Mural Oncology (MURA) (~$40-45MM market capitalization, trading has been highly volatile today) is a former November 2023 spinoff of Alkermes (ALKS), in late March the company announced they were not continuing with a Phase 3 trial of nemvaleukin in combination with Merck's Keytruda for the treatment of ovarian cancer as it didn't significantly improve overall survival rates. The stock was already trading below cash and crashed further, but I sucked my thumb on buying it. MURA was still pursuing a Phase 2 trial of nemvaleukin for the treatment of melanoma and was only projecting their cash runway to last into the first quarter of 2026.
Today, the company announced after reviewing the melanoma Phase 2 data, they were discontinuing all development of nemvaleukin, conducting a 90% workforce reduction and pursuing strategic alternatives. Shares are up over 100%, but still at a reasonable discount to my estimated net liquidation value.
MURA is trading wildly today, it is not the normal setup where a drug disappoints in the clinic and science based biotechnology investors exit quickly, here they've long given up on MURA and the discontinuation of development is a welcomed surprise.
One interesting tidbit that a reader found, in the press release, MURA includes:
Mural plans to explore potential strategic alternatives including, but not limited to, an offer for or other acquisition of the company, merger, business combination, or other transaction.
This one reads less as a pursuit of a reverse merger and possibly more of an invitation for a Tang-style cash buyout as a substitute for a liquidation? As others in the market have commented, seems like we're seeing some momentum build behind these broken biotechs doing the right thing and returning cash to shareholders, hopefully its a trend that continues here too.
Disclosure: I own shares of MURA
Anything obvious that would make this not a PFIC now? Seems like it would be after the RIF given not a US domicile so would need to keep in a retirement account to avoid extra tax filing work.
ReplyDeleteThat's a good point, is there a grace period or a threshold date to qualify?
DeleteWhy do you ascribe value to the prepaid expenses?
ReplyDeleteIt's just a swag estimate, some of those prepaid expenses will likely be necessary in the next few months, but sure, maybe not all.
DeleteI was looking at this one last year around a similar time that you wrote up Instil Bio. Mural was originally a spin-off from Alkermes that was an interesting trade because of its enormously negative EV that didn't show up in screeners or in filings (or Bloomberg for that matter) because of the timing of Alkermes's prospectus, which was before they planned to give MURA $250 million on the spinoff. I have since followed it very closely, and recently after the drop due to their failed drug, it looked to me extremely attractive with a small chance of strategic review as a huge catalyst due to the amount of cash they held. It reminded me of an Instil set-up (which ended quite differently than expected, though also far more profitable than expected)! Thoughts on comparison between the two?
ReplyDeleteHey MDC, where did you get the shares o/s figure ? I'm seeing the below as per 10-k.
ReplyDeleteAs of February 28, 2025, the registrant had 17,228,291 ordinary shares outstanding.
Also, seeing some details in section 11. Net Loss per Share (As of December 31, 2024 and 2023, the number of ordinary shares underlying potentially dilutive securities consist of:
3,697,107)
I only included the outstanding RSUs (~835k), might have been in too much of a rush to hit publish.
DeleteAny view on the Irish rules in relation to liquidation or merger? Not too well versed but think some nuances and complexities.
ReplyDeleteI think this is a major unknown that could possibly prevent or decrease likelihood of liquidation.
DeleteI don't know anything about Irish takeover laws, but from the sounds of the press release, specifically the yellow highlighting the post, they seem to be looking to get acquired versus a formal liquidation although for shareholders it could look very similar.
DeleteYes any structure would have to occur as an acquisition. I reached to mgmt, and it seems like they would only stay on only in a scenario where there was a large amount of $ raised along with a very exciting asset. In this environment not sure how likely that is so my hope is that it looks something like an AVTE which Lucid also advised on.
