AlloVir (ALVR) (~$74MM market cap) is clinical-stage biotech focused on cell therapy to treat viral diseases. On 12/22/23, AlloVir paused their Phase 3 studies for Posoleucel after advisors concluded the studies were unlikely to meet their primary endpoints. Alongside the announcement, the company announced, "we will immediately shift our focus to preserve our substantial remaining capital, review our pipeline, and assess strategic options." AlloVir does have 3 additional pipeline assets:
About AlloVir’s Earlier Stage Virus-Specific T cell Pipeline
Adult Kidney Transplantation
AlloVir has earlier reported the results of its completed Phase 2 randomized, placebo-controlled trial evaluating posoleucel for the treatment of BKV infection in adult kidney transplant patients. After 24 weeks of treatment, 39% of patients receiving posoleucel experienced a ≥1-log viral load reduction, compared to 14% of patients receiving placebo.
Acute Respiratory Infection
The company has completed Part A of a randomized, placebo-controlled Phase 1b/2a trial with ALVR106 in 14 stem cell or solid organ transplant patients. ALVR106 is an investigational allogeneic, off-the-shelf, multi-virus-specific VST therapy candidate designed to target diseases caused by human metapneumovirus (hMPV), influenza, parainfluenza virus (PIV) and respiratory syncytial virus (RSV). Data has been accepted for presentation at a scientific conference in the first quarter of 2024.
Chronic Hepatitis B Infection
ALVR107 is an investigational allogeneic, off-the-shelf VST therapy designed to target hepatitis B virus (HBV)-infected cells and potentially cure patients with chronic HBV infection. Preclinical and IND-enabling studies support the advancement of ALVR107 into a clinical proof of concept study as a next step.
Some of these might be worth something, or not. The company, unfortunately, didn't give us current cash or formally announce a reduction in workforce (but if you check LinkedIn, many of their employees are "looking for work"). My back of the envelope math:
Disclosure: I own shares of ALVR
If you kind of invert to how much cash is needed to justify the current price if an activist buys it at 85% of face you need 74.1/85% = 87mm NAV to break even, at 2-2.5mm/week cash burn it needs to resolve pretty quickly to maintain an attractive return above that. Not sure what change of control and severance looks like but it's probably bigger than the lease upside. Reminds me of the very small liquidations where scale makes timing super important (FRTX is a current interesting one).
ReplyDeleteWell said, yeah, the risk with this one is it dragging out, they do need to act pretty quickly or have the IP be worth something or the lease break at considerably less than carrying value.
Delete@R Linkedin suggests they already fired / will fire a very significant percentage of their work force. And the majority of R&D costs were associated with their phase 3 trials, now halted. So I'd be surprised if the cash burn is still $100m+ / year. But yeah, this one is a bit on the riskier side.
DeleteMDC: just wondering this: when I calculate the share count I usually include all unvested RSU's as, in my experience, these often vest when a deal happens, when the CEO leaves, etc. In this case, that's another 3.4m shares. You didn't include any of them. Any thoughts on how to take RSU's into account? Maybe we should meet in the middle?
Just a lazy mistake on my part, I think including the unvested RSUs is the correct approach.
Deletehttps://www.sec.gov/ix?doc=/Archives/edgar/data/1754068/000119312524002563/d35101d8k.htm
ReplyDeleteAnd some bad timing my part, ALVR announced via an 8-K a 95% layoff with a whopping $13MM in severance charges. I'd probably knock $10MM off of my proforma NAV, bring that down to $0.87 and $0.74 under the 85% of cash go-private offer math.
Does the information/calcs in the table come from the 10k?
ReplyDeleteOr is it the last 10-Q? What numbers are being used to calculate the cash burn?
DeleteCombination of the 10Q and experience/my estimate. I've gotten quality pushback on this one, I'm probably wrong, always double check, I'm probably too low.
DeleteAh ok. If it's not too much work, could share which number you use to divide by the market cap to get the NCAV. Or just the table on the 10-Q that I should reference. I am new to analysis.
DeleteWhat stopped me from buying in December is the shareholder base is all passives or biotech oriented funds (Elevate Bio, Fidelity, Gilead, Invus), which hints reverse-merger to me. Otherwise severance is high but there is a lot of upside in the lease.
