Theravance Biopharma: Failed Phase 3 Trial, Strategic Review

Theravance Biopharma (TBPH) ($700MM market cap) announced earlier this week their Phase 3 trial evaluating ampreloxetine for the treatment of a rare disease did not meet its primary endpoint and the company was winding down R&D efforts.  The press release has a lot of good nuggets in it that'll be referencing.  Back in November 2024, the company began a strategic review with the hiring of Lazard as their financial advisor.  The review on the surface would appear to be stale, but it reads as if a decision tree is in place dependent on the results of the ampreloxetine clinical trial.

In connection with this announcement, the Strategic Review Committee of the Theravance Biopharma Board of Directors (the “Committee”) is accelerating its ongoing review of alternatives to maximize value for shareholders. Since its formation in 2024, the Committee has been working on an ongoing basis with Lazard, its independent financial advisor, to evaluate opportunities available to the Company, including under multiple potential outcomes for the CYPRESS study. Building upon this work, the Committee will act with urgency to evaluate a broad range of value maximizing and tax efficient alternatives, including but not limited to a sale of the company.

If the trial failure was already fully contemplated and the strategic process isn't starting from a standstill, things could move pretty quickly from here.  In the press release, TBPH gives us all the components we need to come up with a back of envelope estimate of its fair value.  Unlike other busted biotech, TBPH has a number of valuable assets, this isn't a typical melting ice cube, post restructuring, it will be cash generative.

Cash of $326.5 million at Q4 2025 (no debt); approximately $400 million expected at end of Q1 2026 including receipt of 2025 milestones; Theravance highly confident in achieving $100 million 2026 TRELEGY milestone

Trelegy is a blockbuster COPD and asthma treatment (partnered w/GSK) TBPH monetized by selling their interest to Royalty Pharma (RPRX) in 2022 for $1.1B in upfront cash plus some contingent milestone payments (they further monetized Trelegy last year by selling some farther dated royalty payments to GSK for $225MM, but that's in the cash balance number above).  The remaining milestone payment TBPH is entitled to receive from Royalty Pharma is outlined in the 10-Q, which they describe as "highly confident in achieving":

With respect to 2026 TRELEGY global net sales, we are eligible to receive either (i) $50.0 million if Royalty Pharma receives $270.0 million or more in royalty payments from GSK, which we would expect to occur in the event TRELEGY global net sales are approximately $3.16 billion or (ii) $100.0 million if Royalty Pharma receives $305.0 million or more in royalty payments from GSK, which we would expect to occur in the event TRELEGY global net sales exceed approximately $3.51 billion. To achieve the higher $100.0 million milestone in 2026, TRELEGY global net sales would require less than a 2% increase over its 2024 global net sales.

Total 2024 TRELEGY global net sales represented a 26% increase compared to 2023, and TRELEGY is currently expected to generate global peak sales of approximately $4.0 billion in 2026 according to consensus estimates. TRELEGY global net sales for the three and nine months ended September 30, 2025 were $979 million and $2.92 billion, respectively, which represented 24% and 13% year-over-year growth, respectively.

In addition, TBPH also has a 35% interest in another FDA approved COPD treatment, Yupelri with partner Viatris (VTRS).  It launched in 2019 and sales continue to grow, although at a slowing pace.

Together, the cost savings from the restructuring and continued sales from YUPELRI^® are expected to result in the Company generating approximately $60 to $70 million of annualized cash flow, starting in Q3 2026. This cash flow projection is comprised of an estimated $45 to $55 million of Income from Operations (excluding non-cash share-based compensation) and projected Interest and Other Income, and does not include potential income from the $100 million TRELEGY milestone. 

 

Following the decision to wind down the ampreloxetine program, the Company's sources of value include approximately $400 million of expected cash at the end of Q1 2026, a 35% interest in YUPELRI^® that generates durable cash flow, and the potential TRELEGY milestone payment, as well as Irish tax attributes.

The Irish tax attributes are described as following in their 10-K:

As of December 31, 2024, the Company had Irish net operating loss carryforwards of $1.17 billion and capital loss carryforwards of $60.9 million, both of which can be carried forward indefinitely. The Company has additional Irish tax attributes of $1.19 billion which primarily consist of unused capital allowances. Net operating losses and capital allowances can be used to offset future income from Irish entities and income related to intellectual property.

I'm just going to assign no value to the tax attributes, but certainly to the right buyer they'd be worth something.  The key variable is how much the Yupelri 35% stake is worth, it does have patent protection out to 2039 but that has faced some legal challenges.  The obvious buyer would be VTRS, they could realize cost synergies, but for a finger in the air valuation, I'm going to toss an 8x multiple at the mid-point of their income from operations guidance which includes their corporate overhead costs.  I think is reasonably conversative, but feel free to pushback if you disagree.