DeleteSounds like there's a big gap between how this plays out re the comment above vs Chris's comment below. Perhaps it's just differing takes on mgmt. but it's interesting. Could either of you elaborate ? Thanks
DeleteThey would need to be careful in order to preserve Sec. 355 tax-free treatment of the spin-off until 2 years expire, which may mean no liquidation for the time being, but a sale or a reverse merger could work. Also, management could get much more money if they do a transaction (severance upon CoC).
Deletefeels like they hired Lucid Capital Markets to help them find a reverse merger partner.
ReplyDeleteApparently someone(s) think they are going to destroy a lot of capital. I am getting paid 30% on my stock to loan it...
ReplyDeleteI wouldn't want to own this one here if you're not ready to fight like hell if they try to waste your money on another science experiment instead of return it. They will try to keep their jobs if they can find the slightest excuse. It absolutely should work but will take effort from owners.
ReplyDeleteThat's doesn't sound appealing, is this sentiment derived from speaking with management?
Delete+1 here. See comment above re different takes. Would be great if you could elaborate Chris. Thanks
DeleteIt doesn't show up as an SEC filing on their IR website at least; however, they do have a press release about Millennium Intl Mgmt taking a position:
ReplyDeletehttps://www.businesswire.com/news/home/20250513250525/en/Form-8.3---Mural-Oncology-plc
These guys are just a pod shop though, right ? Personally, I wouldn't think too much about them from an activist standpoint.
Deleteany updated thoughts on this situation? i think i saw tang selling at levels not too much higher than this
ReplyDeleteWe are 2 months into the strat review. Not sure they need that much more time…
ReplyDeleteIt's still early, I'd say the average for these is closer to 6 months.
DeleteFor a normal company, I usually assume 6 to 9 months, I figure the decisions should be quicker when you are basically a cash filled shell, but I hear you.
DeleteSec. 355 tax-free treatment is a big issue for MURA and potential buyers. Since they cut 90% employees, so it already triggered the tax review. A sale , reverse merger or liquidation are all full of tax risks.
DeleteI don’t think somebody wants to buy out MURA due to the huge tax risks.
DeleteShouldn't this constitute as a 'non-plan acquisition'? “A plan is not presumed to exist if the acquisition occurs after the distribution and there was no agreement, understanding, arrangement, or substantial negotiations regarding the acquisition at the time of the distribution, and the acquisition is unrelated to the distribution.”
Delete“non-plan acquisition” does not work here. IRS has very strict rules on this issue (you can verify by ChatGPT). Based on the Tax agreement, ALKERMES does not allow Mura to cut more than 10% employees. You can double check the agreement:
Deletehttps://www.sec.gov/Archives/edgar/data/1971543/000119312523277530/d319165dex101.htm This is no way Mura can be liquidated or sold now. The tax issue can let it bankrupt.
(c) During the Restricted Period, Mural shall not, and shall not permit any Mural Affiliate to:
Delete(vi) reduce the number of full-time employees engaged in the conduct of any Active Trade or Business and transferred as part of the Separation Transactions by 10% or more (such percentage to be measured based on headcount of full-time employees as of the Distribution Date);
In addition, management is eligible for high compensation in any buyout situation, which would lead to a Net Asset Value (NAV) of less than $30 million, even without considering tax issues：
ReplyDelete(i) Mural shall pay the Executive a lump sum payment in an amount equal to the sum of (A) two times Base Salary and (B) two times the higher of (1) the Target Bonus or (2) or the Prior Year’s Earned Bonus;
(iii) all outstanding Mural equity-based awards (including, for the avoidance of doubt, the Initial Alkermes Awards, which shall be converted into Mural equity awards in connection with the Spin-Off) held by the Executive shall immediately accelerate and become fully vested and exercisable or nonforfeitable as of the Date of Termination;
https://www.sec.gov/Archives/edgar/data/1971543/000119312523253525/d523094dex1010.htm
Mura can not meet the IRS tax requirements of (Active Trade or Business, ATB) after the 90% employee cut. The tax issue can make Mura bankrupt, so no buyers are willing to deal with it.
