Roundtable Discussion; The Future of Mineral Sands. Watch the video here.
This article below is about M&A trends in biotech. Whenever we've had good news from the scientific front, I was glad not only because of the specific news but mainly because there had been another validation of the 4D platform.
It looks like that a good number of deals in biotech M&A are not only driven by the motivation of the buyer to pounce on late stage assets but on ones at earlier stage as well: in the latter case it's mainly when acquisitions are DRIVEN by technology platforms.
So the sum of the parts in case of 4D should have some value. But, it could well be its platform that gives it that additional edge and value to attract potential bidders, new investors or partners.
Let's just hope there is no fire sale of some sort or (another) incompetence by the administrator or... directors.
https://www.fiercepharma.com/pharma/ma-landscape-tilting-away-late-stage-buys-and-toward-platform-strategy-analysts
A couple of especially relevant extracts:
"The times are changing in the biopharma industry—and it’s happening fast. From 2019 to 2021, for example, total investment in biotechs nearly doubled, which helps explain why the average premium for purchasing biotech assets increased from 51% in 2018 to 71% last year." ...
"The Builder pathway is a late-stage buy to acquire a potentially lucrative asset or assets. An example would be Bristol Myers Squibb’s $13.1 billion purchase of MyoKardia in 2020. The Architect pathway is an earlier-stage acquisition, which involves not only assets, but more importantly, a technology platform. An example here would be Sanofi’s pickup last year of Translate Bio and its mRNA technology for $3.2 billion. "
The Builder (acquisition of an advanced stage asset) and Architect pathways (i.e. earlier stage acquisitions related to a platform) make up about 70% of M&A deals!
Still a zero in my spreadsheet but allowing room for a positive outcome.
Phil, agreed except that I think there is more than 50% chance of the company coming back as a going concern.
CFO should go yesterday and Duncan is not organised enough to run the business. But, the post-administration company would benefit a lot from Duncan contributing and advising from the sidelines. Something that should be a big plus about the business, the diversity of its programmes, has proved to be its Achilles's heel because of CFO/CEO incompetence. They did have a number of options to partly sell down interests in the most advanced programmes to fund the earlier ones.
A big plus is that Interpath has the experience and the market environment re biotechs is rapidly improving.
Also well said in last posts re the scums that include bitter "investors" that have been talking down a business - nothing to do with constructive criticism.
Good morning Robins
One of the reasons for planning to go to the AGM was to understand better the directors, even belatedly. I was surprised that AGM took place but, in any case, there was much less motivation for me to travel all this way (not based in the UK).
First, I think the responsibility of CFO is even greater than that of Duncan. Can't understand how the CFO of any company would miss the covenants mentioned in the agreement of the ONLY lending facility!! There are companies that have multiple lending facilities.
Now let's look forward and to answer your questions: my hope is that recent events must have acted as a catalyst to galvanise the resolve of Duncan. He must have had a reality check and now he has time to pause for breath. Easy to underestimate the very demanding and difficult task of being a CEO of a company that has been at such a critical stage in its evolution: no longer a startup and on its way to becoming a medium-sized biotech. Still, not an excuse for what happened though!
So I think he's going to fight - by cooperating and providing maximum support to the administrators - to get most out of the company and secure its coming back as a going concern. The relationship with Alex is key at this point - It's important that Alex and Duncan work together. But, my concern here: if you and your team have done your job well on the science front you, would you be happy with CEO/CFO about the situation?
Overall, given where we were in the last couple of months, it can prove a good thing that the situation is outside the hands of the current Board. That's provided the administrators applied some reasonable efforts and it is in the strong interest to do so (reputation reasons). We could see the meaningful sale of one or two programmes (e.g. asthma & IBS?) and see a slimmed down but smarter and more focused 4D returning as a going concern - certainly with different CFO and very likely different CEO. There are many scenaria that could play out. We'll see. The zero on my spreadsheet remains to prepare for the worst but hoping for something better :-)
Robims I didn't attend. Will respond later to your post.
Carrying on from the post at the origin of this thread as my view has been reinforced after the AGM. I'd planned a long journey to attend but, ultimately, felt that control had been placed outside the hands of the Board.
I still think administration with a seemingly competent turnaround expert should lead us to a better place than directors would, or could. As it turns out, it all got too much for CEO/Board and 4D has been operating in a sloppy way . Major indications of this: breaches of covenants took place that were easily avoidable, stating maximum funding needs as a % knowing that it would lead to a downward self-perpetuating spiral etc. OF must have shown them yellow cards once or twice!