Disclosure: I own shares of TBPH

Mural Oncology: Update

Mural Oncology (MURA) ($~30MM market cap) has turned into a bit of a battleground busted biotech in the comments section of my original post.  I always appreciate feedback on ideas, in this case it helped me avoid the fall in MURA's stock price after their recently published business update.  The cash burn has been significantly higher than expected as they wind down their R&D and clinical efforts, but included in the press release were a few nuggets worth pointing out making the stock interesting at current price levels.

First, MURA gives a cash estimate for year-end, this is a positive change as they didn't in the original April strategic alternatives announcement:

As of June 30, 2025, the company had approximately $77.1 million in cash and cash equivalents. The company estimates that, if it has not consummated a transaction or other strategic alternative by December 31, 2025, its cash and cash equivalents as of such date will total approximately $43 to $48 million.

At the mid-point, that equates to approximately $2.50/share.  In addition, most companies will warn that any forward estimates could come in lower than anticipated or sale processes take longer than expected, etc., but MURA sort of did the opposite:

This cash guidance is subject to a number of assumptions and actual cash balances may differ materially, particularly if the Company consummates a transaction or other strategic alternative prior to December 31, 2025.

"Actual cash balances may differ materially" then cite a positive type surprise, just found that interesting to note.  Maybe something is already in the works?  Lastly, MURA snuck in language around a liquidation or wind down being a possibility which they hadn't mentioned previously:

any strategic alternative it may pursue, including, but not limited to, an offer for or other acquisition of the company, merger, business combination or other transaction, including a possible wind- down and liquidation of the company

The simple back of envelope math is below, my guess is someone like XOMA or Tang (although one negative here is neither Tang nor BML are known shareholders) come in and make an offer that amounts to a liquidation dressed up as an acquisition (helps with the Irish takeover rules, gives management change of control bonuses, etc.) for 90% of the projected year-end cash:

There is some acknowledged hair on this situation, it is a former spin that hasn't reached the two year safe harbor (would do that in November) and it has also let go of over 90% of their employees bringing into question whether the IRS would still consider this an active trade or business.  My uneducated take is MURA is still in the drug development business, they haven't sold their assets/business (other biotechs, SYBX comes to mind, seem very aware to avoid being classified as a cash shell and continue to mention their IP in filings despite similarly stopping all development efforts), usually there is some grace period but I admit it's a risk.  

It has been several months now since the strategic alternatives announcement, if such a tax issue were a concern, MURA's advisers or legal would have popped it up by now?  Management hasn't hinted at any issues, would be an epic mistake to blatantly shoot yourself in the foot regarding taxes, but I'm sure its happened before and I could have egg on my face with this one.

Disclosure: I own shares of MURA, bought back in recently.

Kronos Bio: Tang Buyout w/ Curious CVR Consideration

Kronos Bio (KRON) ($45MM market cap) was historically focused on cancer and autoimmune disease treatments, late last year, the company discontinued development of their lead asset, istisociclib, due to safety issues and announced a plan to explore strategic alternatives.  At the time, I was nervous about their large operating lease obligation and ended up passing on adding it to my busted biotech basket as there was no shortage of cleaner opportunities at the time.

On May 1st, Kevin Tang's liquidation vehicle, Concentra Biosciences, entered into an agreement to buy KRON for $0.57/share in cash plus a CVR, the CVR is structured differently than many of Tang's recent deals where the CVR is mostly just IP dispositions, here the CVR is composed of a series of potential payouts:

(i) 50% of the net proceeds in the case of a disposition of the Company’s product candidates known as KB-9558 and KB-7898 that occurs within 2 years following closing; (ii) 100% of the net proceeds in the case of a disposition of the Company’s product candidates known as KB-0742, lanraplenib and entospletinib that occurs prior to closing; (iii) 100% of cost savings realized prior to closing; (iv) 80% of cost savings realized between the merger closing date and the second (2^nd) anniversary of the merger closing date; and (v) 50% of cost savings realized between the second (2^nd) anniversary of the merger closing date and the third (3^rd) anniversary of the merger closing date, each pursuant to the contingent value rights agreement (the “CVR Agreement”).

Payouts (i) and (ii) are hard to predict and likely of minimal value, the legacy IP assets in (ii) need to be sold (but not closed) prior to the merger closing and (i) is their pre-clinical assets, who knows how much these are worth but the two year clock is pretty gameable, any value there likely accrues to Tang.

Payouts (iv) and (v) relate primarily to cost savings, subleasing or an early exit to their operating lease for a 40+k sq ft facility located in Cambridge, MA.  The lease ends in February 2031 and it has approximately $30MM remaining, given the long time frame, Tang could potential game this one by back weighting any lease amendment/termination to give him the best payout and avoid paying CVR holders.

