Monday, November 4, 2024

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

15 comments:

  1. I do want to note one risk I left out:

    Government Investigation

    In November 2022, we received a Civil Investigative Demand from the Civil Division of the Department of Justice, or the Demand. The Demand seeks documents and information relating to our relationship with WSU, certain of our grant applications in 2016 and 2019 with the NIH and our receipt of an NIH grant in 2020. We are cooperating with the Department of Justice with respect to the Demand.

    We cannot predict the outcome of the Demand. Failure by us to obtain a favorable resolution could have a material adverse effect on our business, results of operations and financial condition.

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  2. Did you look at CARA by chance ? Similar situation with 13D filing.

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    1. Looking at that one now, thanks for the heads up.

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    2. Interesting one, the 13D makes it sound like Vifor/CSL wants the license back, structured more as an asset purchase than buying out CARA? I might be on the sideline for now, but thanks for the idea.

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    3. Yes and CARA running strategic alts with pretty extensive RIF. There is a CoC payment on their HCR liability that is waived if CARA is acquired by a “qualified buyer”, a publicly traded biopharma company with mkt cap over $250mm; or a biopharma company with assets over $500mm. Would think they just buy the entire thing.

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  3. i own this but slightly smaller in size relative to other biotech liquidation candidates - compared to the 13D filing price, there seems to be less margin of safety - e.g. if they don't do a deal then the cash burn piles up. Which makes me think that the bargaining position here isn't great relative to an EPIX.

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    1. Yep, I agree, I own more of EPIX than ATHA

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  4. Have you seen the 10M settlement for Nacif et al v. Athira Pharma Inc et al? Is that reflected in your 18M Q4 costs? https://www.labaton.com/cases/nacif-et-al-v-athira-pharma-inc-et-al

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    1. Yes, they have a liability reserved on their balance sheet for it, it is in the NCAV number.

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  5. Clark, look up today's pair of 13Gs from BML. Looks like somebody's been cribbing your homework :)

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  6. Has anyone looked at KRON ? New one to add to busted biotech basket. $58m market cap, (so likely for smaller accounts). $100m net cash. Nov 27th announced an 83% RIF & COC transaction bonus. Likely candidate for a reverse merger.

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    1. Main issue I saw on it has been price, I see an only 0.95/share liquidation case which it is already trading through. Agree it's likely a reverse merger outcome. I find it hard to predict if it will be a clearly attractive combination like AVTE is doing or an expensive one like ALVR inked.

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    2. I was a little more generous when I ran the math, came up with $1.10/share liquidation case, just not quite juicy enough for me when we still have something like IKNA out there trading at $1.70 when they told us YE liquidation value is $2.30

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    3. Thanks both : Yeah, makes sense. I own a little below here. If it drifts down to mid 80's I may scoop up a few more.

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  7. Agree with 1.08-1.1 range. I was lucky to get in last week at .9 and out today at 1.04. Hoping to reload. Nice HLVX update just now…

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