Friday, January 7, 2022

Odonate Therapeutics: Cash Shell, Delisting, Forced Selling, Possible Liquidation

Quick one today, this idea has been mentioned sporadically in my comment sections.  Odonate Therapeutics (ODT) is a failed biotech, it was a one shot on goal lottery ticket, their only asset was texetaxel, a oral/pill form of chemotherapy.  Last March, the company announced they were discontinuing development and would "wind down the operations of the company".  Since then they've eliminated most of their staff, settled a shareholder lawsuit and brought their cash burn rate down to a minimal amount.  

As of 9/30/21, the company had cash of $95MM and a book value of $71MM, ~$1.85/share.  This is where the story gets a bit weird, the CEO of ODT is our old friend Kevin Tang (he is the one that offered $50/share for APVO, which now trades for $7.45), on November 17th the company announced a share buyback of 20 million shares, oddly the buyback plan specified a share amount and not a dollar amount.  Prior to the buyback announcement, the shares were trading at ~$3.20/share, maybe the market was assigning some value to the company's $290MM in NOLs and possibility of a reverse merger (there was meme/speculative fever around these last year, CATB was an example), after the buyback news it dropped below $2.00/share.  Suspiciously, Tang Capital Management sold about 2.7 million shares into the buyback news at prices above the book value.

Then today, the company announced that NASDAQ would be delisting them due to their cash shell status and ODT will suspend their reporting obligations (meaning they'll likely end up in that dark/expert market status making it uninvestable for many), the stock dropped 30% at the open to ~$0.90/share, again against a book value of ~$1.85 as of last reporting.  Cash burn should be minimal, and if the company didn't run through their buyback in the first few days after their announcement, then the buybacks should be accretive to book value, potentially offsetting any additional cash burn.

From here, the company either straight liquidates and returns the cash to shareholders as the initial "wind down operations" suggests, or it does a reverse merger to try to monetize the NOLs.  I'd be fine with either, most of the time a biotech has an initial pop on a reverse merger, Tang still owns a third of the company and may want to reverse merger another investment into the ODT shell.  There's some ugliness here and questionable governance (nothing new for this blog!), at half of book value which is primarily all cash, I couldn't help but add small position on today's forced selling.  But please do your own research, and make sure you're comfortable owning stock in a non-reporting company.

Disclosure: I own shares of ODT