Payout (iii) is where the potential cash is for CVR holders, it will be paid no later than 60 days following the merger closing, the savings calculation is as follows:

“Additional Closing Net Cash Proceeds” means 100% of the amount by which the Closing Net Cash as finally determined pursuant to Section 2.01(d) of the Merger Agreement exceeds $40,000,000, adjusted for any claims that arise prior to 30 days following the Merger Closing Date that are not accounted for in such Closing Net Cash. 

“Closing Net Cash” means, without duplication, (i) the Company’s cash and cash equivalents, restricted cash, and investments as of the Cash Determination Time, determined in accordance with GAAP, applied on a basis consistent with the Company’s application thereof in the Company’s consolidated financial statements, minus (ii) Indebtedness of the Company as of the Cash Determination Time, minus (iii) the Transaction Expenses, minus (iv) the Estimated Costs Post-Merger Closing, minus (v) $400,000 for the CVR Expense Cap under the CVR Agreement.

The curious part of this transaction is the $40MM threshold, why is it so low when the NCAV as of 3/31/25 is $73.5MM?  CVRs are intended to bridge the gap between buyers and sellers on how much an asset is worth, here the asset is primarily cash which should have minimal uncertainty given the quick merger close (a tender offer is required to be launched by 5/15/25).  What would Tang be protecting himself against with such a low closing cash number?  Istisociclib did have safety issues, but no legal proceedings have been disclosed that meet a reporting threshold.

Below is my attempt at a back of the envelope calculation of the Additional Closing Net Cash Proceeds value, shares trade for $0.72/share today, implying a $0.15/CVR value:

The "Estimated Costs Post-Merger Closing" is where some potential games could be played:

“Estimated Costs Post-Merger Closing” means all costs that the Surviving Corporation would incur post-Merger Closing, including costs associated with: (i) CMC Activities; (ii) clinical activities; (iii) remaining lease-related obligations (including rent, common area maintenance, property taxes and insurance); and (iv) an aggregate of $250,000 for any legal Proceedings and settlements.

While the development pipeline is paused, potentially an argument could be made that spending some money to advance KB-9558 and KB-7898 could be worthwhile to CVR holders as they'd get paid 50% of any disposition proceeds?  I don't see it, but doesn't mean management might not have an agreement with Tang to include some spend in that bucket.  In the latest 10-Q, all their R&D costs sounded like legacy expenses, not ongoing expenses:

Research and development expenses were $2.1 million for the three months ended March 31, 2025, compared to $14.2 million for the three months ended March 31, 2024. The decrease of $12.1 million was primarily attributable to a $6.0 million reduction in consulting and other outside research expenses, a $4.2 million decrease in personnel-related costs and a $1.9 million decrease in facilities, depreciation and other costs. These decreases were primarily related to the discontinuation of the istisociclib clinical trial in November 2024, reduced headcount in our research and development organization following the restructuring activities and reclassification of lease costs to general and administrative expenses. Research and development expenses for the three months ended March 31, 2025 were related to performance obligations under the Transition Agreement and continued wind down of research and development activities.

I sort of expect to be screwed here, just not quite sure how, but the opportunity for a quick buck is too tempting, I added a small position.

Disclosure: I own shares of KRON

Repare Therapeutics: Broken Biotech, Hidden Strategic Alternatives

Repare Therapeutics (RPTX) ($60MM market cap) is a clinical-stage oncology company which through a series of press releases this year announced a 75% reduction-in-force, reprioritization of their pipeline, a plan to pursue partnerships for their most advanced assets, CEO resigned (with the CFO taking over), CMO exited and most recently the out licensing of their discovery platform.  

While they haven't formally ceased development efforts and raised the white flag, that's essentially where they're at now.  Repare might be a bit of a hidden strategic alternatives name, they haven't announced a process cleanly in one press release.  In their 3/3 press release disclosing their year-end results, they included the line:

Exploring partnerships across portfolio, including for Lunre+Camo

In their 3/31 press release announcing the resignation of their CEO and founder, the language changed to:

The Company is also exploring strategic alternatives and partnerships across its portfolio, including for lunresertib and camonsertib.

Then its tweaked slightly again in their 5/1 press release announcing the sale of their discovery platform:

“We look forward to reporting initial data from our two ongoing Phase 1 clinical trials in the second half of 2025, and continue to evaluate partnering and strategic alternatives across our portfolio assets.”

It's possible that I'm reading too much into that strategic alternatives language and that it's only directly tied to the pursuing partnerships objective, but this biotech trades at a significant discount to my estimate of a liquidation value with no value assigned to their IP (which they've used puffy language like "progress is particularly promising" and "potentially best in class" in prior statements).

So we've got a caretaker CEO, skeleton staff, strategic alternatives / partnership discussions, sold discovery platform, it seems to me that this one is for sale.  BVF Partners is the anchor investor here with a 24% stake.  I bought a few shares and added it to my broken biotech basket.

