The broken biotech basket has been emptying out lately, but the latest addition is Ikena Oncology (IKNA) (~$75MM market cap), a clinical stage biotechnology targeting cancer therapies, that announced yesterday they are
shuttering development on their most advanced therapy candidate, IK-930, reducing their workforce by 53% (they previously did a 35% layoff in January) and will pursue strategic alternatives. Notably this isn't a full stop of development, Ikena does have another asset (IK-595) that dosed its first Phase 1 patient in December 2023. But Ikena does a nice job of itemizing their operating expenses in their 10-Q, making estimating future cash burn slightly easier.
Below is my quick back of envelope liquidation analysis:
The process for these situations is a well worn road at this point, others have also pointed to the new cash shell rules regarding reverse mergers going into effect July 1st could act as a catalyst; I don't think this process will take terribly long.
Some items to note here:
- OrbiMed is the largest shareholder with approximately 23% of the shares. Recent similar situations, KNTE and THRX, also featured OrbiMed near the top of shareholder registry, both produced good results with cash plus CVR buyouts.
- Bristol-Myers Squibb (BMY) previously had a collaboration agreement with Ikena for IK-175 and IK-412, they declined to go forward with development, but IKNA is looking to sell or out-license these. Probably minimal value, but could add a few cents per share in upside.
- Ikena Oncology has been quick to already sublease space and sell lab equipment, neither for significant sums, but shows some shareholder friendliness in moving quickly to a shoestring operation to preserve value.
Disclosure: I own shares of IKNA
Would you mind explaining why interest income is not taken into account on the cash held over the 2 Qs before the company winds down? Are interesting bearing accounts just not wear the cash is usually held for these companies? See that as more a margin of safety? Also, confirming IK-595 is not included in your $2.37 NAV suggesting potentially more upside?
ReplyDeleteThat's fair, probably should include interest income as well. I guess I've spent too much time living in a ZIRP world.
DeleteCorrect, doesn't include any IP value.
Good value here. I'd get interested if Orbimed released a schedule 13D stating a expression of interest for all the shares they don't already own.
ReplyDeleteGood find by a reader. IKNA initially issued the press release with the following disclosure that was later removed:
ReplyDelete"$157 million in cash and equivalents as of March 31, 2024; Projecting cash and equivalents at December 31, 2024 to range from $110 million to $120 million."
Also worth noting the CEO owns 3.5% worth $3.8m if they liquidate at $110m vs annual cash comp $550k and TC of $2.5 and 1.5m the last two years, so he stands to make far more from the liquidation and moving on to the next thing than from milking this any longer than necessary,
ReplyDeleteIsn't all his stock in the form of options with strike prices well above current price (i.e., worthless)? I could be wrong, only glanced at proxy quickly.
Deletehttps://www.bamsec.com/filing/114036124022470?cik=1835579
DeleteMark Manfredi holds 3.63% of the voting shares, certainly incentivized to strike a good deal.
0.00% of the Voting Shares.
DeleteFrom the proxy only one of his option grants have intrinsic value here with 95k shares at 1.15 strike (95,305 — 1.15 8/23/2026), a few grants have strikes in the 2 to 3 range.
DeleteAndy and SJ still wrong, congratulations.
DeleteThanks.
DeleteTwo signs that Ikena plans to continue, from the May 28 press release.
ReplyDelete1) "Ikena is dedicated to thoughtfully putting our capital to work towards impactful treatments for patients, and in doing so building value for our shareholders.'
2) And continuation of IK-595.
Alternately, if Ikena does currently plan to liquidate, it must be confident that IK-595 will be sold for millions more, than the additional millions it is spending to develop it.
Perhaps Ikena is just doing to obvious: proceeding with IK-595, until it has results that will inform whether it is worth continued trials.
Correct me if I am wrong, if Ikena plans to continue, what is the purpose of the strategic review? In other words, if the company remains intact, what would the strategic review do to provide value to shareholders?
DeleteClark Street Value, any thoughts on the comment above?
Delete"if Ikena plans to continue, what is the purpose of the strategic review?"
DeleteYou have that backward. If Ikena has already decided to dissolve and liquidate, why announce it is reviewing its options?
I don't quite understand the question, yes, they are continuing with IK-595 development, that was clear in the press release. They gave and then retracted the cash estimate at year end, to me its pretty clear they won't be continuing as is and will likely be a reverse merger or a cash plus CVR buyout.
Deleteexcuse my ignorance, but what would the potential reasons be for retracting the cash estimates?
DeleteIt's forward guidance, legal probably advised them that there's no benefit to providing it. I don't believe I've seen another busted biotech provide cash guidance 6-8 months out.
Delete"I don't quite understand the question"
DeleteMDC - I don't understand which question you don't understand. This format is pretty awful for coherency.
"to me its pretty clear they won't be continuing as is"
Perhaps you mean "as was," and yes, that is fairly certain.
From todays 8-K:
DeleteOn July 8, 2024, the Board of Directors (the “Board”) of Ikena Oncology, Inc. (the “Company”) appointed Jotin Marango, M.D., Ph.D. to serve as the Company’s Chief Operating Officer, effective as of July 15, 2024 (the “Effective Date”), in addition to his role as the Company’s Chief Financial Officer and Head of Corporate Development.
In connection with Dr. Marango’s promotion to Chief Operating Officer, his salary was increased to $470,000 per year, effective as of the Effective Date. Dr. Marango was also granted an option to purchase 400,000 shares of the Company’s common stock, which shall vest upon the Company’s consummation of a strategic transaction as determined by the Board.
