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Fruits

It may not be a SPAC, but a funding solution is necessary, and some type of corporate transaction that provides it is in the offing if a Data Room has been assembled. What do you think that transaction might otherwise be?

Given that all the top global firms of lawyers and accountants, as well as the bulge bracket banks get involved in SPACs, I don't think a small UK Hedge Fund would have an issue.

The timing of the US GM role advert would suggest that the company is ready to share the corporate strategy with outsiders, otherwise the interview process is a non-starter. The public advert was also an interesting “tell” I believe, I’m sure they could have sourced confidentially through a headhunter if desired.

One potential hold-up presently that I could imagine is the year-end accounts for Synairgen if a SPAC transaction is their aim. (Upon announcement) the F-4 that is submitted to the SEC is subject to stringent requirements around the quality of financial disclosure, and the 2022 half-year accounts may be deemed to be out of date, but I could be wrong on that. If there is something in this (and it is also potentially a Data Room issue anyway), then the accountants and auditors will currently be breaking their necks to produce the necessary, but it would be inconceivable to be ready by mid-January (preparation of accounts, BoD sign-off, auditor sign-off, US accountants combining the figures, lawyers inserting into the F-4, filing on Edgar…) although any time from now until the end of February cannot be ruled out.

My interpretation of all the “tells” is that Synairgen have, actually, worked at “haste” and are now just about ready, there’s nothing further to do. Announcement time beckons!

Alternatively, RM may just be caulking his boat and waiting for the PT organisers to call. Take your pick, I’m just guessing like the rest of you…

DYOR!

It was useful to see the reposted AGM notes once again, thanks.

I have tried to postulate a potential outcome and timeline from disclosures/comments made at the AGM, and I would be grateful to hear constructive challenge.

Firstly, I do believe a high-risk PT was never the option of choice for the BoD. Given the announcement of the Universal trial with Janssen/J&J at the beginning of September, negotiations were likely still playing out at the time of the AGM, with Synairgen needing to promote the prospects of alternative data-gathering solutions – and a free trial was really the only other plausible option they could tout.

The Universal trial is clearly a “sizing” assessment and should generate data that may be extrapolated to provide commercial metrics. Such metrics would then inform further negotiation around a licensing/franchising arrangement. Sufficient time may now have elapsed to get to that.

If a licensing/franchising arrangement is underpinning, as well as subject to, a more fundamental corporate transaction, then the company would need to be “ready” for that too. The haste in publishing various data including the Sprinter peer review just ahead of Christmas suggests the completion of a Data Room to support the DD for a corporate transaction early in the New Year. Equally, the Scientific American conference with “celebrity” advocates was not timed particularly well from a standard PR perspective, so there was clearly an overriding desire to get the “film in the can” for available citation/reference asap.

Synairgen attended (and trailed) the JPM conference, and my suspicion is that all the pieces of the jigsaw – inc. the agreements and materials mentioned above – were in place for an announcement to be made there (JP Morgan famously announces a list of transactions on Day 1, it’s an important curtain-raiser to them)… but something slipped temporarily. Or perhaps the SPAC entity (if it’s that type of transaction) hadn’t been decided upon and various conference meetings were planned to deliver that up. Remember, the SPAC entity is only a commodity element – just a listed vehicle with cash and there are over 340 currently chasing high-growth investment opportunities. That bit of this whole process would be simple relative to all the other moving parts here. Tbf, a differentiating factor on SPACs is where a few have celebrity sponsors, but that is only likely to affect the propensity for redemptions, and if Synairgen are joining forces with BP simultaneously (through PIPE investment, licensing/franchising models, forward orders etc.), then the SPAC as an immediate financial source becomes less important - it's the credibility of the US listed vehicle that is required to underpin all of the other elements here. We are three weeks gone since JPM and I would be surprised if Synairgen don’t now have a SPAC entity lined up if that is the chosen strategy.

Cont'd...

Polygon becomes a shareholder in the combined entity.

WE become shareholders in the combined entity.

Nobody is selling out here. You seem to have some bizarre obsession with "our company being stolen"... this is GOOD NEWS for Synairgen shareholders, do you understand the basics here? That's rhetorical, I don't want to get into a Janet & John discussion anymore. FFS.

After the debacle of Sprinter in Synairgen’s “go it alone” strategy, I suspect Polygon have been watching closely to ensure that the BoD’s future strategy does not further risk the value potential. A PT or any trial that is controlled by a third party is high-risk and NOT desirable, as opposed to Synairgen controlling their own trial but this time with the added involvement of BP expertise in some partnership arrangement, which IS desirable. Under a licensing/franchising model, the latter is attainable.

