Friday, December 15, 2023

Reneo Pharmaceuticals: Phase 2 Study Misses, Pre-SA Broken Biotech

The theme around here continues on -- Reneo Pharmaceuticals (RPHM) (~$45MM market cap) is another broken biotech, this week the company announced their Phase 2 study of Mavodelpar in adult patients with mitochondrial myopathies did not meet its primary or secondary efficacy endpoints.  The stock responded by crashing 80+% as this is a one shot on goal biotech without much of a remaining pipeline.  Reneo is now trading well below liquidation value, while the company has yet to announce a strategic review, it doesn't have many options left, I would expect the official strategic alternatives declaration soon.

This is another fairly clean balance sheet, Reneo disclosed that current cash is approximately $100MM as of yesterday, subtracting out their 9/30 liabilities, severance payments and an estimate of cash burn/liquidation costs (they only have approximately 12 employees following their reduction in workforce), I get an NAV or liquidation value of ~$2/share.  The company did put in place an ATM in November, it doesn't appear they've used it based on current cash and historical burn rate, but the share count above might be worth confirming.  

I could see a little bump in price if and when the company does formally announce strategic alternatives and then a second on some conclusion, whether a deal or liquidation of Reneo.

Disclosure: I own shares of RPHM

48 comments:

  1. What do you suggest we do? Is it a good time to buy or are prices going to stay pretty low?

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  2. Also interesting is that, as with CYT, Novo was a holder. I don't quite understand what they are doing: with CYT it appeared like they were interested in selling down a bit when the trial disappointed. In this case they sold their entire position yesterday < $1.20. That seems .. Overly aggressive? Not quite sure what to make of that. I'm curious to see whether these shares ended up at mr. Tang, mr. Leonard or another one of the usual suspects. This seems like a nice clean name for some activists to try and do something.

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    1. Yeah, was about to flag the same thing. Probably easier for them to just get out clean then wait for any liquidation. However would that make things harder for a Tang or other who could buy a few % and have Novo on board ?

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    2. The corporate structure seems a bit less shareholder friendly than typical (staggered board, requirements for calling a meeting type stuff), hopefully that doesn't deter the typical activists. Hopefully the international entity (19 of 48 employees were in UK as of the last annual report) doesn't complicate or slow whatever reverse merger/liquidation outcome they pursue (see SIOX liquidation delays). Low turnout for their last annual meeting not ideal. Always humbling to see what looks like cool science that is going to change a lot of lives fail in the clinic for unknown reasons.

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  3. So is it a good time to buy?

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    1. I own shares, but up to you to determine if you agree.

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  4. FYI: "After the holidays, there will be a board meeting in which a pathway forward will be decided. Thereafter, we will provide an update to the market."

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  5. Runner a screener for stocks that have dropped >50% before every market open would be a productive thing to do. As they often overshoot downwards right after news comes out. Would be sitting on a nice 2 day 40% gain in this case. Similar thing for ACRS.

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  6. How did you come up with the $2.5mm in severance?

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    1. https://www.sec.gov/ix?doc=/Archives/edgar/data/1637715/000119312523295039/d553352d8k.htm

      It's in the 8-K

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  7. Are there news resources for biotech other than biospace.com/ that are good to follow?

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  8. shouldn't we factor in shutdown costs for ph. 3 trial 200 patients & other shutdown costs?
    Also how did you arrive at only $15M burn to deal? aren't there public company costs? Thanks

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    1. A more constructive approach could be to give some numbers yourself. What’s is your estimate of costs of shutting down that trial? $5m? $10m? And for public company costs? I think that MDC is assuming 3 quarters of $5m / quarter, which seems reasonably in line with similar companies.

      I’m a bit lower myself too, reserving something like $5m - $10m in extra costs / unforeseen liabilities. But I think it is likely that somebody like Kevin Tang can make this work buying all shares at $2; $1.80 or something like that.

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    2. Thanks, yeah just an estimate swag based on experience. Feel free to make your own assumptions.

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    3. Nice call on the $1.80/share number. Tang's offering just that:

      https://www.sec.gov/Archives/edgar/data/1191935/000121465923016861/o1226230sc13d.htm

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  9. Boom! Happy holidays!

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  10. Actually 1.62 still is a good price, considering Reneo most definetly will liquidate

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    1. I'm worried on the timing, this was almost too quick of an offer from Tang. The board will still have to do a more complete review of alternatives, see what other options/offers are out there, I wouldn't expect them to make a quick decision here.

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    2. Well if another quarter of cashburn, buyers might step away I fear. I am clueless whether the hold through or not at those prices

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    3. I am in the same boat and considering just closing the position. All in all good return given timing …

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  11. Any thoughts on CHRS?

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    1. What's the trade ?

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    2. Based on recent FDA approval, was curious if it was still at a reasonable value.

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    3. Others might have thoughts, but sorry, that's outside my lane.

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  12. Will the NAV decrease by the end of Q1 this year due to cash burn or other liabilities therefore bringing it inline with current $1.60 price? (Not taking into account the $1.80 offer)

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    1. No, I think it would still be mostly inline with what I put up there, but if it drags out longer, maybe it would come down some. I don't think they're going to quickly accept Tang's offer, especially since they haven't declared strategic alternatives yet, board needs to canvas the market a bit first to CYA.

