Fallacious Deal w/ INFI, Activist Goal






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

Remaining November, MEI Pharma’s building spouse (Kyowa Kirin) on their number one drug candidate (Zandelisib) walked away after the FDA equipped comments at the want for a brand new scientific trial design that may be expensive, the partnership ended and MEI Pharma laid off a significant portion in their workers.  The corporate does have two further methods, each in Segment 1b trials with anticipated readouts round year-end.  In February, in an try to restock their building pipeline, MEIP entered right into a stock-for-stock merger settlement with INFI the place INFI shareholders would finally end up with 42% of the brand new corporate (to be renamed Kimbrix Therapeutics – KMBX) in spite of best bringing $4MM in web money to ultimate in comparison to $80MM from MEIP (the usage of 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 one of those pores and skin most cancers, that desperately wishes capital to fund a segment 2 trial.  As same old, I don’t have any view at the deserves of the science, however it’s transparent why INFI desires to do that deal, with out it, INFI will run out of money briefly and be compelled into a snappy asset sale or liquidation.  From INFI’s Q1 10-Q:

If the Merger isn’t finished, we can want to lift further capital as a way to effectively execute on our present running plans to additional the improvement of eganelisib. If the Merger isn’t finished, we can discover different plans to mitigate the stipulations which lift considerable doubt about our talent to proceed as a going worry. We imagine one of the vital following lessons of motion to be the in all probability choices if the Merger isn’t finished:

Pursue some other strategic transaction. We might resume the method of comparing a possible strategic transaction, together with the sale of the corporate or its belongings. In keeping with our prior evaluation, we don’t be expecting that we might have the vital time or monetary assets to pursue some other strategic transaction just like the proposed Merger.

Wind down the corporate. If the Merger does no longer shut and we’re not able to go into into some other strategic transaction, our board of administrators might conclude that it’s in the most efficient hobby of stockholders to stop commonplace operations and wind down the corporate via chapter or dissolution complaints. In such case, there could be no assurances as to the quantity or timing of to be had money final, if any, to distribute to stockholders after paying our duties and environment apart price range for reserves.

MEIP’s intentions are much less transparent as the corporate trades smartly beneath money.  The agreed stock-for-stock alternate ratio is 0.052245 MEIP stocks for each and every proportion of INFI, at present costs, the unfold is roughly 100%; the marketplace has severe doubts this merger shall be authorized and/or important issues about INFI’s price on a deal damage.  Remaining week, the corporate postponed their shareholder assembly to July twenty third, probably as a result of they do not have sufficient votes, and this week, the activist crew filed a initial consent solitication searching for to switch all the board.  In spite of having the fortify of the proxy advisory companies, this merger turns out doomed to fail.  Alternatively, MEIP does have two readily obvious choice choices:

1) The activist crew did prior to now publish a proposal to shop for the stocks they do not already personal for “money attention of no longer lower than $8.00 consistent with proportion” plus a CVR for the disposition of MEIPs final scientific belongings.  Control has rejected this proposal.

2)  As a part of MEIP’s strategic choices procedure, they did review a liquidation, from the S-4 (6/2/23):

 Liquidation Price

The professional forma DCF analyses suggest an important top rate to each MEI’s standalone DCF valuation vary and present buying and selling worth. Torreya additionally when compared the implied price of MEI as offered within the professional forma DCF analyses to the estimated liquidation price of MEI. To calculate the liquidation price, control equipped its best possible estimate for the money to be had to shareholders upon a hypothetical liquidation. In keeping with discussions with control, a hypothetical liquidation may happen in the second one quarter of 2023, and after paying all wind-down duties, a completely wound-down MEI entity could be left with $82.8 million of to be had money. This could suggest a liquidation price of $0.62 consistent with proportion. For the reason that the professional forma DCF represents an important top rate of as much as 134% to the liquidation price, and as much as 52% within the situations with required fairness fundraising, Torreya believes the DCF helps their opinion that the alternate ratio is honest to MEI shareholders.

That evaluation was once pre-reverse cut up, post-split the liquidation price consistent with proportion could be $12.40.  Very similar to MGTA, the liquidation research assumes an unrealistic situation the place the corporate may well be wrapped up inside a couple of months with minimum bills.  A extra practical situation is as follows:

To be a bit of conservative, I am the usage of the minimal web money quantity required if the deal closed in July of $78MM.  That is most probably too low, control’s projected (as opposed to the minimal to near the deal) web money degree as of 6/30 was once $92.8MM, however MEIP is spending cash in this merger and preventing off the activists, is sensible to be somewhat conservative.  After which MEIP would escrow $10MM for any contingencies and nonetheless be capable of make an preliminary distribution of $10+, smartly above the place the stocks industry these days.  I purchased stocks just lately.

The most important possibility I see, even supposing the deal breaks and the activist crew fails to take away the board, MEI Pharma may proceed on with their two segment 1 product applicants whilst burning money.

Different ideas:

  • Infinity Prescription drugs (INFI) on a damage may well be attention-grabbing in an excessively speculative approach.  The corporate does not have any actual debt the liabilities, the associated with sale of long run royalties line merchandise at the steadiness sheet is best payable at the receipt of any royalties to belongings they have got prior to now bought (and are not Eganelisib).  Even in a probably conflicted sale, MEIP did assign considerably extra price to INFI’s IP than the marketplace.
  • Daniel Gold stepped down as CEO on 6/2 and was once changed via former Common Recommend and COO David Urso, most certainly a non-event as INFI control would take over the reigns, however displays somewhat insecurity in seeing the deal via to of entirety.
  • Any other most certainly nothing-burger, however MEIP and INFI do proportion a board member, Sujay Kango who orchestrated the unique assembly between the 2 corporations, he then excused himself in accordance the background phase within the S-4.

Disclosure: I personal stocks of MEIP

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