Tuesday, November 28, 2023

Kinnate Biopharma: Foresite/OrbiMed Potential Offer, Tang Involved Too

Kinnate Biopharma (KNTE) (~$100MM market cap) is a clinical stage oncology company, while not quite a broken/busted biotech under my usual definition (full white flag on development pipeline and announce strategic alternatives), Kinnate did do a restructuring in September which resulted in 70% of their workforce being laid off as KNTE reprioritized their research efforts to earlier stage programs.  The company recently reported $180.4MM in cash and securities as of 9/30, KNTE guided to having enough cash runway through Q2 2026 in the restructuring announcement, implying an ~$18MM/quarter cash burn rate going forward.

Normally this wouldn't be of interest to me, but on 11/13, 46.2% joint owners, Foresite and OrbiMed (who are also teaming together on a potential Theseus Pharmaceuticals (THRX) bid) indicated that they're exploring acquiring the remaining shares they don't currently own.  Foresite is a credible buyer as they did something similar with Pardes Biosciences (PRDS), buying that broken biotech for approximately 85% of the net cash value tossing in a CVR for 80% of any proceeds from the sale of the development pipeline.  Something similar here would result in a ~$2.65 bid here, or 20% upside and could happen fairly quickly in the next month or two.

In a fun wrinkle (at least around here), Kevin Tang has jumped into the fray here as well (he's also made a bid for THRX) with 6.3% of the shares.  In the last year plus, he's been pushing for similar discount of cash with a CVR type deals, as a minority shareholder, guessing he would support one here as well.  Tang's known to engage with management, hopefully the added pressure will push the board to accept Foresite/OrbiMed's forthcoming offer.  Downside here is more similar to a speculative merger arbitrage situation (large), however, management has limited options as Foresite included the line again that they're uninterested in other strategic transactions.

Disclosure: I own shares of KNTE

17 comments:

  1. Worth mentioning that on 11/22 the board created a "transaction bonus" payable to the named executives on a Change in Control or sale of material assets. From my reading the aggregate bonus is equal to 5% of the deal value.

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  2. I like this one. The interest by Foresite/OrbiMed and even Tang reduces the risk of a reverse merger. The transaction bonus also makes it clear a deal will happen any day here. Still sells below cash. I agree on the $2.65 per share valuation and I see this going private at this share price very soon.

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  3. Also thought I should mention, Foresite likes to take private companies with very strong patent portfolios. For example, Pardes had a patent for the blockbuster Covid Pill marketed by Pfizer. I wouldn't be surprised if Kinnate also had some valuable patents.

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  4. Any news why KNTE is up nearly 8% today? I can't find any.

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    1. I haven't seen anything, but the shares are trading near my price target. I'm still holding, awaiting a deal, but not expecting much of a premium.

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  5. How much allocation do you give situations like this, typically?

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  6. https://www.sec.gov/Archives/edgar/data/1797768/000114036124002334/0001140361-24-002334-index.htm

    Another RIF, going to be down to 12 employees.

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    1. What do you make of this workforce reduction? Do you think we are any closer to a deal?

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    2. Yes, I was a tiny bit concerned that they hadn't fully waved the white flag on new development, this certainly seems like a step closer to that or a defacto halting of development.

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    3. I agree. I wouldn't expect significant pipeline development with 12 employees. This feels like a 'dressing down' of the company. In other words, getting ready to hand over the company.

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  7. I think the pipeline may have value with this one. I'm hoping they can sell some pipeline assets. ADC drugs are very hot right now. See article: https://www.cnbc.com/2024/01/14/cancer-drugs-renewed-interest-in-adcs-will-continue-in-2024.html

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  8. Kinnate Biopharma Inc. Enters into Agreement to be Acquired by XOMA Corporation for Between $2.3352 and $2.5879 Per Share in Cash, Plus One Contingent Value Right per Share

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    1. Thanks - I guess we'll find out when the tender offer comes out soon, but hopefully the cash amount ends up at the top of the range similar to THRX. Tender to be commenced by 3/4/24, so pretty quick close, might be interesting to add here.

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  9. https://www.prnewswire.com/news-releases/kinnate-biopharma-inc-sells-its-investigational-pan-raf-inhibitor-exarafenib-to-pierre-fabre-laboratories-302076211.html

    Sold some IP, milestone payment goes into the CVR and maybe more importantly, $5MM of payables goes to the buyer.

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    1. Yea, the $5M jumped out at me as the most important part since I believe(?) it makes it more likely first payout is at top of range. The CVR payment is maybe $30.5M someday in the future if the buyer makes significant progress with the purchased drug IP but they have only $5.5M of skin (plus whatever they invested in development) in the game.

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