Disclosure: I own shares of RPTX

Mural Oncology: Former Spin Turned Broken Biotech

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

Elevation Oncology: Broken Biotech, Slightly Riskier

Elevation Oncology (ELEV) (~$17MM market capitalization) is a clinical-stage biotech that until yesterday was pursuing the development of their lead therapeutic candidate, EO-3021, in a Phase 1 study for the treatment of gastric and gastroesophageal cancers.  Due to a non-competitive risk-benefit analysis, Elevation is discontinuing development of EO-3021, implementing a 70% reduction-in-force and evaluating strategic options.  If Elevation Oncology sounds familiar to some readers, they bought seribantumab and other assets from Merrimack Pharmaceuticals (formerly MACK, now a non-traded liquidating trust) in 2019 for a small upfront fee and some milestone payments.  ELEV discontinued development of seribantumab in January 2023.  After that failure, ELEV switched their focus to EO-3021, so this is the second swing and miss, seems time to formally waive the white flag and return cash to shareholders.

Somewhat frustratingly, ELEV is continuing pre-clinical development of EO-1022 with a planned IND in 2026, they're guiding to their cash balance lasting them into the second half of 2026.  Hopefully this is just a cheap attempt to prove the remaining development pipeline has some value and not an attempt at a third swing at drug development.  On the positive side, Kevin Tang owns 8% of ELEV, this is likely too small for a reverse merger (and it seems like reverse merger activity has slowed recently anyway), I would encourage management and the board to consider the likely incoming cash + CVR offer from Tang.  It will probably be the best option.  A $30MM loan paired with the cash burn and risk of going forward with EO-1022 make this one a little riskier than average.

Disclosure: I own shares of ELEV

Third Harmonic Bio: Strategic Alternatives, Keeping Options Open on THB335

Third Harmonic Bio (THRD) (~$155MM market cap) is a clinical-stage biotech that just released data on their Phase 1 study for lead candidate THB335 for the treatment of chronic spontaneous urticaria (hives).  Alongside the announcement (where the data is apparently good enough to prepare for a Phase 2 study, as usual, no opinion on the science from me), THRD disclosed they were going to evaluate a full range of strategic alternatives and implementing a 50% reduction in workforce (eliminating 27 positions).

Continuing a positive recent trend, Third Hamonic Bio is doing most of the heavy lifting for us, THRD disclosed their estimate for cash on 6/30:

Assuming no use of their ATM between 11/1 and today, I get the following back of the envelope liquidation value (again, this likely won't liquidate):

The shareholder base looks pretty good here, Atlas Ventures and OrbiMed Advisors own collectively about 25% of the company, other familiar names are present in EcoR1 Capital, BVF Partners and RA Capital.  A reverse merger is likely here, possibly with a CVR attached to THB335.  I added a small position to the growing broken biotech basket (need some more momentum in deal announcements to clear out room).

Disclosure: I own shares of THRD

CARGO Therapeutics: Broken Biotech, Significant Cash Position

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

Keros Therapeutics: Pre-SA Broken Biotech, Large Cash Position

Keros Therapeutics (KROS) (~$420MM market cap) is a what I'm labeling a pre-strategic alternatives broken biotech, the company in two separate press releases (here and here) announced the halting of all dosages in their Phase 2 clinical trial of Cibotercept (KER-012) due to observations of pericardial effusions, which is a condition where excess fluid accumulates in a membrane that surrounds the heart.  What I find interesting in this situation is:

1. KROS has a significant cash position, my estimates put it around $650MM for a reverse merger, much higher than beaten up biotechnology companies I usually highlight
2. KER-012 is described as KROS's second program, their most advanced asset, Elritercept (KER-050) was out licensed to Takeda for $200MM plus milestone payments, so this failure might be obscuring the larger story here
3. KROS doesn't screen like a classic broken biotech because of the Takeda payment and their liberal use of their at-the-market equity offering program

Below is my basic back of envelope math on a potential liquidation value (again, not predicting a liquidation, more as a base case valuation for a potential merger/reverse merger):

The company has not declared a review of strategic alternatives, hasn't recently announced a reduction in force related to the failed KER-012 trials, etc., so this a riskier situation than others, but I think the absolute cash amount and sale of their primary asset makes this an interesting broken biotech to watch.

Other thoughts:

• My ATM estimate is using their 10/31 sharecount, based on their previous cadence, they likely issued more shares well above the current price into their December data disappointment, so the above NAV might be conservative
• The Takeda deal for KER-050 includes $370MM in development milestones and $720MM in sales milestones (plus a tiered royalty structure), how much is that worth today?  I'm not including any value in my liquidation NAV

Disclosure: I own shares of KROS

Athira Pharma: Perceptive Working on a Reverse-Merger?