Even if the administrator, in acting mainly for the lenders, goes for a semi-optimal solution (for shareholders) by unlocking a decent (rather than maximum) value in assets/company, we may see a meaningful "exit".
There are three main reasons for this:
1. The administrator should care about reputation as a positive reinforcement. Interpath claim they are turnaround specialists among other things. If there was a turnaround, as in RedX, that would win Interpath a major achievement to add to their credentials and ... more business.
2. Directors feel the heat because of their shareholding and also pending legal threats. They would do everything in their power to work with Interpath to ensure best value out of the company gets maximised even if it didn't come back as a going concern.
3. The company has a lot of value if deals and investments going on in the LBP space, even in the recent market, are anything to go about:
(a) A startup (!) in biotherapeutics raised US$100M in April '22 to go into clinical trials:
https://www.biopharma-reporter.com/Article/2022/04/27/xbiome-acquires-live-biotherapeutic-product-program-targeting-ulcerative-colitis
(b)Microbiotica with less diverse and earlier stage programmes than 4D raised US$67m to advance pipeline in March '22
https://microbiotica.com/microbiotica-raises-50-million-67-million-to-advance-pipeline-of-microbiome-based-therapeutics/
(c) List Bio specialising in microbiome anticancer drug development raised US$48m back in April '22
https://www.bio-itworld.com/pressreleases/2022/04/25/list-bio-raises-$48-4-million-series-a-for-global-scale-up
"The Series A financing of List Bio was carried out with a pre-money valuation of $30 million. The post-money valuation after the Series A closing is $78.4 million."
The universe of investors in LBP assets or companies is now much larger! Why? Whereas there are different types of investors who'd invest in listed companies there are so many more who'd be willing to buy assets that suit their strategy.
In my portfolio spreadsheet the value next to 4D says 0, but that's because it's good to be prepared. I still think the odds of EITHER seeing something meaningful back in return OR 4D coming back as a going concern are over 50%.
Perhaps it is a good thing that 4D management are - at least for some time - not in charge:
https://www.interpathadvisory.com/restructuring/turnaround-plans/
The RedX case was certainly not a lottery but one of a successful turnaround and restructuring scenario - it involved a new CEO at some point. Maybe there are strong parallels with 4D?
We’ll see hopefully by September, in time for the capital markets day (humour intended).
Originally it was a bit of a shock and it is a pity given how much progress has been done on the clinical front and how close we are likely to be to "game changers" e.g. conclusion of the first part of the vaccine development programme which could result in milestone payment(s). I feel sympathy and empathy for other investors and in particular those whose circumstances mean it is hard to wait and see.
Thinking about it more calmly and thanks to whomever brought up Redx, going into admin seems the right thing to do given the confluence of circumstances and the 16p share price!
Interpath are external to 4D and seem experienced turnaround professionals charged with the task of delivering 4D as a GOING CONERN. It should be a manageable task. Why?
(i) 4D’s multitude of diverse programmes means you could carve out and sell the less core ones e.g. asthma which, given the unequivocally good results so far, should fetch a good price. In most corporate situations (or even in everyday life) you get value out of reducing complexity: the sum of the constituent parts is more than the value as a whole.
(ii) the cash amounts needed to pay off the low debt (under US$14m) and ensure a sufficient runway in a more focused 4D (US$25m?)-possibly in conjunction with convertible debt - are manageable.
(iii) the industry collaborations bring credibility to the 4D brand name helping to sell the less core programmes.
(iv) the fact that directors should be keen to work with administrators and help them get on with their job (because of their multi-million investments)
(v) biotech sector is showing signs of recovery. My bet is that it’s going to be a momentous one. So 4D’s assets will look all the more inexpensive and that could result in industry competition which in turn could push the price up.
(vi) now we have more time to get proper value for assets to be sold and source strategic investor(s). A lot less pressure than with a market cap at £30m.
It was probably all getting too much for 4D and Duncan in particular recently. 4D is under-resourced on the business side AND the share price had gone on a downward spiral: financing was a challenge but the final blow was management’s beginner’s mistake to ask for approval to issue equity defined as a percentage (100%) of share capital rather than as a monetary amount. Also one of 4D’s strengths, the impressive diversity of its programmes arising from this platform has also been its Achilles’s heel: they do require resources to drive them forward.
The senior guys from Interpath (named in the RNS) seem well qualified and experienced. 4D directors on their side any industry knowledge gap will be filled.
Armed with some patience, there are good grounds to expect the turnaround of 4D to work and to see a bright light at the other end of the tunnel as in the case of RedX. But, having said that, once in administration, nothing is guaranteed. We’ll see hopefully by September, in time for the capital markets day (humou
nm.
