Sesen Bio (SESN) (~$130MM market cap) is another failed biotech themed investment idea. Sesen Bio has one late-stage product candidate, Vicineum, a treatment for a type of bladder cancer, where a biologics license application (BLA) was filed with the FDA, but Sesen was sent back to the drawing board when the FDA issued a CRL (not a denial, but a "needs work") in August 2021 citing deficiencies in the original application that would require Sesen to complete a new (and long/expensive) Phase 3 trial before refiling. Sesen believes that Vicineum still has a path to approval, but the stock traded well below net current asset value on the news, limiting Sesen's capital raising ability to move forward alone with a revised Phase 3 trial. The company then announced they were pursuing strategic alternatives, which in failed biotech language usually means a reverse merger, if that doesn't work out, a liquidation.
In September 2022, Sesen's board went with Plan A, by announcing a reverse merger with Carisma Therapeutics, another cancer focused biotech with a supposedly promising platform ("CAR-M") but very much early/clinical stage. The original deal was for 34.4% net ownership of Carisma and a CVR that would pay $30MM or ~$0.15/CVR out if Roche initiates a Phase 3 trial on EBI-031 (Sesen was f/k/a Eleven Biotherapeutics); Roche currently has Phase 2 trials ongoing with an estimated completion date of September 2024. Importantly, none of the cash was to be return to shareholders and the combined Carisma would receive any proceeds from other asset sales. Later it was first adjusted to include a special dividend of up to $25MM, based on the excess cash over $125MM delivered to the new merger entity from Sesen.
Shareholders disliked the deal, the stock promptly dropped on the news. As an heathcare/biotech outsider, it can be difficult to tell which reverse mergers will pop and which will fail, often it seems to be timing, where the market's risk appetite is at any given moment. But here, going from a liquidation candidate (similar to the situation over at ADES) to the board approving investing shareholder cash into a clinical stage company was a poor read of the room. An investor in Sesen could sell their shares and invest in countless other similar science experiments, didn't need Sesen's board to do that for them. What makes things worse here, management and the board own very little stock themselves.
Two investors came forward (dubbed "Investor Group", they own 8.5% of SESN) against the deal, instead pushing for Plan B, a liquidation. Some back and forth went on behind the scenes, thanks to the activists, Sesen and Carisma recut the deal but it still is insufficient according to the Investor Group, who are still planning on voting against the reverse merger on the upcoming 3/2 shareholder meeting (if approved, deal will close shortly after).
Here's the new recut deal, for context, shares trade for $0.62/share today:
- $75MM or $0.34/share special dividend
- CVR that would receive the sale proceeds from Vicineum and other pipeline assets (no good guess here, but possibly a meaningful amount), plus the $30MM ($0.14/share) milestone payment from Roche if Roche initiates a Phase 3 trial for EBI-031 prior to 12/31/26
- 25% ownership in Carisma Therapeutics (CARM will be the new ticker), at the stated deal value of $357MM, that's $0.41/share of value to SESN shareholders. This is the value pre-closing financing partners (which includes a few blue chips names like AbbVie and Merck) are purchasing shares in Carisma ($30MM at $15.60 per share, 37.7924 exchange ratio into pre-reverse split SESN shares) which should have some haircut applied
Always interesting when you are pretty well of in both sides of a binary outcome ... if merger transaction fails the stock may well be forgotten for a little while before a liquidation is announced (MTCR did this recently).ReplyDelete
Haven't really looked further into MTCR. Wondering if you've got an opinion on the liquidation.