ReplyDelete"...shareholder base is all passives or biotech oriented funds" - Where can I find this information?
DeleteI do it manually. There may be online resources available (like whalewisdom, etc) that make it easier but i don't know. First go to https://www.sec.gov/edgar/searchedgar/companysearch and find all the company recent filings. There is a section for Ownership Disclosures, open that and open Beneficial Owners section. You should see all the most recent SC 13 filings which disclose outside ownership, I read all those and then google the owners to try to gauge what their funds usually want out of their investments.
DeleteI classify enormous firms like Fidelity/Citadel as passives, ignore biotech funds since they probably are more motivated to roll the dice on reverse mergers than most, and look for funds with a track record of writing letters to the board and making buyout offers. Note that when biotechs announce test failures, layoffs, and initiate searches for strategic alternative it usually triggers a huge volume of share sales. this can cause the shareholder base to turnover very quickly and we won't know who the new large shareholders are until 10 days after they break the 5% ownership mark (or even longer in some cases).
Thank you for the information. Taking notes!
Delete1) "...look for funds with a track record of writing letters to the board and making buyout offers" - how do you know who these funds are? I have read the name Tang a couple times in this blog but are there other well known funds that do this?
2) Is a reverse-merger a negative for a current shareholder (see below 2a and 2b) of the broken biotech?
Delete2a) The shareholder who bought in before the "crash" 2b) the shareholder who bought in at a very low price after the crash
1) I google their names to see if I can find news stories on them or public actions they've taken. I also make some assumptions, for example if a fund buys 10% of a biotech after it announces it's failed test and laid off all its employees while stock price is well below NCAV, I'm going to probably assume they want the same things I do.
Delete2) It depends. Some reverse mergers the market likes and some the market hates. Look at FIXX for an example of what can happen when the market hates it.
Ok, thank you again.
DeleteGood morning all, I am new to the forum. I have been reading the thesis and comments. If you have any suggestions on researching companies, please let me know! Thank you!
ReplyDelete+1
Delete"'Id probably knock $10MM off of my proforma NAV, bring that down to $0.87 and $0.74 under the 85% of cash go-private offer math." You still in this one?
ReplyDeleteYes, I'll stick around. There's upside in the lease and potentially the pipeline too.
DeleteWhat makes you think there could be value in the lease? I'm new to these situations, so apologies if this is something obvious.
ReplyDeleteMost of these cancel their lease for less than carrying value on the balance sheet. Maybe a good rule of thumb is 50%.
DeleteIn the event of a reverse merger, how do you see valuation potentially playing out? Just broadly based on your past experience where these have gone reverse merger. Thank you.
ReplyDeleteThe target usually values the shell at net cash at close plus a little extra for the public listing. The market lately has disliked reverse mergers, although that might change, most have sold off pretty sharply on the announcement only to recover into the merger and then do well post merger.
DeleteIf you look at the AVRO S-4 that was recently posted to sec.gov, they had countless private biotechs (like 100+) submit bids. I think for the time being, at least until the IPO market opens back up, these reverse merger shells might have a bit of leverage over the private biotechs. Don't get me wrong, as a layperson, I would prefer mergers, but for someone with patience, I don't think a reverse merger (hopefully with either a special dividend or a CVR) is such a bad outcome in the current market. But that can change fast.
*I would prefer liquidations
DeleteI can't remember if we've discussed it on your forum but do you think the new SEC rules on SPACs and Reverse Mergers will make Reverse Mergers more difficult enough that they'll become significantly less likely in the future?
Deletehttps://www.ropesgray.com/en/insights/alerts/2024/02/sec-adopts-new-rules-regarding-spac-transactions
This is good info. Didn't know about this. Thanks for sharing.
DeleteAllovir filed their 10-K: https://ir.allovir.com/static-files/10a13668-8d88-4869-93a9-10c0e34e8e6c
ReplyDeleteBy my math, Q4 2023 cash burn was only ~$29.4MM, ~$0.09/share better than your original estimate of $40MM. Operating lease liability also slightly lowered by the early termination of the DMS Agreement. Seems like a good outcome.