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    2. Also, the bid is contingent upon a hefty $75m cash balance. Net cash minus severance costs is already $82m, doesn't leave that much room for error. I don't think at all that this bid is a certainty.

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    3. Total cash isn't $100M, it's "over $100M". They had $125M in total cash end of Q3, minus $19M in cash burn (same as Q3) would give them a balance of $106M right now. Minus liabilities, the vTv stock repurchase, and severance would make net cash $84M. And that's $2.50/share, so why would they take the low Tang offer when they could liquidate for close to that?

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  13. BML in now too, will also push for a quick resolution

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    1. Thanks for pointing that out. ACRS is in a similar spot, both are on the shareholder registry there too.

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    2. Hi MDC/ All - Took a quick look at ACRS too, given BML just bought 4.5m shares. In the PR on Jan 16th the new CEO (co-founder) announced that the co. is conducting a strategic review of its business to determine how to optimally deploy its capital to maximize shareholder return, noted the cash balance at 12.31 - but also "reiterated" the business pan & highlighted the 3 programmes. I'm wondering which statement deserves more weight here? Perhaps neither... Is the fact that they highlighted the cash balance a give away, or the norm in your experience? Would welcome any thoughts/guidance here. Cheers.

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    3. That's pretty much the exact risks I put in my draft post. They haven't fully given up yet by the sounds of it, close, but not quite. Hoping that Tang/BML can push them over the edge or lob in a bid to force them to, but that's a little riskier than some of the others that have fully halted development.

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    4. Thanks MDC, appreciate the response! (draft post, looking forward to it:) ). Wonder if this will drift lower while Tang & BML push behind closed doors.

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  14. Correct me if I'm wrong here, but from what I can tell BML filed a 13G (not D) so would not be able to "speed things up". That said, I guess they could flip to a D pretty quick.

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  15. https://www.sec.gov/ixviewer/ix.html?doc=/Archives/edgar/data/1637715/000095017024019338/rphm-20240220.htm

    Reneo with an additional workforce reduction.

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  16. Reneo Pharmaceuticals and OnKure Announce Proposed Merger

    Any views on the science of the reverse merger target or market views on the quality of the PIPE investors? RPHM contributing 55mm cash for a 31% stake of a 120mm cash entity after a 65mm PIPE.

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    1. No views on the science. But I'll hold it for a bit, the pattern recently seems to be the market sells on the reverse merger news but then rallies into the closing of the deal as the shareholder base turns over.

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    2. Maybe it works out to a ~24% stake actually (30.6% ownership is pre the 60-80mm PIPE?). That would imply from a 1.80/share expected closing net cash balance to more like cash of 0.87/pre-deal share + the new IP.

      This one does seem set up to work well if market likes the science, some 180 day lock-ups and a reasonably small break fee giving shareholders a voice.

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    3. "But I'll hold it for a bit, the pattern recently seems to be the market sells on the reverse merger news but then rallies into the closing of the deal as the shareholder base turns over."

      100% on the money.

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    4. Thanks - "the basket" is getting a little empty. Any attractive net cash / strategic alts biotechs that I'm missing which are attractive?

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    5. Not that I know, unfortunately .. Was poking around LYRA a bit but it still seems a bit too expensive for me. At this point I only own ALVR (or at least that's the only one pre-deal / pre-liquidation).

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    6. Yeah, that's the only one I own that's pre-deal as well.

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    7. Thank you. I own some GLTO, but not crazy about it. ALVR waiting to buyback a little lower just because it has dragged on for so long. LYRA same, too expensive right now.

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  17. Have you looked at AKLI?

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    1. My main concern on AKLI is that it still has 36 employees as it needs to provide support to Shionogi, and its still working for FDA approval to sell its ADHD treatment to adults, so looks like its still going to burn cash for a while.

      Secondary is its largest shareholder is Chamath, who is a gambler, not a value guy. Liquidation hurts his "brand" as it will be perceived as failure while he's trying to convince retail he's the next Buffett. A reverse merger gives him a victory claim.

      That said, I think its just below my worst case liquidation value if it occurred by years end, and everything they are doing seems to point to liquidation. Seeking FDA approval while terminating entire marketing team signals trying to increase IP value for a sale. If they can get any significant amount for their IP it would make for a much better outcome. But given the virtually nil sales of their products I don't know how much value they could have, even if adding adults.

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    2. I’d argue Chamath is checked out in this name. He knows people no longer respect him and he left the board last year.

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    3. Maybe but it was still his SPAC that funded it so the end result, good or bad, will credited to him. And though he must be aware that some people no longer respect him, he seems to have Steven Seagal level ego blindness where he thinks most of the world are still fans.

      He should want to liquidate as he has a ton of stock but it's worth so little now, he may care more public perception. A complicated sale/merger to cover his tracks may also appeal to his Dunning-Kreuger instincts.

      A better reason to bet on liquidation/sale is the recent SEC ruling to make reverse mergers more difficult but I'm not sure how big a change that will be in practice. I'm sure wall street's favorite lawyers are parsing every word in it at this very moment to find any possible loopholes.

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