Sheepishly I have to admit I tossed MTCR to the side after not liking the structure of the merger, didn't realize they pivoted to a liquidation. Thanks, I'll take a look at that one and revert back soon.Delete
They had their merger advisor run the numbers on a liquidation, they estimated $0.58/share. Maybe a decent IRR from here if you get a lot of that back early?Delete
lots of biotech liquidation chat which has been super insightful. generally haven't played here much and wondering if those who have had more exposure would have a sense of the cost of liquidation process and general timing (1-3 years is assume)...Delete
obviously no one size fits all but curious to hear what others have to say on the matter
I saw that estimate, but I don't quite remember when it was assuming a liquidation to start. A positive there is that management was incentivized to get a lower estimate to push the merger. Downside seems pretty well covered there though. Expect most of the price to come back pretty soon.Delete
That's a good point on the incentive to low ball it. It sounded pretty conservative in general, just cash on the asset side, although I don't think their IP has much value? Sounds like they were just in the midst of repositioning their main therapy for a new use case when the bottom fell out.Delete
Hmm this is interesting to me, I used to do CAR T cell therapy research (I'm a computational biologist), and I do know of Carisma. Their CAR macrophage research is promising. However, I have no idea how you value something like that as an investment.ReplyDelete
Helpful to know it is promising, likewise, no idea how to value it.Delete
Selling Aug 1-strike covered calls at a dime also seems attractive.Delete
That does seem attractive, usually non-traded CVRs are given no credit in adjusted options.Delete
Would selling 10$ puts for >2$ work ? Saw some at around 1.9 - 2 range last week.Delete
The next day, Sesen Bio’s advisors relayed a counterproposal that hinged on the Investor Group’s principals receiving paid advisory roles and cash reimbursement of their expenses incurred in relation to their opposition to the proposed Merger in exchange for our agreement to vote our shares in favor of the Merger. In order to find out the magnitude of the payments being offered in exchange for our votes, we were told we had to sign confidentiality agreements and then speak to Sesen Bio’s Chief Executive Officer.
We contend the offer made to us was akin to a proposed bribe. In addition to being offended by the insinuation that we would sell out our fellow stockholders, the Investor Group is alarmed by your apparent willingness to engage in such highly questionable conduct. Your actions reinforce our view that Sesen Bio’s directors are unfit to serve as fiduciaries and should immediately resign.
Not a good look, agreed, hard to know what's what in some of these spats. I think there are two sources of upside optionality here, the stub CARM is one, but the legacy IP is probably more valuable. If the investor group prevails, still get that in a straight liquidation.Delete
The CARM deal also gives shareholders the benefit of legacy assets sale via CVR. I feel the biggest risk is that two sides will drag on the fight leading to value destruction.Delete
Yes, that's why I'm largely indifferent to the outcome. Hope it is a clean one and doesn't drag out as you suggest.Delete
Sesen and Carisma amended the merger again, slightly increasing the special dividend and extending the term of the CVR. Gained the support of the Investor Group, merger presumably gets approved now and will close in March.
Is today the ex-date for special dividend or not? Looks like the market is also confused. Stock hasn't dropped enough. There is also a possibility of due bills until payout date. Wonder if that is the confusion.ReplyDelete
The company announced a special dividend of $0.361 / share.Delete
That dividend is 65% of the value security.
Dividends of 25% greater than the security value are subject to different ex-date rules per FINRA. See here: https://rb.gy/b4wh8t
For distributions that are 25 percent or greater of the value of the subject security, the ex-date shall be the first business day following the payable date.
Rule 11140 subparagraph (b)(2)
Declaration date: 3/2
Ex-Date (Announced): 3/6
Record Date: 3/7
Payment date: 3/8
But I think there's a chance this is wrong, and the Ex-date should be 3/9.
3/9 would be the day when a buyer would purchase the security and not get the dividend.
The seller of the security now, even though the holder of record receives the dividend, would have to relinquish the dividend to the buyer.
Because the stock has not been adjusted downward to reflect the dividend distribution, the seller would be unjustly enriched.
CARM trading ($3.67), that is about 18 cents (pre-reverse split) vs the estimate of 41 cents. Dump was expected as none of the SESN shareholders would care to own it, and there may be even some CARM shareholders that want out. At some point this should recover, but based on the shares that will still be eager to exit, this could take a couple of weeks. Where will this end up by then is anybody's guess but most likely lot lower. Any thoughts or comments welcome.ReplyDelete