I think that should more or less settle this discussion. There's basically one guy running the show and his granted options only vest in case of a strategic transaction. That seems to point pretty heavily towards a reverse merger or something along those lines.
Mark Manfredi remains CEO & President.
Deletesince this didn't close before July 1, would you expect the process to close before the next earnings in August?
ReplyDelete2Q is a disappointment. The Net Income Loss Reduction equals the 1Q Restructuring Amount. They are spending the same amount as prior to the Workforce Reduction and Clinical Discontinuations.
ReplyDeleteSome of that was accrued exp reduction. NCAV looks good right now, and OCF loss sequentially down qoq three straight quarters (12m loss in q2, 15 q1 20+ q4). I think q2 wasn’t that bad.
ReplyDeleteFirst sentence doesn’t make sense. Basically accrued liab reduction, ncav at good spot and cash burn falling.
DeleteHard for me to interpret any of it. One-thrid of the employees fired in January, should lead to larger cost reduction in the second quarter.
DeleteWe see conservatively $100 MM in net cash year end 12/31. With the shareholder count, we see the value at $2.10 per share.
ReplyDeleteAm I missing something here? Any thoughts.
Nice jump today - not seeing any new SEC filings though. Anyone have any ideas? Wondering if it was just macro rising tides or if there's new info.
ReplyDeleteAll the biotech shitcos in my portfolio are up today. Talks of the fed on the cusp of issuing rate cuts might be a tailwind for biotech.
DeleteQ3 Numbers just got published
ReplyDeletehttps://ir.ikenaoncology.com/news-releases/news-release-details/ikena-oncology-reports-third-quarter-2024-financial-results
Deal announced - Dec. 23, 2024 (GLOBE NEWSWIRE) -- Ikena Oncology, Inc.(IKNA) and Inmagene Biopharmaceuticals (“Inmagene”) announced they have entered into a definitive merger agreement. In connection with the merger, Ikena has entered into subscription agreements for a $75 million private placement
ReplyDeleteand?
DeleteMore and more reverse mergers than liquidations. Couple of decades ago buying below liquidation value of failed businesses often used to realization of liquidation value when active investors pushed for shutdown. With reverse mergers the game has become much more of a hit and miss depending on whether there is pipe financing or not.
ReplyDeleteAnother dismal failure.
ReplyDeleteHah, if you consider this a dismal failure you probably shouldn't put any money in biotech in the first place. I think this is a pretty decent outcome! Material PIPE at a large premium to the market price, an option to distribute cash in excess of $100m, a 1-year CVR for pre-merger assets.
DeleteCompared to Allovir or AADI this is a dream come true. Market reaction is pretty muted, sure. I would have loved to see a 200% pop on the first day or a liquidation rather than a reverse merger but you can't have it all.
There's a reason you can pick up these shells below cash - the outcome is very volatile. Sometimes you get screwed (ALVR), sometimes you have to console yourself with a small gain (IKNA) and sometimes you hit the jackpot (ABIO). But on average this basket has performed very well over the past few years if you were disciplined with your entry points.
I understand - or at least am aware - of your "Stock Price Up Good" philosophy.
DeleteI evaluate success based on the accuracy of the investment thesis. Because in that case, accuracy = reproducible. Here the absolute thesis was this would return cash. Both the original writeup and the Chorus Comments. So even if market hype had produced Stock Price Up, it would still be a failure of the thesis.
And here, the stock price fell > 10% since this was published. So Stock Price Down.
And no, I don't consider investing in cash shells to be "biotech in the first place."
The absolute thesis never was that this was going to liquidate, at least not for me and I'm pretty certain not for MDC either. That'd be pretty stupid given that ~80% of these names end up doing a reverse merger.
DeleteSometimes the market likes a reverse merger, sometimes it doesn't, sometimes a company liquidates. The thesis (or rather I should probably say my thesis) is that if you buy at a decent discount to a conservative estimate of liquidation value that over the long run you will do reasonably well if you wait for the conclusion of the strategic review.
You calculate the liquidation value because it gives you a tangible, conservative metric of what the company is worth. And I think MDC was pretty accurate with that given that insiders just plowed ~$30m in IKNA at a valuation that was pretty close to his.
If you think the above is bullshit (could very well be true!) and want a reproducible outcome of cash being returned to shareholders you should only buy the ones that actually passed a shareholder vote to liquidate the company. Unfortunately 1) picking these ones beforehand is, as far as I know, very hard and 2) as soon as a name meets this criterium the juicy discount to liquidation value is already gone.
If you have tips or thoughts about how to spot the ones that will liquidate beforehand or have some thoughts or improvements for my outlined strategy I'd be happy to hear them.
Thanks Writser. I agree. Liquidation value is more of a reference point. Also highlights the reason for the basket approach, at least I can't tell in advance which ones are going to get a big post announcement bump and which are going to disappoint. Reading the initial transaction press release, I would have thought IKNA would do well, oversubscribed PIPE (with current and new investors), CVR to IKNA shareholders, etc. We'll see what happens, I'm going to hold for a bit, sometimes these rally into and after the merger.
DeleteYeah, a day 2 fade isn't concerning, this reads like a better than average outcome. Deep Track joining the party is nice to see. I plan to hold my IKNA shares into January.
DeleteAnyway, enough bean counting. Merry Christmas to MDC, writser and my fav comment section in deep value land! Very excited for 2025.