Friday, February 24, 2023

Talaris Therapeutics: Trading Well Below Cash, Strategic Alternatives

Talaris Therapeutics (TALS) (~$79MM market cap) is another failed biotech that recently announced they are pursuing of strategic alternatives after discontinuing a phase 3 trial and a phase 2 trial for their cell therapy intended to help those with kidney transplants.  Talaris hasn't completely raised the white flag, but close, they are still enrolling patients in another phase 2 trial, this time for scleroderma, and only laid off one-third of their workforce (112 employees as of the last 10-K).  However, Talaris is trading well below cash even in a conservative 4 quarters of cash burn scenario, any hint of a liquidation or other corporate action could spur the shares higher.

Talaris disclosed in their recent 8-K that they had $181.3MM in cash and securities remaining.  Using the implied Q4 cash burn rate for the remainder of 2023, I get a proforma net cash amount of $129.3MM against a current market cap of $79MM.  One benefit here is the presence of Blackstone's Life Sciences arm (Clarus Ventures) which owns just under 20% of the shares, hopefully enough to look out for shareholder value during the process.

Disclosure: I own shares of TALS

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8 comments:

  1. SupernovaFebruary 25, 2023 at 12:37 PM

    Thanks for the pitch MDC. For modeling these busted biotech liquidation/reverse merger deals I’m going try to come up with estimated base rates for remaining expenses, just to dial cash burn in as much as possible. Such as:

    Severance per employee
    Lease breakage costs
    Liquidation costs or merger costs
    Liquidation reserve
    Comp per remaining employee
    Avg. time to liquidation/merger

    In some cases, like this one, remaining ops may swap all these but I’m trying to dial these things in as much as I can. For ones that have already raised the white flag and have little ops left it’d be very helpful. If you or anyone has any input on these let me know and I’ll share what I come up with for a “template model” for these things.

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    1. MDCFebruary 25, 2023 at 12:53 PM

      I'd be interested in what you come up with, but with these I sort of subscribe to the old saying that you don't need to know someone's exact weight to know they're fat. 4 quarters of cash burn is my attempt at a template, I think that bakes an awful lot of expenses/contingencies in.

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    2. AnonymousFebruary 25, 2023 at 2:45 PM

      Agreed. It’s a huge cash cushion. I didn’t mean to imply I need this framework for Talaris. Just developing a general framework for all these busted bios. I’m probably being unnecessarily precise.

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  2. writserApril 17, 2023 at 2:25 PM

    I'm sure you saw, but in the latest 8K the company mentions that they fired basically everybody. Seems like they definitely gave up on developing their own pipeline. And the retention agreement with the CFO explicitly mentions a liquidation as a possibility. Ball-park, most of these names who fired everybody trade at a ~30% discount to my estimate of June cash, after the run-up in PRDS. This is now the outlier and at this point I am not quite sure why.

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    1. writserApril 18, 2023 at 3:14 AM

      Apologies, what I ment was the upside to cash is around 30% for most, so about a 23% discount. NLTX also seems like a cheap one you could consider for your basket.

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    2. AnonymousApril 19, 2023 at 2:11 AM

      The CFO doesn't own many shares, but the former CEO and Chief Scientific Officer (CSO) own a material amount. They have amended and restated Executive Severance And Change In Control Plan (10.5 in the 10K) but I can't work out what the means for the former CEO and CSO. If you can shed any light on that it would be much appreciated as it seems as though the CEO will be used an advisory capacity and depending on the incentives may guide to a certain strategic outcome (seems like reverse merger or liquidation).

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  3. MDCJune 22, 2023 at 7:54 AM

    Reverse merger with Tourmaline Bio:
    https://ir.talaristx.com/news-releases/news-release-details/talaris-therapeutics-and-tourmaline-bio-announce-merger

    TALS shareholders receiving about $1.55/share in a dividend, plus 21.3% ownership in Tourmaline.

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