Licensing/franchising arrangements would take time to put together, but not this long. However, the delay so far would be justifiable if such deal/s were part of a more complex corporate restructure.

Interestingly, Synairgen’s Company Secretary, Simon W. Holden, is a partner at Keystone Law and specialises in transactions including reverse takeovers. If there is to be a transaction that is with a US cash shell, then US lawyers would lead on that, but specialist input would still be required at the UK vehicle’s end. It is also worth looking up Helen Gearing, Synairgen’s Finance Senior VP (and note the US organisational terminology!) whose LinkedIn profile describes her as “…with extensive experience of acquisitions, integrations, and business turnarounds.”

On the (lack of) communications aspect - in which I share everyone’s frustration - the explanation may be quite straightforward. RM doesn’t have a City background, he isn’t a banker/lawyer/ accountant, and he hasn’t had the experience of leading AGMs for a fully-fledged company where commercial performance is routinely analysed and discussed. Brooke isn’t an Investor Relations expert, she is marcoms. Therefore, neither of them will be comfortable in knowing how far they can go in what are potentially price-sensitive issues and so they look to their advisor/s. One of the principal advisors is the Company Secretary mentioned above, who as a partner in a law firm with their professional indemnity insurance to consider, may well just default to the “say nowt” approach if asked. Given that RM no longer has any need to seduce the shareholders since a UK capital raise is out of the question, then he is also probably happy to go along with that instruction. Equally, the quality of shareholder communications is not specifically defined in the Companies Act or AIM rules, so there is no coercion there either. That all may be why we are getting the bare minimum.

All IMHO!

Doc.Dan - in the example, the SPAC shareholders have agreed that when the SYN001 and the team is married to their cash pile, then the resulting combined entity has a valuation of $1bn.

"The whole is greater than the sum of the parts." That is the basic premise of the case for merger transactions in general.

It might pay you to actually do a bit of research, and you will see how the numbers work. These transactions are commonplace.

No Tommy, in the example quoted, the "cash going in" is simply the existing cash previously raised by the SPAC when it was set up and originally listed, the $200m (and any trial expenditure would come out of that). If a PIPE investor did come in - which is not in my example - then further cash would be introduced that way.

Pfizer or AZ, to address your comment, can only acquire the company now if the shareholders agree in sufficient numbers, and Polygon hold the casting vote.

TommyD-19:

Yes, the Synairgen shareholders would need to agree to the deal; the 90% rule (or the 75% rule by court direction) applies.

Put simply, in this hypothesis the Synairgen shareholders relinquish their shares, and the whole of Synairgen's assets and liabilities pass across to the SPAC company. The SPAC company issues fresh shares to the Synairgen shareholders, thereby diluting the original SPAC shareholders. If, for simplicity, if the cash held by the SPAC was $200m (raised from its own original investors at $10 per share or whatever) and the dilution agreed was going to leave the SPAC shareholders with 20% of their company post-combination, then the valuation is $1bn (if $200m gets you 20% of the company, do you see?).

The actual legal mechanics would be quite complicated, particularly with an AIM listed vehicle to deal with, but's it's meat and drink to transaction lawyers.

There's loads of material out there to read up on, including current activity. Four transactions have closed in the last week alone, and there are over 340 SPACs currently competing for investible targets.

Hope that helps.

In answer to some of the queries here:

I am a LTH from before the Polar placement (& rights issue) but after “Magic Monday” so I am nursing a six-figure loss here. From a personal perspective, I hold the Synairgen BoD responsible for the drop from £1.75 PS which is the price that they themselves asked for and were given by their investors.

I work in M&A and have acted on a SPAC transaction where the acquisition target was an early-stage UK private company. That target was loss-making, had a Going Concern issue, and it was three years away from product launch in a heavily regulated sector. A combination of SPAC & PIPE cash and forward orders (from PIPE strategic investors) got the valuation to around $2bn when the de-SPAC was consummated. You must understand that these transactions may contain several levers and are potentially transformational for the target. At the moment, Synairgen is “stuck” without the means to realise any value, hence the current market cap. A funding solution – whether a SPAC or any other – unsticks it and then all the previously recognised potential value comes back into play.

The acquisition of another public company through a SPAC transaction is unusual but it can and does happen if you care to do the research. This guide is helpful:

www.pwc.com/us/en/services/consulting/deals/library/spac-merger.html#:~:text=A%20SPAC%20raises%20capital%20through,of%20executing%20its%20own%20IPO.

