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MEI Pharma (MEIP) ($50MM market cap) is a fledgling medical stage biotech that has a pending merger with Infinity Prescription drugs (INFI) ($18MM market cap), the merger is going through activist pushback from a shareholder group (14.8% stake) led by Cable Automobile Capital and Anson Advisors.
Final November, MEI Pharma’s improvement associate (Kyowa Kirin) on their major drug candidate (Zandelisib) walked away after the FDA supplied suggestions on the necessity for a brand new medical trial design that will be pricey, the partnership ended and MEI Pharma laid off a superb portion of their staff. The corporate does have two extra applications, each in Part 1b trials with anticipated readouts round year-end. In February, in an try and restock their improvement pipeline, MEIP entered right into a stock-for-stock merger settlement with INFI the place INFI shareholders would find yourself with 42% of the brand new firm (to be renamed Kimbrix Therapeutics – KMBX) regardless of solely bringing $4MM in internet money to closing in comparison with $80MM from MEIP (utilizing the minimal internet money quantities within the merger settlement). INFI has one product of their pipeline, Eganelisib (for use together with Keytruda) for sufferers with a sort of pores and skin most cancers, that desperately wants capital to fund a section 2 trial. As regular, I’ve no view on the deserves of the science, however it’s clear why INFI desires to do that deal, with out it, INFI will run out of money rapidly and be compelled into a fast asset sale or liquidation. From INFI’s Q1 10-Q:
If the Merger is just not accomplished, we might want to elevate extra capital with a purpose to efficiently execute on our present working plans to additional the event of eganelisib. If the Merger is just not accomplished, we’ll discover different plans to mitigate the circumstances which elevate substantial doubt about our capacity to proceed as a going concern. We take into account one of many following programs of motion to be the more than likely alternate options if the Merger is just not accomplished:
•Pursue one other strategic transaction. We could resume the method of evaluating a possible strategic transaction, together with the sale of the corporate or its belongings. Based mostly on our prior evaluation, we don’t anticipate that we’d have the required time or monetary sources to pursue one other strategic transaction just like the proposed Merger.
•Wind down the corporate. If the Merger doesn’t shut and we’re unable to enter into one other strategic transaction, our board of administrators could conclude that it’s in one of the best curiosity of stockholders to stop regular operations and wind down the corporate via chapter or dissolution proceedings. In such case, there can be no assurances as to the quantity or timing of obtainable money remaining, if any, to distribute to stockholders after paying our obligations and setting apart funds for reserves.
MEIP’s intentions are much less clear as the corporate trades properly under money. The agreed stock-for-stock trade ratio is 0.052245 MEIP shares for every share of INFI, at present costs, the unfold is roughly 100%; the market has severe doubts this merger will likely be authorized and/or vital considerations about INFI’s worth on a deal break. Final week, the corporate postponed their shareholder assembly to July twenty third, presumably as a result of they do not have sufficient votes, and this week, the activist group filed a preliminary consent solitication looking for to interchange all the board. Regardless of having the assist of the proxy advisory companies, this merger appears doomed to fail. Nevertheless, MEIP does have two readily obvious different choices:
1) The activist group did beforehand submit a proposal to purchase the shares they do not already personal for “money consideration of not lower than $8.00 per share” plus a CVR for the disposition of MEIPs remaining medical belongings. Administration has rejected this proposal.
2) As a part of MEIP’s strategic alternate options course of, they did consider a liquidation, from the S-4 (6/2/23):
Liquidation Worth
The professional forma DCF analyses indicate a big premium to each MEI’s standalone DCF valuation vary and present buying and selling value. Torreya additionally in contrast the implied worth of MEI as offered within the professional forma DCF analyses to the estimated liquidation worth of MEI. To calculate the liquidation worth, administration supplied its greatest estimate for the money obtainable to shareholders upon a hypothetical liquidation. Based mostly on discussions with administration, a hypothetical liquidation might happen within the second quarter of 2023, and after paying all wind-down obligations, a totally wound-down MEI entity can be left with $82.8 million of obtainable money. This may indicate a liquidation worth of $0.62 per share. Provided that the professional forma DCF represents a big premium of as much as 134% to the liquidation worth, and as much as 52% within the eventualities with required fairness fundraising, Torreya believes the DCF helps their opinion that the trade ratio is honest to MEI shareholders.
That evaluation was pre-reverse break up, post-split the liquidation worth per share can be $12.40. Just like MGTA, the liquidation evaluation assumes an unrealistic state of affairs the place the corporate could possibly be wrapped up inside a couple of months with minimal bills. A extra life like state of affairs is as follows:
To be a bit conservative, I am utilizing the minimal internet money quantity required if the deal closed in July of $78MM. That is seemingly too low, administration’s projected (versus the minimal to shut the deal) internet money degree as of 6/30 was $92.8MM, however MEIP is spending cash on this merger and combating off the activists, is smart to be a bit of conservative. After which MEIP would escrow $10MM for any contingencies and nonetheless have the ability to make an preliminary distribution of $10+, properly above the place the shares commerce right now. I purchased shares not too long ago.
The largest danger I see, even when the deal breaks and the activist group fails to take away the board, MEI Pharma might proceed on with their two section 1 product candidates whereas burning money.
Different ideas:
- Infinity Prescription drugs (INFI) on a break could be attention-grabbing in a really speculative method. The corporate would not have any actual debt the liabilities, the associated to sale of future royalties line merchandise on the steadiness sheet is barely payable on the receipt of any royalties to belongings they’ve beforehand offered (and are not Eganelisib). Even in a doubtlessly conflicted sale, MEIP did assign considerably extra worth to INFI’s IP than the market.
- Daniel Gold stepped down as CEO on 6/2 and was changed by former Normal Counsel and COO David Urso, in all probability a non-event as INFI administration would take over the reigns, however exhibits a bit of insecurity in seeing the deal via to completion.
- One other in all probability nothing-burger, however MEIP and INFI do share a board member, Sujay Kango who orchestrated the unique assembly between the 2 firms, he then excused himself in accordance the background part within the S-4.
Disclosure: I personal shares of MEIP
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