Homology Medicines (FIXX) (~$70MM market cap) is a clinical stage genetics biotech whose lead program (HMI-103) is meant to treat phenylketonuria ("PKU"), a rare disease that inflicts approximately 50,000 people worldwide. In July, despite some early positive data, the company determined to pursue strategic alternatives as FIXX wouldn't be able to raise enough capital in the current environment necessary to continue with clinical trials. Alongside the strategic alternatives announcement, the company paused development and reduced its workforce by 87% which resulted in $6.8MM in one-time severance charges.
Outside of approximately $108MM in cash (netting out current liabilities), FIXX has a potentially valuable 20% ownership stake in Oxford Biomedia Solutions (an adeno-associated virus vector manufacturing company), a joint venture that was formed in March 2022 with Oxford Biomedia Plc (OXB in London). As part of the joint venture, FIXX can put their stake in the JV to OXB anytime following the three-year anniversary (~March 2025):
Pursuant to the Amended and Restated Limited Liability Company Agreement of OXB Solutions (the "OXB Solutions Operating Agreement") which was executed in connection with the Closing, at any time following the three-year anniversary of the Closing, (i) OXB will have an option to cause Homology to sell and transfer to OXB, and (ii) Homology will have an option to cause OXB to purchase from Homology, in each case all of Homology's equity ownership interest in OXB Solutions at a price equal to 5.5 times the revenue for the immediately preceding 12-month period (together, the "Options"), subject to a maximum amount of $74.1 million.
Poking around OXB's annual report, they have the below disclosure:
It is hard to handicap the path forward, maybe OXB buys them out, they could do a pseudo capital raise with FIXX's cash balance while eliminating the JV put option liability. Or FIXX could pursue the usual paths of a reverse-merger, buyout or liquidation.
Disclosure: I own shares of FIXX
I get $2.02 in cash per share if the put option is fully valued?
ReplyDeleteThat's correct, but I don't know if its reasonable to assume FIXX gets full value in a sale or in some negotiated early exercise with OXB. Probably best to include some discount.
DeleteIsn't the full value better for shareholders? And available with a CVR? How about the science here? How do you value that?
DeleteOf course it would be better for shareholders, just not sure how likely that would be? Could be solved with a CVR, depending on what path they take for strategic alternatives. If a reverse merger candidate is just interested in the cash and public listing, a CVR could solve for the JV's value.
DeleteNo clue on the science here, that's why I marked it at zero but left it open. Could be worth something, but I'm just a retail guy with no science background.
Yeah but how would you value it if were going to do the work on valuing the science?
DeleteThe option probably can be assumed by the the acquiring company depending on how deal is structured. I guess it would depend on if they want to continue using facilities for drug programs. I doubt this will drag on much longer with early next year or sooner close to any deal and that should limit cash burn. Firing all the employees tells me there was interest in company but that does not mean its good for shareholders. I think science alone worth $50 million, OXB deal worth $25 as I do see lease as a liability. $3 seems doable
DeleteWhy don't you think firing employees and interest in company is good for shareholders?
DeleteLease is NOT a liability it's 100% pass through check the filings, however there's $13M additional spend owed to OXB in 2024 as part of original asset sale which is the floor on the option value $13M x 5.5 x .2 = $14.3M option value worst case scenario ...... Clark's gross $32M in forward burn is conservative enough to account for the additional spend + severance, so realistically forward G&A is max $5M on the 12 remaining employees (including their severance) + $13M OXB spend + $8M in clinical obligations = $26M vs. $32M......science value is an open question without more clarifying data very hard to price properly could be zero could be $100M+
DeleteDecember or January next year conclusion....probable that informal approach initiated process, Albert isn't a CEO or entrepreneur type but an honest scientist and is looking to setup his next seat....hopefully Tessera if we get shares in reverse merger or buyout if we don't....
DeleteThank you for clarifying lease obligations. My understanding is they brought on 4 new clients as of late last year so hitting max rev threshold appears solid. I assume the company laying off most employees in midst of solid data extremely bullish for shareholders as they could muddle through.
ReplyDeleteTheir gene editing science appears to be most popular approach to Gene therapy so hopefully pipe has some decent value.
From OXB's interim report:
ReplyDelete"The put option liability to acquire the remaining 20% of Oxford Biomedica Solutions that the Group doesn’t already own has decreased from £38.2 million at 31 December 2022 to £20.3 million at the end of June 2023 due to a decrease in the value at which the option is expected to be exercised."
Put option liability on financials is vague and nebulous at best. I think $25-$35 million for this asset is reasonable but seems similar to valuing the science in my view.
DeleteThat's fair, but much of the revenue of Oxford Biosciences Solutions comes from FIXX if I'm not mistaken, so now that they're pausing development, the revenue is going to drop and the put option price is fairly formulaic at 5.5 TTM revenues. Or do I have that wrong?
DeleteYes Fixx is pausing development and think I read they were paying $25 million annually to OXB solutions. With that said OXB solutions says they many more clients now without saying how much cash that will mean annually. I bet its more than $15 million. I would think OXB would like to own entire partnership and I still think best case is $35 million for fixx.
DeleteInteresting as an OXB shareholder (have the scars to prove it!) The recent OXB results indicated that they expect no more work from Fixx in Solutions. They have also recently made significant redundancies in Solutions although are now indicating that they plan to produce AAV in Oxford (rather than just Boston) and potentially add LV into Boston. This suggests that there might have been concessions or variations to the original agreement from March 22 (not obligating Fixx revenue commitment and allowing more operational freedom to OXB)
ReplyDelete