I also found some interesting stats here for anyone who is interested:

www.spacanalytics.com/

Once again, I may be completely wide of the mark with touting a SPAC, but the company certainly needs some kind of transformational solution and RM should communicate the strategy for that, clearly and precisely. Let's be 'aving you Richard!

AIMHO, DYOR!

TommyD_19 - there are several value-enhancing benefits to a de-SPAC transaction that could potentially pertain to the company itself, to Polygon as the largest institutional investor, and to the wider shareholder base. Here are just some potential benefits to consider, in no particular order:

1) A SPAC & PIPE arrangement could deliver the funding solution and expertise for a P3 trial.
2) The funding could also capitalise the business adequately as part of any consideration by the FDA as to the stability and capacity of the company to fulfil on distribution in the event of their granting authorisation.
3) A BP licensing/franchising model could commence as part of the PIPE arrangement and generate immediate revenue for the business to fund the expansion of development and/or pay dividends to shareholders.
4) A US listing could attract a liquidity premium greater than AIM.
5) The US listing and market liquidity could also increase the potential value that Polygon might extract on exit, whenever that would be.
6) Senior staff recently recruited on the basis that they would somehow share in any upside could be rewarded as an integral part of the transaction.
7) Obviously further access to the US capital market if ever required.
8) Listing could be a temporary staging post to eventual full acquisition by BP, therefore setting a higher starting price for negotiation.

In the end, whilst Synairgen has a cash runway that could meet the current payroll for at least the next three years, it must find a funding solution to progress and create any value for shareholders (including Polygon of course). Synairgen may well have completely different plans, but a SPAC does offer a potential solution, and could explain the delay in news so far. Who knows?

AIMHO. DYOR!

There are some interesting parallels with Synairgen here:

www.fiercebiotech.com/biotech/mineralys-polishes-100m-ipo-plans-ahead-planned-phase-3-hypertension

And below is a link to the actual initial form S1 submission that has been filed at the SEC for this transaction. As a foreign entity, it would instead be a F1 required in Synairgen's case, but the content is largely the same as an S1. You will see that there is a lot to put together for submission. This would also be at the same time as constructing the PIPE arrangement with strategic investors that might involve licensing/franchising rights to develop and sell SYN001 for specific parts of the "broad spectrum" that the company talks about. So this is all quite a complex and intense undertaking that usually takes several months to put together. If this has been going on in the background at Synairgen (which would totally explain what many of the team there have been doing over the last few months) then an announcement could be made at any time in the next few days, weeks or months. Attendance at the JP Morgan conference may well have been in support of such a strategy.

www.sec.gov/Archives/edgar/data/1933414/000162828023001171/mineralys-sx1.htm

All speculation of course! DYOR.

The runway is at least 3 years.

The company had £18m in cash as at 30/6/22.

In the last full-year's accounts (2021), payroll costs inc. directors was £2,860k. Assuming a couple of incremental hires on the headcount and a 12% salary increase as per the previous year, then that figure should still sit below £3.5m. Assuming de minimus necessary overheads such as premises, that would suggest this company can sit in a holding pattern for around 3.5 years from now. Not many companies have that luxury!

So the cash debate is a red herring. the company can easily survive. But it cannot prosper without a funding solution which enables a trial that can be controlled (NOT Strive) to generate the necessary data to achieve authorisation.

The drive to find a funding solution and create value is not only coming from Polygon who see any delay as an opportunity cost. There are also the expectations to factor in of several senior industry recruits who have given up existing career stability to join for a windfall final big payday (I assume), and a merger transaction that allocates share capital is a potential mechanism for those that don't participate in the current LTIPs scheme that the Synairgen directors enjoy.

all IMHO. DYOR.

Andybe4 – Your “$10’s billions bit American SPAC” comment on this and other threads is misinformed, not one SPAC transaction has ever gone anywhere near that valuation. To date, 574 SPAC acquisitions have been completed, raising an average of $247m in cash proceeds for each transaction.

FWIW for those who are interested, there are 345 live SPAC entities seeking an acquisition, with an aggregate of $86.4bn in funds. That is an average of $251m in cash per SPAC entity.

SPACs are usually time-boxed whereby they must return monies to investors if an acquisition isn’t made within, say, two years. The SPAC sponsors, who take a cut of around 20% of the SPAC vehicle for setting it up, are reluctant to see this happen of course.

So clearly, the SPAC demand for investible propositions is both high (345 buyers out there) and urgent given the time-boxing.

