Singular Genomics Systems: Exclusivity Period w/ Deerfield, Spread Remains

Singular Genomics Systems (OMIC) ($60MM market cap) is an early stage medical device company, they have one commercial product (G4) and one in development (G4X) that is a promising next generation genome sequencer.  The company burns quite a bit of cash, approximately $25MM a quarter, but with the commercial launch of G4X in Q2 2025, OMIC could be coming to an inflection point with revenues coming in 2025.  Prior to bidders appearing, the stock traded at a massive discount to cash.

Recent Events:

• Back on 9/12, long time investor in OMIC and large health care fund, Deerfield Management, made a $10/share bid for OMIC.  Shares traded for approximately $5.60/share before the offer.
• Following Deerfield's bid, on 9/19, our friend Kevin Tang lobbed in his own $12/share bid, he owns just under 15% of the company.
• Presumably there was a fairly competitive bidding process (and likely at least one additional bidder other than Deerfield or Tang, Tang doesn't really want the IP normally it seems which would cap him out here) following 9/14 because on 11/4, we found out that Deerfield's latest bid is a whooping $24/share and has entered into an exclusivity period with OMIC to finalize a definitive agreement.

From Deerfield's latest 13D:

As previously disclosed, on September 5, 2024, Deerfield Private Design Fund IV, Deerfield Mgmt IV and Deerfield Management (collectively, “Deerfield”) submitted a non-binding proposal (the “September 2024 Proposal”) to the special committee of independent directors of the Company (the “Special Committee”). The September 2024 Proposal related to a proposed acquisition through a special purpose vehicle to be established by Deerfield of all of the outstanding shares of Common Stock not already owned by Deerfield or any other stockholders or members of management that Deerfield invites to “rollover” their current equity shares. Following negotiations with the Special Committee in a competitive process, Deerfield proposed an increased purchase price of $24.00 per share (the Original Proposal, as so modified, the “Modified Proposal” and the transaction contemplated thereby, the “Modified Transaction”), and following such proposed increase, on October 31, 2024, the Company and Deerfield entered into an exclusivity agreement to facilitate completion of Deerfield’s due diligence and the preparation and negotiation of definitive agreements in respect of the Modified Transaction.

Downside could be pretty considerable here, but we do have a high quality counterparty in Deerfield, competitive process and despite the sharp increase in the bid, I still have Deerfield picking up OMIC below an estimated NCAV at deal close  if you exclude the leases.

Including the operating lease, NCAV is closer to $20/share.

To me this is a similar trade to Asensus Surgical (ASXC), a cash burning business being led into the arms of a creditable buyer that knows it well.   I bought shares around $21.50, or a 11.6% spread to the $24.00 current bid.  Depending on where this trades it might not be actionable.  I'd probably be a buyer below $22.00, we'll see where the price settles in anticipation of the next piece of news.  There's a slight chance of another bump, but not counting on that.

Disclosure: I own shares of OMIC

Athira Pharma: Perceptive Working on a Reverse-Merger?

Athira Pharma (ATHA) ($24MM market cap) is a biotech focused on treatments to restore neuronal health and slow neurodegeneration.  On 9/3, the company announced its Phase 2/3 trial of fosgonimeton for mild-to-moderate Alzheimer's Disase did not meet its primary or secondary endpoints.  Rather than waiving the white flag and launching a strategic alternatives process, two weeks after, they announced Athira was going to focus on its earlier stage ALS treatment, ATH-1105, along with a 70% workforce reduction-in-force.

But that doesn't mean that other discussions might be happening behind the scenes, a 70% RIF is pretty large and sort of signals you're a cash shell.  Perceptive Advisors (14% owner) revised their 13D last week (thanks for the tip from a commenter), and included the line:

Consistent with their investment intent, each Reporting Person may from time to time discuss with the Issuer’s management, directors, other shareholders and others, the Issuer’s performance, business, strategic direction, capital structure, product development program, prospects and management, as well as various ways of maximizing stockholder value. Representatives of the Reporting Persons are engaged in discussions with the Issuer’s management and other third parties with respect to a potential extraordinary transaction involving the Issuer and other third parties. There is no assurance that any such transaction will develop or materialize, or if it does, as to its timing or whether the Reporting Persons will participate.

This sure sounds like Perceptive is trying to arrange a reverse merger transaction with Athira Pharma as the shell.  This idea is a little riskier, Athira hasn't declared strategic alternatives and has some pretty significant cash burn, time isn't on Perceptive's side to a get a deal done.  If we get well into 2025 and there's no deal, the cash burn might push the company to raise equity and pursue the original plan.

Here's my back of the envelope math on Athira:

The fairly small cash balance available to a reverse merger candidate could be an issue (I typically don't look at ones much smaller than this one), but as we saw with ATVE, some of these deals have been structured in a way where the reverse-merger candidate is really only interested in the public listing shell and legacy cash can be paid out as a special dividend to original shareholders.  

Disclosure: I own shares of ATHA

ESSA Pharma: Another Broken Biotech

ESSA Pharma (EPIX) ($72MM market cap) is the latest addition to the broken biotech basket.  EPIX is a clinical stage pharmaceutical company that was previously focused on developing therapies for the treatment of prostate cancer.  On Thursday (10/31/24), the company announced they were terminating all of their clinical studies and an initiating a review of strategic alternatives.

In the press release the company gave us 9/30 cash numbers:

Liquidity and Outstanding Share Capital

 

·

As of September 30, 2024, the Company had available cash reserves and short-term investments of $126.8 million and net working capital of $124.3 million (unaudited figures). The Company has no long-term debt facilities.

·

As of September 30, 2024, the Company had 44,388,551 common shares issued and outstanding, and there were 2,920,000 common shares issuable upon the exercise of prefunded warrants at an exercise price of $0.0001.

This one is fairly clean, although we don't have a severance charge estimate (the company has 50 employees), EPIX hasn't been burning much cash, only approximately $7MM a quarter prior to the termination of their R&D program.  My back of the envelope math is pretty straight forward, I'm assuming about $20MM of the expenses to wind down the company from here or get it to a place where a reverse merger can be done, feel free to make your own assumptions.

My liquidation value is about 40% higher than where shares traded Friday following the news.

Disclosure: I own shares of EPIX