Athira Pharma (ATHA) ($24MM market cap) is a biotech focused on treatments to restore neuronal health and slow neurodegeneration.  On 9/3, the company announced its Phase 2/3 trial of fosgonimeton for mild-to-moderate Alzheimer's Disase did not meet its primary or secondary endpoints.  Rather than waiving the white flag and launching a strategic alternatives process, two weeks after, they announced Athira was going to focus on its earlier stage ALS treatment, ATH-1105, along with a 70% workforce reduction-in-force.

But that doesn't mean that other discussions might be happening behind the scenes, a 70% RIF is pretty large and sort of signals you're a cash shell.  Perceptive Advisors (14% owner) revised their 13D last week (thanks for the tip from a commenter), and included the line:

Consistent with their investment intent, each Reporting Person may from time to time discuss with the Issuer’s management, directors, other shareholders and others, the Issuer’s performance, business, strategic direction, capital structure, product development program, prospects and management, as well as various ways of maximizing stockholder value. Representatives of the Reporting Persons are engaged in discussions with the Issuer’s management and other third parties with respect to a potential extraordinary transaction involving the Issuer and other third parties. There is no assurance that any such transaction will develop or materialize, or if it does, as to its timing or whether the Reporting Persons will participate.

This sure sounds like Perceptive is trying to arrange a reverse merger transaction with Athira Pharma as the shell.  This idea is a little riskier, Athira hasn't declared strategic alternatives and has some pretty significant cash burn, time isn't on Perceptive's side to a get a deal done.  If we get well into 2025 and there's no deal, the cash burn might push the company to raise equity and pursue the original plan.

Here's my back of the envelope math on Athira:

The fairly small cash balance available to a reverse merger candidate could be an issue (I typically don't look at ones much smaller than this one), but as we saw with ATVE, some of these deals have been structured in a way where the reverse-merger candidate is really only interested in the public listing shell and legacy cash can be paid out as a special dividend to original shareholders.  

Disclosure: I own shares of ATHA

ESSA Pharma: Another Broken Biotech

ESSA Pharma (EPIX) ($72MM market cap) is the latest addition to the broken biotech basket.  EPIX is a clinical stage pharmaceutical company that was previously focused on developing therapies for the treatment of prostate cancer.  On Thursday (10/31/24), the company announced they were terminating all of their clinical studies and an initiating a review of strategic alternatives.

In the press release the company gave us 9/30 cash numbers:

Liquidity and Outstanding Share Capital

 

·

As of September 30, 2024, the Company had available cash reserves and short-term investments of $126.8 million and net working capital of $124.3 million (unaudited figures). The Company has no long-term debt facilities.

·

As of September 30, 2024, the Company had 44,388,551 common shares issued and outstanding, and there were 2,920,000 common shares issuable upon the exercise of prefunded warrants at an exercise price of $0.0001.

This one is fairly clean, although we don't have a severance charge estimate (the company has 50 employees), EPIX hasn't been burning much cash, only approximately $7MM a quarter prior to the termination of their R&D program.  My back of the envelope math is pretty straight forward, I'm assuming about $20MM of the expenses to wind down the company from here or get it to a place where a reverse merger can be done, feel free to make your own assumptions.

My liquidation value is about 40% higher than where shares traded Friday following the news.

Disclosure: I own shares of EPIX

Aerovate Therapeutics: Broken Biotech, Shell Company? Potential Liquidation

I'm a little late posting this one, but as mentioned in the comment section of my Mid-Year update, I did add Aerovate Therapeutics (AVTE) ($55MM market cap) to my broken biotech basket.  Back in June, Aerovate, a one-shot-on-goal biotech, announced poor topline results from the Phase 2b portion of their AV-101 study for the treatment of pulmonary arterial hypertension (PAH).  A few weeks later, the company announced they were laying off 78% of their staff, costing them $5.6MM, $3MM of which will hit in Q3 and Q4.  Then another week later, AVTE officially announced they were exploring strategic alternatives:

Aerovate has engaged Wedbush PacGrow as the company’s exclusive strategic financial advisor to assist in the process of exploring strategic alternatives, which may include but are not limited to, an acquisition, merger, reverse merger, business combination, liquidation or other transaction.

Notably, they listed a liquidation as a possible outcome, generally we don't see a liquidation called out in the initial strategic alternatives announcement.  One reason might be they don't have any other product candidates, from their latest 10-Q:  

