CARGO Therapeutics (CRGX) (~$150MM market cap) is a clinical-stage biotechnology company that is developing CAR T-cell therapies for cancer patients. Last night, the company issued a press release stating they're discontinuing the FIRCE-1 Phase 2 Study of their lead asset, firicabtagene autoleucel, due to a non-competitive benefit risk profile for patients. The stock is down approximately 75% on the news.
Additionally, CARGO announced they are going to evaluate strategic options and are commencing a 50% reduction in force. The announcement is not a full waving the white flag, they do have a Phase 1 ready asset in CRG-023 that just received an IND application approval from the FDA earlier this month. CARGO currently plans to go ahead with mid-year launch of a Phase 1 study, but my guess is those plans could change by then depending on what happens with the strategic review. CARGO was a late 2023 IPO and thus has a nice chunk of cash remaining on their balance sheet that could be attractive to a reverse merger partner and provides some margin of safety at these prices if the process drags out.
Above is my typical back of the envelope math on a potential liquidation value for CRGX. The shareholder base here seems pretty vanilla, there are no cornerstone biotech investors owning more than 10%, the board is staggered and management owns very little stock. It might need an activist or other push to get things moving here, but I like the discount to a large cash balance and added it to my broken biotech basket.
Disclosure: I own shares of CRGX
Thank you for the write-up, this one seems interesting. Did you happen to look at ALLK too? I bought some of that as well. BVF has had a few good deals, explicitly guiding cash for Q2'25, RIF, etc.
ReplyDeleteI do love the explicit disclosure, CRGX had a similar one on the overall restructuring costs (not just the severance) but stopped short of the 6/30 estimated cash level. With ALLK, they have a pretty large operating lease that runs through October 2031, it appears that the estimated cash is not accounting for a lease termination? If it is accounting for the lease, then its cheap, if its not, then I'm not so sure, sort of a bet on what the termination payment will be.
DeleteThey cancelled a lease on 11/15/24 per the 8-k, I think that is the big one, but I'm not sure?
ReplyDeleteOops, I missed that, yeah pretty interesting then. Not as large of a cash pile as I normally like, but the certainty of the 6/30 disclosure makes it pretty cheap.
DeleteI should say they negotiated a cancellation to the lease on 11/15/24. The payment is supposed to happen before the end of q2, so I would think they would include that, but can't be sure I guess: The term of the Lease was scheduled to expire on November 30, 2031. The Lease Termination Agreement provides for, among other things, amendment of the term such that the Lease will terminate no earlier than January 1, 2025, and no later than March 31, 2025. As consideration for the Landlord’s agreement to enter into the Lease Termination Agreement and accelerate the expiration date of the Lease, the Company has agreed to pay a lease modification payment to the Landlord in an amount of approximately $2.3 million, of which approximately $1.5 million will be paid on or after January 1, 2025, by the Landlord drawing down and retaining the Company’s security deposit for the Premises in the form of a letter of credit secured by restricted cash, and the remainder will be paid upon the early lease termination date described above. The Company also incurred broker commissions of approximately $1.7 million. The net effect on cash and cash equivalents of these costs related to the termination is approximately $2.5 million.
DeleteRe ALLK I'd recommend having a look at the value of the shares owned by management relative to forecast net cash (cash less all liabilities). Then have a look at their Change in Control benefits. While it looks cheap, the enormous cost of the Change in Control benefits will burn a lot of cash. It appears to me that for management a reverse merger (and continuing to collect a massive salary) will be much more lucrative than a liquidation distribution given that the Change in Control benefits will occur in either case.
DeleteAnybody else surprised ALLK isn't up more today after the Tang filing?
DeleteAgreed. Thought it would be up a lot more. Tang even paid $.62 at one point, I'm sure it was a small buy but still. I think ALLK is pretty clean and management guide is helpful, though it's unclear if severance is included in their 6/30 cash guidance.
DeleteI don't know why ALLK is selling off, but looks good to me. Still haven't adopted a poison pill like some of the others Tang has been involved with.
DeleteI was looking at ALLK today, does seem pretty cheap. I had a few write-ups forward to me with an NOL angle, don't think that approach is right as these never merge with profitable companies. But I like that they give the projected cash at 6/30, trading well below that.
DeleteYa the NOL ones very very rarely come together. I think the cheapness is good, combined with no poison pill like the others Tang has been involved with recently, and BVF has been a decent holder for a few of these RM recently.
DeleteIs this a Cargo thread or ALLK? Maybe move ALLK elsewhere?
ReplyDeleteActually as a suggestion, perhaps, MDC you could create a post called 'watchlist' or 'general' or something to that affect, where chat / other ideas could be posted & it wouldn't clutter up the relevant posts. Just a thought.
DeleteI, personally, like the way it is.
Delete13D from Tang. 5.9%. Nothing specific mentioned re a transaction.
ReplyDeletehttps://www.sec.gov/Archives/edgar/data/1966494/000121465925003297/xslSCHEDULE_13D_X01/primary_doc.xml
Thanks, I mentioned the possible need for an activist here, hopefully he gets the process moving a little quicker.
DeleteFurther RIF and complete suspension of R&D:
ReplyDeletehttps://www.sec.gov/Archives/edgar/data/1966494/000119312525056674/d835509dex991.htm
Anup Radhakrishnan appointed as interim CEO to pursue reverse merger or other business combination
Great outcome. Congrats!
DeleteWell done! After the last announcement (the SEC filing is more precise than the press release) are you going to update your numbers? Thank you
ReplyDeleteThanks, no, I think the numbers are still roughly right. I'd still estimate their cash available at a potential reverse merger deal closing to be ~$5/share.
Delete