Graphite Bio (GRPH) (~$130MM marketplace cap) is a clinical-stage gene enhancing biotech that paused building in January for his or her lead asset, nulabeglogene (a remedy for sickle mobile illness), following a major opposed match within the first affected person dosed. A few month later, Graphite Bio made the choice to discover strategic possible choices and did a big aid in group of workers. Within the months since, the corporate bought 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 near to each different related government serve as) to steer the strategic possible choices procedure. Drapkin used to be up to now the CFO of Jounce Therapeutics (JNCE), a in a similar fashion located damaged biotech, which approved a money bid plus a CVR from Kevin Tang’s Concentra Biosciences (Tang does personal ~4% of GRPH). Apparently, as a part of Drapkin’s repayment bundle, she receives an extra $200k in severance if a definitive settlement is reached inside 3 months of her 8/21/23 get started date:
The Corporate entered right into a letter settlement, dated August 21, 2023 (the “Get started Date”), with Ms. Drapkin (the “Be offering Letter”). Pursuant to the phrases of the Be offering Letter, Ms. Drapkin will likely be entitled to a base wage of $550,000 in step with 12 months. As well as, Ms. Drapkin will likely be entitled to money severance bills within the quantity of (i) $400,000 within the match of a termination of her employment as opposed to for motive or dying upon or inside three hundred and sixty five days after the ultimate of a strategic transaction, plus an extra $200,000 if the definitive settlement for such strategic transaction is carried out inside 3 (3) months after the Get started Date or (ii) $350,000 within the match of a termination of her employment as opposed to for motive or dying upon or inside three hundred and sixty five days after the Board’s approval of a plan of dissolution of the Corporate below Delaware regulation, in every case matter to Ms. Drapkin’s execution and non-revocation of a separation settlement and liberate, as additional equipped within the Be offering Letter.
Whilst that isn’t sufficient to verify a deal is reached in that time-frame, it surely issues to the expectancy of a snappy deal when she used to be introduced on board. Some other horny high quality to GRPH, their web money place (after deducting present liabilities) is easily over $200MM, that is a significant sum of money to many doable bidders which will have to build up the standard of any deal counterparty in comparison to a few of these true micro/nano cap damaged biotechs.
The only massive purple flag here’s their running hire legal responsibility; close to the highest of the new craziness, GRPH entered right into a 120 month hire for some place of business and laboratory house in San Francisco (which handiest began after they raised the white flag).
On December 16, 2021, the Corporate entered right into a hire settlement with Bayside Space Construction, LLC (“Bayside”) for 85,165 sq. ft of place of business and laboratory house in South San Francisco, CA. The hire for the place of business and laboratory house commenced in April 2023. The time period of the hire is 120 months with the technique to lengthen the time period as much as an extra ten years. This technique to lengthen the hire time period used to be now not decided to be relatively sure and due to this fact has now not been incorporated within the Corporate’s calculation of the related running hire legal responsibility below ASC 842. All over the 3 and 6 months ended June 30, 2023, the Corporate took ownership of the Bayside hire and known a $32.0 million right-of-use asset and corresponding hire legal responsibility upon the hire graduation date. As well as, the Corporate known $27.2 million in leasehold enhancements. Bayside equipped a tenant growth allowance of as much as $14.9 million, of which $14.7 million used to be applied and recorded in hire legal responsibility.
In reference to the Restructuring Plan, the Corporate has decided that it’s going to now not make the most of this facility for functions of its personal operations, and consequently, intends to sublease the vacant house to recuperate a portion of the full value upon reputation of the hire.
They have but to sublease the gap or negotiate a termination cost with their landlord. Given the state of Bay Space place of business house, it could be really useful to think all the longer term running hire legal responsibility towards the NAV.
I will think handiest two quarters of G&A as opposed to my standard 4, to account for the time it has already taken because the unique announcement plus the 3 month incentive rate, it does not seem this one will have to take too lengthy as soon as the running hire is neutralized in a method or some other. Even though the default expectation with those will have to be a reverse-merger, the chances of a more effective money deal will have to be upper given Drapkin’s enjoy at JNCE.
Disclosure: I personal stocks of GRPH