Delete(i) if such Distribution Taxes are attributable to a Mural Disqualifying Act and are not also attributable to a Alkermes Disqualifying Act, then Mural shall be responsible for such Distribution Losses;
Even if Mura chooses liquidation after November, it still can not get rid of tax issues. IRS will chase Mura's shareholders to repay some tax and interests.
DeleteEven after liquidation, Alkermes can still sue Mura and its shareholders to get back tax payment.
DeleteMy understanding of the spinoff tax rules is more around pre-planned acquisition, something that was discussed prior to the spinoff. MURA didn't pay to fail, don't think any acquisition now would with a counterparty that previously showed interest in MURA? But I could be wrong, sounds like I might be.
DeleteThe tax rules have much more restrictions. For example, at least two years of Active Trade or Business after the spinoff.
DeleteThis was well summarised in the SEC filings (e.g. excerpt below) and suggests a reverse merger is an option that could work. However, as well spotted in a comment above, MURA now appears to be in violation of the separation agreement due to the 90% RiF.
Delete"To preserve the tax-free treatment of the Separation and the Distribution for U.S. federal income tax purposes, for the four-year period beginning two years before and ending two years after the Distribution, we are prohibited under the tax matters agreement, except in specific circumstances, from certain actions, including: (i) entering into or approving any transaction involving the acquisition of outstanding or newly issued Mural equity that, when combined with other non-excepted changes in ownership of our ordinary shares, results in a change in ownership of more than a specified percentage; (ii) liquidating or partially liquidating, or merging or consolidating (unless we are the survivor); (iii) making or changing any entity classification election; (iv) ceasing to be engaged in an active trade or business, or selling, transferring or disposing of more than a specified percentage of the assets of any active trade or business or reducing the number of full-time employees engaged in any active trade or business by more than a specified percentage; (v) amending any of our organizational documents or taking any action affecting the voting rights of our ordinary shares; (vi) redeeming or otherwise repurchasing any of our outstanding shares or options; or (vii) taking or failing to take any other action that would prevent the Separation and the Distribution, in relevant part and together with certain related transactions, from qualifying as transactions that are tax-free for U.S. federal income tax purposes under Sections 355 and 368(a)(1)(D) of the Code, except for cash received in lieu of fractional ordinary shares. These restrictions may limit for a period of time our ability to pursue certain strategic transactions, equity issuances or repurchases or other transactions that we may believe to be in the best interests of our shareholders or that might increase the value of our business."
By cutting 90% employees, MURA can not meet this requirement
ReplyDeleteInteresting. So how does this play out in your opinion?
DeleteThere is no good solution. If no 90% employee cut, MURA will bankrupt in 2026. With 90% employee cut, it violates the tax agreement with previous parent company and has huge IRS tax issues that can let MURA bankrupt couple of years later. So MURA just bought some time now.
ReplyDeleteIf MURA NAV deceases gradually to near 0, then nobody will chase them for tax payments. Management can collect more salaries. That is the best solution for management.
DeleteLegal fees, management salaries will eat the NAV gradually in the future. They need to cover all tax related legal fees for the previous parent company.
DeleteIRS lawsuits usually last around 3 years.
ReplyDeleteBased on Irish laws, MURA can not be liquidated with paying potential liabilities. Or management and directors have huge personal liabilities. So liquidation is not a choice.
ReplyDeleteMURA can not be liquidated without paying potential liabilities. The auditor and Irish authority will not allow MURA to liquidate, considering its obviously huge tax obligations.
DeleteWhat do you estimate these potential liabilities as? If the spin off were to become taxable, what do you think MURA would owe to Alkermes?
DeleteDo you have an estimate of what these tax / legal liabilities might be?
DeleteThe potential tax liabilities are huge, bigger than MURA's current market cap. If MURA loses IRS lawsuits, it will be bankrupt.
