Wednesday, December 13, 2023
HomeValue InvestingBroken Biotech, Reverse Merger Risk

Broken Biotech, Reverse Merger Risk

Eliem Therapeutics (ELYM) ($67MM market cap) is a broken biotech that previously was focused on developing therapies for mental illnesses and central nervous system disorders. Back in February of this year, Eliem paused development on ETX-155 due to “challenging capital environment” despite having FDA support for a Phase 2 trial to treat major depressive disorder.  Points to some possible value and expense discipline.  The company did a reduction in workforce of 55% and refocused on the pre-clinical ETX-123. As we’ve seen with others, they ended up fully pausing all research and development in July, announced plans to explore strategic alternatives and completed an additional workforce reduction (which is captured in the severance costs below).

This one is rather straight forward, there’s no debt, minimal lease obligations, ~$100MM of cash and a 49% shareholder in RA Capital.

RA Capital is an institutional player in life sciences, they invest across the pre-revenue/revenue spectrum, Andrew Levin from RA Capital is the chairman of the board for ELYM. He appears to be more of a scientist than an investor, but I’m sure straddles both.  All that to stay this situation probably leans towards a reverse merger — it has been 4+ months since the strategic alternatives announcement, a scientist as chairman and controlling shareholder (might have something they own privately and want to bring public), but given the ownership alignment, hopefully a well thought out transaction.  The IP might also be worth something here to someone wanting to pursue a Phase 2 trial for ETX-155.

Disclosure: I own shares of ELYM


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