... share swap merger between Seres and 4D? The two have complementary pipeline. Que sera sera.
Might the Board want to freeze market cap as they realised that expressing funding condition in AGM notice as a % has been a bad idea?
Does the Oxf Fin facility stipulate a minimum market cap?
Time will tell.
Thanks to everyone for their thoughts and time and some good points raised! I think it makes sense to focus on a very small number of forward looking questions/issues AND it is important to assess what lessons have been learnt!
Weighing up all input, I think we should focus on a small number of critical issues and those should be:
1. Progress re NSCLC in 0518 trial since so much is dependent upon achieving that 1:10 clinical benefit major milestone in terms of business, finance, new investors, existing investors moral boosting
2. Finance: important to make sure management have in place various funding scenaria (plan B and plan C) to ensure we ride through the storm. Already conditions have been improving significantly (XBI closed yesterday at 76) which should make it easier to raise funds.
3. What co-financing opportunities could arise (re any of the programmes)?
4. Progress with bringing in more investors (major, retail, biotech arms of hedge funds, specialist biotech funds):
My strong view is that company should be clear about a minimum MONETARY AMOUNT (as opposed to a % of share capital) that would ensure continuity and once more, a bridge to anticipated major clinical milestones - from then on, we should be talking about the take-off of the business!
Such an amount would be a lot less than the US$35m for next 18 months that the company has stated is its funding needs say US$20-US$24m if runway was for 12 months AND since already some months have passed. Also, a second drawdown from Oxf Fin would reduce that further, to say US$15m. which is a very manageable amount for dilutive financing! Let alone if there is some kind of deal (sponsorship of Parkinson's, licensing of IBS or even MSD co-financing).
I'm cautiously optimistic and very encouraged by the strong recovery in the biotech sector - though fully prepared that AGM may turn out to be less productive.
MHB
The raise of $35m can be reduced by (i) Oxford Finance second trance
It would be useful to know who’s going to the AGM. Am I the only one? :-)
It'd be an early start but shall we shareholders meet about half an hour before the AGM on Tuesday? We might achieve much more out of the meeting if we agree on the topics to address and to be raised on behalf of the shareholders (present or not).
If so, who’s planning to go?
Here is a draft of a list of questions and others may suggest changes or additional points:
- Financing: the Board to comment on the confidence re dilutive and non-dilutive funding options by Q4? Could it be a combination and has a (partial) sale of rights in one of the programmes been explored?
- Comment re the (potential) triggering of payments under the MSD vaccine collaboration which were mentioned in the “notorious” pre-AGM presentation: of what order might the payments be and would they be of sufficient size to reduce reliance on dilutive financing?
- How close are we to satisfying the NSCLC primary endpoint (mentioned as a hopeful flagstone during the pre-AGM presentation)?
- How likely is co-financing under ANY of the programmes at this stage?
- Discussions with US and UK / Europe-based investors (again mentioned in the pre-AGM present.): how are they going especially in the light of the recent noticeable strengthening in the XBI biotech index? Could they come in the secondary market and ahead of a possible
- Re Blautix: are there any chances of selling the rights (partially or wholly)?
We really need to get answers. Hopefully lessons have been learnt from the pre-AGM session. The idea is not to have a confrontation but to have a productive discussion. Whilst we are not aiming for the disclosure of information that can be released only by RNS, we still need the Board to justify to us why we should remain investors! 4D is a great story. Once more its platform and powerhouse of delivering likely therapies for very diverse illnesses seems to be working!
One of its main rivals, Seres, has a market cap of US$300m as it seems to be resurging from recent lows (not that long ago market cap was US2$bn). 4D is also one of the leaders in LBS. US$40m market cap?! Hopefully it won't last with funding issue sorted. Board doesn't have a difficult story to sell!! So, let's hear it from them on Tuesday.
Boonco you beat me to it. I was going to ask Billy what made him invest in 4D two years ago and the reason he is starting his dd now without having posted before on this bb.
Porky
Agreed. What you describe is one of possible ways to secure the financial future as you put it. At this stage Duncan still has a few options so as to rely on minimum dilution or even none. Contrary to what some try to imply, a few months runway extension fom Q4 would suffice for 4D to achieve major milestones. Milestones may be achieved even before q4 eg NSCLC one in ten clinical benefit, but good to have a timing cushion. Once further milestones are achieved, financing shouldn't be an issue again. 4d will have become a medium sized ground breaking biotech.
Aldebaran, I actually don't smoke any stuff so I can't recommend you something in case you need it.