Overview

We are a biopharmaceutical company. Our initial focus was on advancing AV 101, our dry powder inhaled formulation of imatinib for the treatment of pulmonary arterial hypertension, or PAH, a devastating disease impacting approximately 70,000 people in the United States and Europe. On June 17, 2024, we announced topline results from the Phase 2b portion of our Phase 2b/Phase 3 Inhaled Imatinib Pulmonary Arterial Hypertension Clinical Trial of AV-101, or IMPAHCT. Topline data showed that, while AV-101 was generally well tolerated across all dose groups, the study did not meet its primary endpoint for improvement in pulmonary vascular resistance compared to placebo for any of the studied doses or show meaningful improvements in the secondary endpoint of change in six minute walk distance. We also reviewed data from several additional secondary endpoints of the Phase 2b portion of IMPAHCT, which also failed to show meaningful improvements. Based upon these results and in agreement with the independent study advisory committee, we halted enrollment and shut down the Phase 3 portion of IMPAHCT as well as the long-term extension study. AV-101 for the treatment of PAH was our only product candidate in development. At this time, we do not intend to resume development of AV-101 or any other product candidates. In July 2024, we announced the decision to conduct a comprehensive review of strategic alternatives focused on maximizing shareholder value. We also engaged Wedbush Securities Inc. (Wedbush PacGrow) as our exclusive strategic financial advisor to assist in the process of exploring strategic alternatives, which may include but are not limited to, an acquisition, merger, reverse merger, business combination, liquidation or other transaction.

I'm still trying to get my arms around how the new SEC shell company rule is going to play out after going effective July 1, 2024, but it appears that these one-shot-on-goal type biotechnology companies, like AVTE, without other assets might fall into the shell company bucket and could be pushed towards a liquidation as a result.  Others that are continuing development at the same time as pursuing strategic alternatives might make for better reverse merger candidates, which have generally worked out well this year.  But I'm not a lawyer, and thus not entirely sure if this new rule means much to this part of the market since biotechs generally don't make outlandish SPAC-like revenue projections regulators are trying to stamp out.  If others have more intelligent thoughts, as usual please share.

My back of envelope liquidation math:

AVTE is pretty clean, there are minimal dilutive securities outstanding, minimal operating lease remaining and likely the IP value is worthless.  I still struggle a bit with estimating wind down expenses, feel free to use your own estimate, but at today's price, AVTE seems to be relatively cheap compared to my estimate of liquidation value.

If they do go the reverse merger route, there's some nice option value, interestingly RA Capital owns ~32% of AVTE and engineered a successful reverse merger at ELYM with Tenet Medicines that's seen the stock go up almost 200% since that deal was announced in April.

Disclosure: I own shares of AVTE 

HilleVax: Failed Vaccine Trial, Pre-SA, Trading Below Cash

HilleVax (HLVX) (~$85MM market cap) is a clinical-stage biotech that focuses on developing vaccines, their initial focus has been on a vaccine (HIL-214) designed to treat severe acute gastroenteritis events in infants.  On Monday, the stock crashed below cash as HilleVax announced their HIL-214 trial did not meet its primary endpoint and showed no clinical benefit observed across secondary endpoints.  Unfortunately, little other disclosures were made; there was no announcement of seeking strategic alternatives, no workforce reduction and no estimate of current cash.  The only mention of a go forward strategy was the line:

The Company plans to discontinue further development of HIL-214 in infants and is exploring the potential for continued development of HIL-214 and HIL-216, HilleVax’s Phase 1 ready vaccine candidate, in adults.

The piece about continuing to explore the potential development of HIL-216 is slightly concerning as broken biotechnology companies go.  HIL-214 (the failed vaccine) was licensed from Takeda (which owns 14% of HLVX), HIL-216 was a separate licensing agreement with a Chinese pharmaceutical company, Kangh, and thus management might make the argument the HIL-214 failure shouldn't cloud the potential for HIL-214.  However, as we've seen with many others, often the board along with their advisors determine that the cost of capital is too high to continue on their own and they'll likely decide to pursue strategic alternatives.

Running through my typical back of the envelope liquidation math:

HilleVax does have an ATM in place they leaned on pretty heavily in Q1 to raise approximately $15MM, if they continued into Q2 (which you can tell they did a bit based on the change in share count from 3/31 to 5/6 when the last 10-Q was published) it would only add upside to the math.  The risk is really in the burn rate going forward from here (also note, my Q2 number above is an estimate based on Q1) since we don't have any indication from management on their plan, my $50MM in a total guess but using some experience from the last dozen or so of these, hopefully it is directionally correct.

There could be two catalysts here, one on the announcement of strategic alternatives and another on the ultimate conclusion, but HLVX is a bit riskier than others that are further along in their wind down process.

Disclosure: I own shares of HLVX

Ikena Oncology: 50% RIF, Trading Below Cash, Strategic Alternatives

The broken biotech basket has been emptying out lately, but the latest addition is Ikena Oncology (IKNA) (~$75MM market cap), a clinical stage biotechnology targeting cancer therapies, that announced yesterday they are shuttering development on their most advanced therapy candidate, IK-930, reducing their workforce by 53% (they previously did a 35% layoff in January) and will pursue strategic alternatives.  Notably this isn't a full stop of development, Ikena does have another asset (IK-595) that dosed its first Phase 1 patient in December 2023.  But Ikena does a nice job of itemizing their operating expenses in their 10-Q, making estimating future cash burn slightly easier.

