of that returned early as there's really not a business here remaining.  I own a smallish/tracker position, may try to add more if it falls on a delisting, etc.

Disclosure: I own shares of SIOX

30 comments:

  1. I love these! Thanks, as always.

    Is there any particular reason you feel this one only deserves a small sizing? You like the rest of your book better?

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    1. Basically yeah, waiting for other ideas to play out so I don't really have any dry powder.

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  2. Sounds great, thanks for sharing

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  3. Thanks for posting.

    A couple things I found puzzling was-

    Not showing any q2 interest income when they had 47mm of money markets investments backed by US government securities - presumably this should be generating 3-4% annualized now which modestly helps the cash burn and should have already been non-zero in September.

    From last 10Q some UMMS vendors still need to get paid, not clear if this is material vs what is already on balance sheet - "These two programs have been wound down; we are negotiating final payments to certain program vendors."

    Any views out there on timeline / how much cash they hold back for how long during liquidation under Delaware law? uninformed guess of 10mm net expenses and liquidation proceeds in 2023 and 2025 would be a reasonable teens IRR

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    1. I generally agree, don't have much to add. I did notice that UMMS vendors comment as well as the one remaining pre-clinical program, hopefully those don't meaningfully cut into the cash. Mid-teens sounds about right, maybe get back $0.40/share in Q1, then the rest 1-3 years down the road.

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  4. do you expect it to trade on OTC post delisting? how do shareholders normally get paid after delisting?

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    1. I don't expect it to trade on OTC, or not for long. From the recent PR:

      The Plan of Dissolution contemplates an orderly wind down of the Company's business and operations. If the Company's shareholders approve the Plan of Dissolution, the Company intends to file a certificate of dissolution, delist its shares of common stock from The Nasdaq Capital Market, satisfy or resolve its remaining liabilities and obligations, including but not limited to contingent liabilities and claims and costs associated with the dissolution and liquidation, make reasonable provisions for unknown claims and liabilities, attempt to convert all of its remaining assets into cash or cash equivalents, and make distributions to its shareholders of remaining cash available for distribution based upon their proportionate ownership at the time of the filing of the certificate of dissolution, subject to applicable legal requirements. Upon the filing of the certificate of dissolution, the Company intends to cease trading in its common stock, close its stock transfer books and discontinue recording transfers of shares of its capital stock, in accordance with applicable law.

      I own a few of these, they just go non-traded, you still have an entry in your brokerage account but you can't do anything with it. One day you'll receive the cash. It takes a certain mindset to own these, it is a bit unnerving the first time or two, especially if you own them in size, because you generally get little to no updates during the non-traded liquidation process.

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  5. where have you owned these before? Do you know if Fidelity and Interactive Brokers are able to handle these?

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    1. I use Vanguard, but yes, Fidelity and IB are able to handle these.

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  6. Curious if you have an estimate of total expenses from 2023-2025 until final dissolution? Is $1-2M/year too high?

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  7. Why do you think the spread remains so high given that this seems like a very straightforward liquidation with minimal risk? liquidity discount?

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    1. Liquidity and uncertainty around the timing. Some liquidations drag out fairly long which pulls down the IRR.

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  8. https://www.sec.gov/Archives/edgar/data/1636050/000114036123005279/ny20007218x1_prem14a.htm

    Proxy statement out for the liquidation. Initial distribution estimated at $0.38-$0.42/share, doesn't give a total distribution estimate, appears to not be a ton left after the initial distribution unless they significantly overestimated their expenses.

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    1. Never saw that coming. Do you think management is sandbagging the liquidation estimates? What do you make of the $6-7m reserve?

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    2. How can the estimated expenses be so high? Total liabilities from last Q: 4.83 million, pay all that off and we are left with approximately 10 million in estimated expenses. They had 49.9 million in cash last Q and have 46 million in cash (as of jan 31). Some of that 3.9 million have probably been used to pay down some of the 4.83 million in liabilities. What's going through your mind?

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    3. Nvm, I see now that opex should be between (million) 2.20 - 1.80 and payable 3.25 ​- 2.85. The elephant in the room is the 7 million in "Reserve for potential or unanticipated claims and contingencies". This seems to be quite high, no?

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  9. I guess given the current stock price of $0.41, It doesnt really make sense to start a position here since the best case scenario is $0.42

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  10. The estimated unknown contingent liabilities are very high. 0.08 per share. I bought some at $0.4. Certainly not a slam dunk liquidation as it appeared.

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  11. $6-7M reserve does indeed seem to be the big question. Any ideas why so high?

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  12. Any word on potential liquidation date for SIOX, seems like they're completely in the dark now? if there was any word on date seems like a free shot at 40c with 8c upside, maybe 15c?

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    1. I'm a bit surprised they haven't announced an initial distribution following the vote, but I would expect one pretty soon.

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    2. Dissolution approved Apr 5 so seems like a no-brainer lotto ticket, what are the risks? lose 2c and CVR worth zero - so risk 2c to make 15c or more, what am I missing?

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  13. This one is taking a long time. I think they have some issue with foreign taxes.

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    1. Yeah, I'm surprised by the delay. Don't really have anything intelligent to add, but hope they announce something soon, you could be right about foreign taxes.

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  14. How much does the long delay change your thoughts on the excess reserve? Looks like CEO makes $500 per hour ($20k per week at 40 hours/wk) for his work on the liquidation beyond May 2023. Maybe I’m overly skeptical but does seem like incentives in-place for him to want draw-out the process. Although I’m sure he doesn’t want to be sued as well and he does own some stock. Just curious on any of your updated thoughts here.

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  15. On Aug 15th, the CEO told me they had liquidated one of the three int'l subsidiaries, still working on the other two.

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  16. Now he says 2 subs have been liquidated. I think we are waiting on Ireland sub.

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    1. Thanks again for the update, let's hope the next update/sub liquidation is quick.

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  17. $0.435 liquidating distribution.

    Sio Gene Therapies expects to file a certificate of dissolution with the Secretary of State of the State of Delaware, as contemplated by the Plan of Complete Liquidation and Dissolution previously approved by Sio’s Board of Directors and stockholders, on February 7, 2024. The Certificate of Dissolution, which is expected to become effective at 4:00 p.m. Eastern Time on February 7, 2024, provides for the dissolution of Sio under the General Corporation Law of the State of Delaware. In connection with the filing of the Certificate of Dissolution, effective as of the Effective Time, Sio will close its stock transfer books and discontinue recording transfers of its common stock, par value $0.00001. As a result, upon the Effective Time, holders of the Common Stock will no longer able to transfer record or beneficial ownership of the Common Stock, other than transfers by will, intestate succession or operation of law. Any future distributions made by Sio will be made solely to the stockholders of record as of the Effective Time, except as may be necessary to reflect subsequent transfers recorded on Sio’s transfer books as a result of any transfers by will, intestate succession or operation of law. Holders of the Common Stock as of the Effective Time will retain the right to receive distributions pursuant to and in accordance with Sio’s Plan and the DGCL. In that regard, Sio’s Board of Directors has declared an initial cash liquidating distribution of $32,511,587, or $0.435 per share of Common Stock, to be paid on or about February 8, 2024 to stockholders of record as of the Effective Time. Under the DGCL, Sio has up to three years to finalize the dissolution process. Sio plans to retain approximately $7,200,000 to cover dissolution-related operating expenses and any unknown contingent liabilities over this time. Sio currently expects to pay remaining cash to stockholders in one or more subsequent liquidating distributions, subject to uncertainties inherent in winding up its business. Sio cannot provide any assurances with respect to the amounts of any such subsequent liquidating distributions or the timing thereof.



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