Whilst the AIM market is currently putting zero value on Synairgen’s ability to do anything with their drug asset in the company’s existing format (that’s the nicest way I can put it), if that same drug asset was effectively transferred into the expert management hands of BP (through the PIPE mechanism that accompanies the SPAC transaction) then the value on the NASDAQ/NYSE starts to reference back to the projections previously made by Numis et al.

Don’t confuse this dead rubber of a company that Synairgen currently represents (and I believe Mr Costs does make very reasonable observations sometimes) with the potential value of the drug itself in the expert hands of BP.

My hypothesis… I think a SPAC & PIPE transaction that raises circa $200m cash with a gross combined entity valuation of around $1.3bn is entirely feasible (and comparable to the budgets that BP set aside to get a drug to P3). Allowing for dilution, somewhere in the region of $5.50 per share would accrue to the current UK shareholders.

My suspicion is that all the actors are in place; Rick Bright and De La Cruz would not be risking their reputations on some remote UK one-drug business with a $30m market cap unless there was BP in the wings. And my guess is Johnson & Johnson, why would they be funding the Universal observational trial otherwise?... certainly not to provide data for a competitor to use.

All IMHO, DYOR.

Thanks for everyone’s feedback, looks like a “no” from the folks here. I’d be interested to hear alternative suggestions as to how they fund a trial. Platform trials are not a good strategic option – the company has little or no control and another P3 failure would probably be fatal to the company’s prospects. Consideration of such shows a certain naivety from the BoD who seemed to be clutching at anything in the aftermath of Sprinter.

Doc83 – the company may well have received offers of a few hundred million or quite a bit more given that BP expect to budget up to a billion to get an internal drug development to P3 (as you say, $200m is small change) but there is inbuilt structural resistance here. The BoD will likely have some awareness of Polygon’s expectations and won’t put an offer to the shareholders if it doesn’t reach that benchmark. Equally, the BoD and management are shareholders themselves and will be happy to sit things out and look to maximise their own return since they continue to be well paid in the meantime.

...plausible.

It would be helpful to know whether the high-profile US marketing guy who was engaged just before the Sprinter results to support commercialisation is involved again now. Equally, yesterday’s job ad for the US General Manager type role presents the possibility of the company pivoting quite quickly to become a US-centric business, maybe leaving RM & Co. to run the R&D shop in Soton.

The company has not disclosed any detail on its strategy, and all we have been told is that “more trial data is required” (I’m paraphrasing) to enable any meaningful progress towards authorisation of its product. In its present state, the company does not have the financial means to fund a trial, so actually the first requirement is to seek a funding solution. That simple two-step plan is really all we know for sure. So, in trying to fill in the gaps…

A potential option for obtaining funding would be to reverse Synairgen into one of the available cash-shells that is US listed – a SPAC (Special Purpose Acquisition Company). Although these have attracted criticism and greater scrutiny from the SEC in the last couple of years, they are still actively being used as a corporate transaction vehicle in the pharma sector – for example, there was one reported yesterday was for Aprinoia who are undertaking Alzheimer’s research.

Quite often, a de-SPAC transaction is combined with a PIPE (Private Investment in Public Equity) to secure additional funds, usually from strategic/trade investors, and in turn, this can enhance the proposition for SPAC shareholders who can otherwise redeem their share monies if the target is not deemed attractive. In the Synairgen hypothesis, the likes of, say, Johnson & Johnson, might be one of those PIPE investors, and as part of a broader arrangement, perhaps also provide a substantial pre-order, subject to authorisation, and/or agree to fund a trial, maybe in exchange for certain licensing rights etc. etc.

The targets are usually private companies without a market cap as such, whereas Synairgen has a visible valuation of circa $30m. Given that SPAC shareholders are often expected to take a significant dilution, perhaps retaining only 15/20% of the enlarged combination, there is an immediate perceived mismatch issue if the SPAC has more cash than Synairgen's market cap (which is likely given the trial funding requirement expected from the SPAC, unless the PIPE picks up the slack), otherwise the need for enhancing the investable proposition through a PIPE becomes more acute. In this hypothesis, one might also wonder whether the Rockefeller Foundation, through Rick Bright, may be interested in some type of participation (if that is possible under their mandate).

These deals can take several months to negotiate, with both SPACs and targets beauty-parading all the while risking the deal falling over, and then with adding in a PIPE, agreeing the share of the spoils can become quite complex and delay matters further. However, in terms of the capability to facilitate something like this, look no further than Polygon.

All just musing and guesswork on my part, and first post (and currently down six figures having supported the rights issue, so I don’t hold myself up as having any great insight here), but given the current information vacuum then I would be interested to hear if other posters deem a de-SPAC option