Below is my quick back of envelope liquidation analysis:

The process for these situations is a well worn road at this point, others have also pointed to the new cash shell rules regarding reverse mergers going into effect July 1st could act as a catalyst; I don't think this process will take terribly long.

Some items to note here:

• OrbiMed is the largest shareholder with approximately 23% of the shares.  Recent similar situations, KNTE and THRX, also featured OrbiMed near the top of shareholder registry, both produced good results with cash plus CVR buyouts.
• Bristol-Myers Squibb (BMY) previously had a collaboration agreement with Ikena for IK-175 and IK-412, they declined to go forward with development, but IKNA is looking to sell or out-license these.  Probably minimal value, but could add a few cents per share in upside.
• Ikena Oncology has been quick to already sublease space and sell lab equipment, neither for significant sums, but shows some shareholder friendliness in moving quickly to a shoestring operation to preserve value.

Disclosure: I own shares of IKNA

Instil Bio: Stopping Clinical Development, Real Estate Value

Instil Bio (TIL) (~$70MM market cap) is a clinical stage biotech focused on developing tumor infiltrating lymphocyte ("TIL") therapies for the treatment of cancer.  Instil was an early 2021 IPO, at the time it had a melanoma treatment, ITIL-168, that was beginning a Phase 2 clinical trial.  They had ambitious dreams which included building a brand new laboratory and manufacturing facility in Tarzana, California to go along with leased manufacturing space in the UK.

ITIL-168 failed to impress and in December 2022, the company laid off 60% of their workforce and decided to put their remaining resources behind ITIL-306, a pre-clinical treatment for lung, ovarian and kidney cancers.  In early 2023, the RIF was further expanded that resulted in reducing their US workforce by 96% and their UK workforce by 42%.  Additionally, Instil scrapped plans to occupy the newly completed Tarzana facility.  A Phase 1 study was initiated in the UK, but earlier this month Instil announced another 61% workforce reduction in the UK alongside the closing of their UK facilities and a partnership with a Chinese firm that essentially outsources further early development of ITIL-306.

Two wrinkles with this idea:

1. Instil hasn't fully put itself up for sale or declared strategic alternatives, while they have essentially laid off everyone in a series of RIFs, as far as I can tell Instil hasn't hired advisors to run a formal process at this point.
2. Instil owns a 128,000 square foot, brand new, never occupied facility (18408 West Onxard St) in Tarzana, California that they've put up for lease or sale.  In the third quarter, they marked down the value of the facility to $132.5MM and have an $82.4MM mortgage loan out against it that matures in July 2027.

If Instil is able to get $132.5MM for the facility (welcome any thoughts from medical/industrial CRE experts) and assuming some further cash burn over the next 12 months, I get a stock that's trading less than half of NAV with no value to their IP.

Note: TIL did a 1-for-20 reverse split in December, some data providers have the old share count.

This company lacks much in terms of public disclosures, they don't hold quarterly conference calls or have much in the way of conference transcripts following their IPO.  Biotech venture firm Curative Ventures owns approximately 30% of the stock and Curative's founder, Bronson Crouch, is the CEO and Chairman of Instil.  While their execution has been poor, seems like they've found religion by prioritizing cash preservation, hopefully a sale or liquidation follows in due time.

Disclosure: I own shares of TIL

Aclaris Therapeutics: Strategic Review for Broken Biotech, Big Discount to Cash

Aclaris Therapeutics (ACRS) (~$85MM market cap) is a clinical-stage biotech company focused on developing novel drugs for immuno-inflammatory diseases.  In November, the company announced their lead candidate, zunsemetinib, did not meet its primary or secondary endpoints in a Phase 2 trial for the treatment of moderate to severe rheumatoid arthritis, the stock dropped 80+% on the news.  Earlier this week, Aclaris announced their CEO was stepping down and the company was initiating a strategic review:

Concurrent with today’s announcement, Aclaris also announced that it is conducting a strategic review of its business to determine how to optimally deploy its capital to maximize shareholder return. On a preliminary unaudited basis, as of December 31, 2023, Aclaris’ aggregate cash, cash equivalents and marketable securities was approximately $182 million.

Aclaris also reiterates the following business plans:

• ATI-1777: Aclaris is seeking a development and commercialization partner for ATI-1777, its investigational topical “soft” JAK 1/3 inhibitor. Aclaris recently reported positive top-line results from its Phase 2b trial in atopic dermatitis.
• ATI-2138: Aclaris is assessing the most effective pathway including the lead indication for ATI-2138, its Phase 2 ready investigational oral covalent ITK/JAK3 inhibitor. Aclaris announced positive results from its Phase 1 MAD trial of ATI-2138 in 2023.
• Discovery: Aclaris plans to continue to advance discovery programs through KINect®, its proprietary drug discovery platform.

