Tuesday, September 5, 2017

Inotek Pharmaceuticals: Selling Below NCAV, Exploring Strategic Options

Inotek (ITEK) is a rather simple and small idea that adds to my recent theme of buying up the scraps of busted biotech companies.  Inotek was focused primarily on the treatment of glaucoma, an eye disease with a high unmet need, however their only drug, Trabodenoson, failed recent trials and it appears to be the end of the road for Inotek.  They've suspended research and development, hired Perella Weinberg Partners to pursue strategic options, and now sell below net current asset value.

Their balance sheet is now mostly cash and short term investments, offset by some convertible notes:
The current market cap is around $27MM, they'll burn ~$4MM a quarter on G&A and interest costs, and NCAV is ~$57MM.  Inotek does also have $105MM in NOLs, but the company should probably just call it a day and liquidate, hopefully we know more soon, but this seems like a fairly straightforward bet.  The biggest risks are the burn rate being higher than anticipated and/or a bad reverse merger transaction happening, both are more likely than I'm probably baking into the situation.

Disclosure: I own shares of ITEK
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6 comments:

  1. JSeptember 13, 2017 at 7:42 AM

    https://endpts.com/gene-therapy-startup-rocket-pharma-reverse-merges-with-troubled-inotek-after-25m-raise/

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    Replies
    1. MDCSeptember 13, 2017 at 8:32 AM

      Not what I was hoping for exactly. I'll hold off judgment until the proxy statement is filed, although I still won't know how to value the deal and it'll be interesting to see if shareholders approve it? Liquidation seems like the simpler path.

      Delete
    2. MDCSeptember 13, 2017 at 11:06 AM

      Strange move up today, without knowing more about Rocket or how to value, I sold at $1.21, could be a mistake long term, but it's out of my buy box now.

      Delete
    3. mhbladesSeptember 13, 2017 at 1:50 PM

      Thanks for the idea and the guidance. The IRR is pretty good on this one!

      Delete
  2. Shaqer23November 12, 2017 at 3:06 PM

    MDC --We also own CBS and ETM. Do you plan to exchange your whole CBS position. What do you think the trading dynamics for ETM will be like post exchange--the week of 11-2017 when investors receive their ETM shares. About 101 million shares are being distributed to Arbs and existing shareholders.Thanks.

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    Replies
    1. MDCNovember 13, 2017 at 8:45 AM

      I bought 99 shares of CBS to avoid proration, so I will be exchanging all my shares, then bought ETM to make it a normal size position for me.

      Good question on how it trades, could go a number of ways? LDOS really jumped immediately after the exchange offer occurred, others haven't faired as well, I'm not smart enough to predict CBS/ETM with any certainty.

      Delete

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