Tuesday, December 12, 2023

Eliem Therapeutics: Broken Biotech, Reverse Merger Risk

Eliem Therapeutics (ELYM) ($67MM market cap) is a broken biotech that previously was focused on developing therapies for mental health and central nervous system disorders. Back in February of this year, Eliem paused development on ETX-155 due to "challenging capital environment" despite having FDA support for a Phase 2 trial to treat major depressive disorder.  Points to some possible value and expense discipline.  The company did a reduction in workforce of 55% and refocused on the pre-clinical ETX-123. As we've seen with others, they ended up fully pausing all research and development in July, announced plans to explore strategic alternatives and completed an additional workforce reduction (which is captured in the severance costs below).

This one is rather straight forward, there's no debt, minimal lease obligations, ~$100MM of cash and a 49% shareholder in RA Capital.
RA Capital is an institutional player in life sciences, they invest across the pre-revenue/revenue spectrum, Andrew Levin from RA Capital is the chairman of the board for ELYM. He appears to be more of a scientist than an investor, but I'm sure straddles both.  All that to stay this situation probably leans towards a reverse merger -- it has been 4+ months since the strategic alternatives announcement, a scientist as chairman and controlling shareholder (might have something they own privately and want to bring public), but given the ownership alignment, hopefully a well thought out transaction.  The IP might also be worth something here to someone wanting to pursue a Phase 2 trial for ETX-155.

Disclosure: I own shares of ELYM

21 comments:

  1. Just wanted to pouint out that RA owns stakes in dozens of private biotechs . Its almost a lock that one of them reverse merges with ELYM

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    1. Yep, my "leans towards a reverse merger" should probably be stronger towards "almost a lock".

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  2. Check out GLTO as well. IP could be worth double the market cap alone.

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    1. Thanks - I do sort of like this one, don't currently own it, I've been trying to focus more on broken biotechs with a meaningful amount of cash. Here it is a bit on the border of that and I don't have much clue on the IP, could be valuable as you suggest. I'll spend more time on it, thanks.

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  3. Down ~12% post market. News of a merger creeping out ? Or could it just be due to liquidity on a small name?

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    1. My guess/hope is just illiquidity on a small name, but not sure, I'm not really plugged into any deal rumor mills.

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  4. I'm adding to this one. Biotech reverse mergers have been performing pretty well recently (even if they fall on the deal announcement), the float is fairly small here with RA Capital owning half and BML in there for a good chunk too, any buzzy reverse merger deal could really jump. The cash and IP value provide some nice downside protection.

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    1. I'm curious, why the price bump today? Is there any news out or is it just bc MDC moved the market?

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    2. Nah, it oddly dropped yesterday, just retraced the difference today. No change really.

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    3. “equity holders of Eliem (including all outstanding equity awards) will own 84.6% of the equity of Eliem on a fully diluted basis”

      If I’m understanding this right, does this assign a pro-forma valuation of $93.06M to Eliem?

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    4. If you read the section above that, they're putting a $110MM valuation on Eliem. If you read the Concurrent Financing, it sounds like this is a two step deal, first buy Tango (whatever that is, might be basically an active-trade business) and then enter into a second deal which will include a PIPE. Might be a way around the new shell rules.

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  5. If a reverse merger were to occur, would a change-in-control payment need to be paid by ELYM?

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  6. With markets more buoyant and ~9 months since strategic alternatives announced, do you see any chance of them deciding to restart R&D / end strategic alternatives?

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  7. https://www.sec.gov/Archives/edgar/data/1346824/000110465924035606/tm249128d1_ex99-2.htm

    ELYM close to a deal, oddly the target is pretty small, only $20MM valuation being assigned to it. There's also going to be a PIPE.

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    1. If the deal goes thru, where do see the return for ELYM shareholders coming from? The market getting enthused about the combined prospects of the pro forma company? New to these situations, so just curious about potential outcomes here. Thanks.

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    2. Yes, some animal spirits are back in the market, speculative fever. RA Capital is a respected biotech investor, if there's a PIPE with significant demand, might see investors pile in to tag along or top off their allocation. There's limited float here too, take a look at what happened with ABIO, if they announce a buzzy transaction, the share price could get temporarily out of whack.

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  8. https://www.sec.gov/Archives/edgar/data/1768446/000119312524092520/d737147dex991.htm

    Reverse merger official now, market likes this one.

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    1. This one has me stumped. It's been rallying nonstop and I can't seem to justify the implied valuation.

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    2. I've already sold, know my limits, thesis played out nicely, time to move on. But I think the combination of a strong biotech sponsor, limited float, nice PIPE, etc., all played a part.

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  9. Nice move today. I found it odd that the stock didn't move when they had valued ELYM at $110m on 3/18 filing even if it was preliminary

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  10. Anyone know why this company’s stock is ripping?

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