Still early days, but we are seeing very strong signals money that is coming back into the biotech sector and LBP subsector in particular:
Evelo biosciences currently 2.02 USD up 10%
Seres biotherapeutics 3.30 USD up 4.4% on the back of a previous rise of more than 20% in the last 5 days.
XBI biotech 72.7, up 3.8%+.
If indeed we are talking about a turning point and a recovery, it's coming at a crucial time for 4D! The company must be being noticed we are among the leaders in the LBP league after all. And, subject to what we hear at the AGM, we should see the benefits reflecting in the share price sooner or later. As he heard, we are in talks to investors in the US and UK. Time will tell.
Pete
"an Oxford Finance style arrangement will simply kick the can down the road and with no guarantee that the market situation or development pipeline is any better at that point"
Isn't that the case with most corporate debt or equity financings (there is never a refinancing guarantee) and especially at times when funding isn't readily available as for investment grade (BBB- or better rated) revenue-generating companies?!
Financings are never to cover a corporate funding needs for life and it wouldn't be prudent to have unrealistic objectives especially in this climate re funding all programmes until phase III with one financing!
If that bridge financing (combination of OF and modest equity raise) means you ride out the storm and it gives you the chance to get some milestones under your belt, 4D should just grab the opportunity!
PS. Are you going to the AGM?
Pete
It s not a binary situation ie US$40m in one go or nothing, is it? Far from it.
(Bridge) financing is necessary to the next major milestone(s) clinical or commercial. If more can be raised beyond those milestones fine.
But It's not essential to raise all funding in one go. Besides Oxf Fin will be a big facilitator of share capital raise.
And one more point re Duncan after watching the replay in the cold light of morning. He may not be a "smoothie" but I think he is genuine and seems to be fighting on various fronts. As I've said before, he deserves big credit for the collaborations with MSD and Pfizer among other things though, so far, he and directors deserve some stick re the lack of IIs, the degree of salary raises and the lack of clarity re commercial plan. In any case, DP and the 4D team need all the support they can get.
Yesterday we may have been unfair to him as part of the overreaction: the next few months will be critical and let's at hold our judgement for later the year. Now that feelings have been let out, best to try to engage with him and other directors at the AGM to have a productive discussion.
Not to forget: there is strong evidence the 4D research platform works!
Starting with some of the key salient points that came out [comments in brackets] followed by some thoughts at the end:
- Milestone payment(s) could be triggered in autumn out of the vaccine collaboration programme. 4D have made/are making the case to MSD. [NB: can it be early in autumn? It will make ALL the difference]
- NSCLC can prove a major flagstone for the business: Duncan mentioned that we are hoping to achieve the same milestone as in RCC: meeting the primary endpoint early. [NB. Yes it is a critical milestone in a multitude of ways - not least it should give breathing space to 4D in unlocking the second instalment from OF. It would also seal the MSD collaboration with all the benefits that that would entail. Important to find out at the AGM how close we are to satisfying it!]
- IIs: DP realises the importance of getting more investors and diverse ones as well: 4D is in discussions with banks in US and UK about sourcing investors AND with IIs directly. [NB. Important to get a lot more clarity at the AGM]
- Blautix: looks like FDA wants 4D to go in one direction re two different types of IBS whereas Blautix is rare/unique in addressing both. [NB. OK understood but are we trying to convince FDA or are we trying to adapt? Also can it be licensed or sold out to other pharma even at a non-ambitious remuneration? Another one for the AGM].
- The option for raise capital (at least) seems important to have the flexibility. [NB. Reluctantly agreed but at least existing shareholders should be given a rights issue option ]
- The answer to why performance in the US hasn't been good was rather disappointing.
Relistening to the presentation and the Q&As in particular we seem to be at the cusp of many important developments to put a seal to the transformation of the business - also from a valuation point of view. The balance between the company going through this rough patch and developing into an important player in any/all of the oncology, asthma, Parkinson's areas or going off track is a fine one.
Overall, 4d is at critical crossroads and management & investors need to try to keep it going for the sake of all stakeholders (patients, medicine in general, investors, staff).
Also the biotech sector is showing signs of life again: Seres was up more than 10% yesterday and the XBI index was significantly up. If such movements signify the beginning of a turning point in the sector could be decisive for 4D too.
Presentation still disappointing in some ways (we need some form of a business plan!) but there was some important salient points on which there hasn't been anywhere near enough focus. Possibly because of high expectations (and rightly so), I think yesterday was an overreaction on the part of shareholders (myself included).
I sold about 10-15% of my holding yesterday, before the presentation, corresponding to some of my recent opportunistic buys. But, otherwise, now I'm inclined to hold for the time being and at least unt