I don't love the verbiage they use here, from the sounds of "optimally deploy its capital" and "reiterates the following business plans" it appears the initial desire is to continue their research and development pipeline.  However, this situation seems ripe for an activist, indeed Tang Capital and BML Advisors both own 6+% of the shares each.  Tang Capital could throw out an offer, similar to RPHM, and change the direction of the strategic review.

My back of envelope liquidation estimate:

As usually, these are very much swag estimates, ACRS does a nice job of breaking out their R&D expense by program, feel free to get more granular in your estimates.

On the positive side (from an investment perspective), the company did do a 46% reduction-in-force in December, halted zunsemetinib development and appear mostly in a standstill on ATI-1777 and ATI-2138 as they decide on next steps.  On the negative side, the co-founder is now the interim CEO, he might not want to sell and might rather continue on developing new drugs, but the activist shareholders and high cost of capital will hopefully change his mind.  This is on the riskier side of the broken biotech spectrum, but remains at a pretty attractive discount to net cash.

Disclosure: I own shares of ACRS

AlloVir: Another Broken Biotech

AlloVir (ALVR) (~$74MM market cap) is clinical-stage biotech focused on cell therapy to treat viral diseases. On 12/22/23, AlloVir paused their Phase 3 studies for Posoleucel after advisors concluded the studies were unlikely to meet their primary endpoints.  Alongside the announcement, the company announced, "we will immediately shift our focus to preserve our substantial remaining capital, review our pipeline, and assess strategic options."  AlloVir does have 3 additional pipeline assets:

About AlloVir’s Earlier Stage Virus-Specific T cell Pipeline

Adult Kidney Transplantation

AlloVir has earlier reported the results of its completed Phase 2 randomized, placebo-controlled trial evaluating posoleucel for the treatment of BKV infection in adult kidney transplant patients. After 24 weeks of treatment, 39% of patients receiving posoleucel experienced a ≥1-log viral load reduction, compared to 14% of patients receiving placebo.

Acute Respiratory Infection

The company has completed Part A of a randomized, placebo-controlled Phase 1b/2a trial with ALVR106 in 14 stem cell or solid organ transplant patients. ALVR106 is an investigational allogeneic, off-the-shelf, multi-virus-specific VST therapy candidate designed to target diseases caused by human metapneumovirus (hMPV), influenza, parainfluenza virus (PIV) and respiratory syncytial virus (RSV). Data has been accepted for presentation at a scientific conference in the first quarter of 2024.

Chronic Hepatitis B Infection

ALVR107 is an investigational allogeneic, off-the-shelf VST therapy designed to target hepatitis B virus (HBV)-infected cells and potentially cure patients with chronic HBV infection. Preclinical and IND-enabling studies support the advancement of ALVR107 into a clinical proof of concept study as a next step.

Some of these might be worth something, or not.  The company, unfortunately, didn't give us current cash or formally announce a reduction in workforce (but if you check LinkedIn, many of their employees are "looking for work").  My back of the envelope math:

Someone mentioned to me we should hope the "follow Tang" strategy continues into 2024, he's not on the shareholder registry here (yet), but coming up with a similar offer to what he's been throwing around, I get something like $0.83/share in cash plus a CVR for any legacy asset proceeds.  There is a good amount of cash burn risk here since we don't have much guidance from management, but the time between strategic alts announcements and deal announcements seems to be shortening in these broken biotechs.  A poorly thought out reverse merger is always a concern too, however there are some real shareholders here, hopefully they provide some sanity.

Disclosure: I own shares of ALVR

Reneo Pharmaceuticals: Phase 2 Study Misses, Pre-SA Broken Biotech

The theme around here continues on -- Reneo Pharmaceuticals (RPHM) (~$45MM market cap) is another broken biotech, this week the company announced their Phase 2 study of Mavodelpar in adult patients with mitochondrial myopathies did not meet its primary or secondary efficacy endpoints.  The stock responded by crashing 80+% as this is a one shot on goal biotech without much of a remaining pipeline.  Reneo is now trading well below liquidation value, while the company has yet to announce a strategic review, it doesn't have many options left, I would expect the official strategic alternatives declaration soon.

This is another fairly clean balance sheet, Reneo disclosed that current cash is approximately $100MM as of yesterday, subtracting out their 9/30 liabilities, severance payments and an estimate of cash burn/liquidation costs (they only have approximately 12 employees following their reduction in workforce), I get an NAV or liquidation value of ~$2/share.  The company did put in place an ATM in November, it doesn't appear they've used it based on current cash and historical burn rate, but the share count above might be worth confirming.  

I could see a little bump in price if and when the company does formally announce strategic alternatives and then a second on some conclusion, whether a deal or liquidation of Reneo.

Disclosure: I own shares of RPHM

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

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