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Graphite Bio (GRPH) (~$130MM market cap) is a clinical-stage gene modifying biotech that paused improvement in January for his or her lead asset, nulabeglogene (a therapy for sickle cell illness), following a severe adversarial occasion within the first affected person dosed. A couple of month later, Graphite Bio made the dedication to discover strategic options and did a big discount in workforce. Within the months since, the corporate offered their IP in a pair transactions for nominal quantities, the CEO resigned to pursue different alternatives they usually did an additional layoff.
In August, the corporate introduced in Kim Drapkin because the CEO (plus nearly each different related government perform) to guide the strategic options course of. Drapkin was beforehand the CFO of Jounce Therapeutics (JNCE), a equally located damaged biotech, which accepted a money bid plus a CVR from Kevin Tang’s Concentra Biosciences (Tang does personal ~4% of GRPH). Curiously, as a part of Drapkin’s compensation package deal, she receives an extra $200k in severance if a definitive settlement is reached inside 3 months of her 8/21/23 begin date:
The Firm entered right into a letter settlement, dated August 21, 2023 (the “Begin Date”), with Ms. Drapkin (the “Supply Letter”). Pursuant to the phrases of the Supply Letter, Ms. Drapkin can be entitled to a base wage of $550,000 per yr. As well as, Ms. Drapkin can be entitled to money severance funds within the quantity of (i) $400,000 within the occasion of a termination of her employment aside from for trigger or demise upon or inside 12 months after the closing of a strategic transaction, plus an extra $200,000 if the definitive settlement for such strategic transaction is executed inside three (3) months after the Begin Date or (ii) $350,000 within the occasion of a termination of her employment aside from for trigger or demise upon or inside 12 months after the Board’s approval of a plan of dissolution of the Firm below Delaware regulation, in every case topic to Ms. Drapkin’s execution and non-revocation of a separation settlement and launch, as additional offered within the Supply Letter.
Whereas that is not sufficient to make sure a deal is reached in that timeframe, it definitely factors to the expectation of a fast deal when she was introduced on board. One other engaging high quality to GRPH, their internet money place (after deducting present liabilities) is properly over $200MM, that is a significant amount of cash to many potential bidders which ought to enhance the standard of any deal counterparty in comparison with a few of these true micro/nano cap damaged biotechs.
The one massive crimson flag right here is their working lease legal responsibility; close to the highest of the latest craziness, GRPH entered right into a 120 month lease for some workplace and laboratory area in San Francisco (which solely began after they raised the white flag).
On December 16, 2021, the Firm entered right into a lease settlement with Bayside Space Improvement, LLC (“Bayside”) for 85,165 sq. toes of workplace and laboratory area in South San Francisco, CA. The lease for the workplace and laboratory area commenced in April 2023. The time period of the lease is 120 months with the choice to increase the time period as much as an extra ten years. This selection to increase the lease time period was not decided to be fairly sure and subsequently has not been included within the Firm’s calculation of the related working lease legal responsibility below ASC 842. In the course of the three and 6 months ended June 30, 2023, the Firm took possession of the Bayside lease and acknowledged a $32.0 million right-of-use asset and corresponding lease legal responsibility upon the lease graduation date. As well as, the Firm acknowledged $27.2 million in leasehold enhancements. Bayside offered a tenant enchancment allowance of as much as $14.9 million, of which $14.7 million was utilized and recorded in lease legal responsibility.
In reference to the Restructuring Plan, the Firm has decided that it’ll not make the most of this facility for functions of its personal operations, and because of this, intends to sublease the vacant area to get well a portion of the full price upon recognition of the lease.
They’ve but to sublease the area or negotiate a termination fee with their landlord. Given the state of Bay Space workplace area, it is likely to be advisable to imagine the complete long run working lease legal responsibility in opposition to the NAV.
I will assume solely two quarters of G&A versus my regular 4, to account for the time it has already taken for the reason that authentic announcement plus the three month incentive charge, it does not seem this one ought to take too lengthy as soon as the working lease is neutralized in a method or one other. Though the default expectation with these must be a reverse-merger, the chances of a less complicated money deal must be greater given Drapkin’s expertise at JNCE.
Disclosure: I personal shares of GRPH
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