Flawed Deal w/ INFI, Activist Goal

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MEI Pharma (MEIP) ($50MM market cap) is a fledgling scientific stage biotech that has a pending merger with Infinity Prescription drugs (INFI) ($18MM market cap), the merger is dealing with activist pushback from a shareholder group (14.8% stake) led by Cable Automotive Capital and Anson Advisors.  

Final November, MEI Pharma’s improvement associate (Kyowa Kirin) on their major drug candidate (Zandelisib) walked away after the FDA offered suggestions on the necessity for a brand new scientific trial design that will be expensive, the partnership ended and MEI Pharma laid off a superb portion of their workers.  The corporate does have two further applications, each in Section 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 web money to closing in comparison with $80MM from MEIP (utilizing the minimal web money quantities within the merger settlement).  INFI has one product of their pipeline, Eganelisib (for use together with Keytruda) for sufferers with a kind of pores and skin most cancers, that desperately wants capital to fund a section 2 trial.  As normal, I’ve no view on the deserves of the science, however it’s clear why INFI needs 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 shouldn’t be accomplished, we might want to elevate further capital so as to efficiently execute on our present working plans to additional the event of eganelisib. If the Merger shouldn’t be accomplished, we’ll discover different plans to mitigate the circumstances which elevate substantial doubt about our capability to proceed as a going concern. We contemplate one of many following programs of motion to be the most definitely alternate options if the Merger shouldn’t be accomplished:

Pursue one other strategic transaction. We might resume the method of evaluating a possible strategic transaction, together with the sale of the corporate or its property. Based mostly on our prior evaluation, we don’t anticipate that we’d have the mandatory time or monetary assets 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 might conclude that it’s in the very best curiosity of stockholders to stop regular operations and wind down the corporate by way of chapter or dissolution proceedings. In such case, there can be no assurances as to the quantity or timing of accessible 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 nicely under money.  The agreed stock-for-stock alternate 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 shall be permitted and/or vital issues 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 exchange the complete board.  Regardless of having the help 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 scientific property.  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 suggest a major 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 offered its finest estimate for the money out there to shareholders upon a hypothetical liquidation. Based mostly on discussions with administration, a hypothetical liquidation may 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 accessible money. This might suggest a liquidation worth of $0.62 per share. Provided that the professional forma DCF represents a major 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 alternate ratio is truthful to MEI shareholders.

That evaluation was pre-reverse cut up, post-split the liquidation worth per share can be $12.40.  Just like MGTA, the liquidation evaluation assumes an unrealistic situation the place the corporate may very well be wrapped up inside just a few months with minimal bills.  A extra reasonable situation is as follows:

To be a bit conservative, I am utilizing the minimal web money quantity required if the deal closed in July of $78MM.  That is probably too low, administration’s projected (versus the minimal to shut the deal) web money stage as of 6/30 was $92.8MM, however MEIP is spending cash on this merger and combating off the activists, is sensible to be slightly conservative.  After which MEIP would escrow $10MM for any contingencies and nonetheless be capable of make an preliminary distribution of $10+, nicely above the place the shares commerce right this moment.  I purchased shares just lately.

The largest danger I see, even when the deal breaks and the activist group fails to take away the board, MEI Pharma may proceed on with their two section 1 product candidates whereas burning money.

Different ideas:

  • Infinity Prescription drugs (INFI) on a break may be fascinating in a really speculative method.  The corporate does not have any actual debt the liabilities, the associated to sale of future royalties line merchandise on the stability sheet is barely payable on the receipt of any royalties to property they’ve beforehand bought (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 Common Counsel and COO David Urso, most likely a non-event as INFI administration would take over the reigns, however reveals slightly insecurity in seeing the deal by way of to completion.
  • One other most likely 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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