ReplyDeleteIn addition, MURA needs to pay any related legal fees to Alkermes. Alkermes is a big company, they always hire expensive lawyers. So the the legal fees will be huge too. Alkermes will not control costs for MURA's shareholders.
What's more, MURA's the last 10 employees are management team members with high salaries, bonus and stock options. They will cost around 10M USD per year.
So almost nothing will be left for MURA shareholders after 2 years. You guys need to be very careful about this Irish company. It will be very different from a usual US broken pharm company.
What are the tax liabilities based on? I am not a tax expert but using Perplexity I came up with the following. Alkermes basis in MURA as of the spin date was at least $275 mm. Even at its peak, I am not sure MURA's market value was ever that high. If it had been a taxable spin, I think it might have all been a return of capital given the relatively high basis compared to the market value. As it relates to the RIF and active trade, my understanding is the IRS rule is 5-years before spin. The 2-years after spin is not a hard and fast rule for active trade and is subject to interpretation and biz conditions. MURA made a go of it for near 18 months before realizing the drugs weren't going to work out. The limitation of 10% was part of the tax matters agreement. I'd hope MURA was smart enough to discuss the potential RIF with Alkermes and / or get a legal opinion as to the risk around it. Anyway, I don't know that it is an obvious interpretation that the tax liabilities are huge. Legal expenses could be large, but given the fact pattern, MURA could negotiate something with Alkermes that is less onerous. Or this is just wishful thinking.
ReplyDeleteThis. For it to trigger a „huge tax liability“ there needs to be a huge tax base which would then be multiplied by 21%.The tax base would be the fair-market value of the Mural shares at the moment of the spin-off minus Alkermes’s aggregate tax basis in those shares on that same day (largely $275 m of cash + working capital). I understand share price peaked at almost $17 on the day of the spinoff implying a market cap of approx. $285m. Hence, the tax base would be approx. $10m (just accounting for the $275m cash and ignoring any working capital). This would imply a tax liability of approx. $2.1m (21%). As some fees and penalties and you might look at $4m give or take. Doesn’t tremendously change the picture in my view…
DeleteYour understanding about tax is not correct. There are two kinds of taxes: 1. ALKS company needs to pay a capital gain tax (it sold MURA on the spinoff date). 2. ALKS shareholders need to pay a dividend tax (they receive the MURA stock as a dividend).
Deletebuilding on the prior point. The capital gains tax for Alkermes would be based on the difference between FMV and basis as described above. Using the above numbers (there may be other puts / takes) it would be modest. The potential dividend tax for MURA spin recipients would be based on if the distribution were earnings or a return on capital. Given the info above, I believe the treatment would likely be predominantly a return of capital rather than a taxable dividend. That said there may be other factors I am not accounting for. Also, again this is only if the spin off is deemed to be taxable which is no sure thing even with the RIF. Just my opinion.
DeleteI wasn’t able to identify even one instance where the IRS unwound a tax free spin off involving public companies since §355(e) has been enacted in 1997. I agree there is some risk related to retro-taxing shareholders which might then want to be reimbursed and that this could trigger a huge $100m+ tax liability in theory. But, to my knowledge, that just never happened. (Please prove me wrong) Normally, Issuers would try to obtain an IRS private letter ruling or a tax opinion by a reputable auditor. Why would this be different here?
DeleteThe 2-years after spin is a very very important factor for IRS. Considering the huge risk and uncertainty in the future, ALKS will not wave any liability for MURA.
ReplyDeletePer Perplexity (for what its worth).
ReplyDeleteIn practice, the IRS scrutinizes whether the active business continues after the spin-off, but there is no bright-line rule for how long it must be maintained post-spin. However, discontinuing the business shortly after the spin-off may jeopardize the tax-free status, as it could be seen as failing the continuity requirements or as a disguised sale or device for distributing earnings and profits
Appreciate the back and forth here, convinced me that I should step to the side for now. Sold my position, was my smallest.
ReplyDelete