Kronos Bio (KRON) ($45MM market cap) was traditionally centered on most cancers and autoimmune illness therapies, late final yr, the corporate discontinued growth of their lead asset, istisociclib, resulting from issues of safety and introduced a plan to discover strategic options. On the time, I used to be nervous about their giant working lease obligation and ended up passing on including it to my busted biotech basket as there was no scarcity of cleaner alternatives on the time.
On Might 1st, Kevin Tang’s liquidation car, Concentra Biosciences, entered into an settlement to purchase KRON for $0.57/share in money plus a CVR, the CVR is structured otherwise than lots of Tang’s latest offers the place the CVR is usually simply IP tendencies, right here the CVR consists of a collection of potential payouts:
(i) 50% of the online proceeds within the case of a disposition of the Firm’s product candidates often known as KB-9558 and KB-7898 that happens inside 2 years following closing; (ii) 100% of the online proceeds within the case of a disposition of the Firm’s product candidates often known as KB-0742, lanraplenib and entospletinib that happens previous to closing; (iii) 100% of price financial savings realized previous to closing; (iv) 80% of price financial savings realized between the merger deadline and the second (2nd) anniversary of the merger deadline; and (v) 50% of price financial savings realized between the second (2nd) anniversary of the merger deadline and the third (3rd) anniversary of the merger deadline, every pursuant to the contingent worth rights settlement (the “CVR Settlement”).
Payouts (i) and (ii) are exhausting to foretell and sure of minimal worth, the legacy IP belongings in (ii) must be bought (however not closed) previous to the merger closing and (i) is their pre-clinical belongings, who is aware of how a lot these are price however the two yr clock is fairly gameable, any worth there probably accrues to Tang.
Payouts (iv) and (v) relate primarily to price financial savings, subleasing or an early exit to their working lease for a 40+ok sq ft facility positioned in Cambridge, MA. The lease ends in February 2031 and it has roughly $30MM remaining, given the lengthy time-frame, Tang may potential sport this one by again weighting any lease modification/termination to offer him the most effective payout and keep away from paying CVR holders.
Payout (iii) is the place the potential money is for CVR holders, will probably be paid no later than 60 days following the merger closing, the financial savings calculation is as follows:
“Further Closing Internet Money Proceeds” means 100% of the quantity by which the Closing Internet Money as lastly decided pursuant to Part 2.01(d) of the Merger Settlement exceeds $40,000,000, adjusted for any claims that come up previous to 30 days following the Merger Closing Date that aren’t accounted for in such Closing Internet Money.
“Closing Internet Money” means, with out duplication, (i) the Firm’s money and money equivalents, restricted money, and investments as of the Money Willpower Time, decided in accordance with GAAP, utilized on a foundation in keeping with the Firm’s software thereof within the Firm’s consolidated monetary statements, minus (ii) Indebtedness of the Firm as of the Money Willpower Time, minus (iii) the Transaction Bills, minus (iv) the Estimated Prices Put up-Merger Closing, minus (v) $400,000 for the CVR Expense Cap beneath the CVR Settlement.
The curious a part of this transaction is the $40MM threshold, why is it so low when the NCAV as of three/31/25 is $73.5MM? CVRs are supposed to bridge the hole between patrons and sellers on how a lot an asset is price, right here the asset is primarily money which ought to have minimal uncertainty given the short merger shut (a young supply is required to be launched by 5/15/25). What would Tang be defending himself in opposition to with such a low closing money quantity? Istisociclib did have issues of safety, however no authorized proceedings have been disclosed that meet a reporting threshold.
Under is my try at a again of the envelope calculation of the Further Closing Internet Money Proceeds worth, shares commerce for $0.72/share right this moment, implying a $0.15/CVR worth:
The “Estimated Prices Put up-Merger Closing” is the place some potential video games could possibly be performed:
“Estimated Prices Put up-Merger Closing” means all prices that the Surviving Company would incur post-Merger Closing, together with prices related to: (i) CMC Actions; (ii) medical actions; (iii) remaining lease-related obligations (together with lease, widespread space upkeep, property taxes and insurance coverage); and (iv) an mixture of $250,000 for any authorized Proceedings and settlements.
Whereas the event pipeline is paused, probably an argument could possibly be made that spending some cash to advance KB-9558 and KB-7898 could possibly be worthwhile to CVR holders as they’d receives a commission 50% of any disposition proceeds? I do not see it, however doesn’t suggest administration won’t have an settlement with Tang to incorporate some spend in that bucket. Within the newest 10-Q, all their R&D prices gave the impression of legacy bills, not ongoing bills:
Analysis and growth bills had been $2.1 million for the three months ended March 31, 2025, in comparison with $14.2 million for the three months ended March 31, 2024. The lower of $12.1 million was primarily attributable to a $6.0 million discount in consulting and different exterior analysis bills, a $4.2 million lower in personnel-related prices and a $1.9 million lower in amenities, depreciation and different prices. These decreases had been primarily associated to the discontinuation of the istisociclib medical trial in November 2024, lowered headcount in our analysis and growth group following the restructuring actions and reclassification of lease prices to normal and administrative bills. Analysis and growth bills for the three months ended March 31, 2025 had been associated to efficiency obligations beneath the Transition Settlement and continued wind down of analysis and growth actions.
I type of count on to be screwed right here, simply not fairly positive how, however the alternative for a fast buck is just too tempting, I added a small place.
Disclosure: I personal shares of KRON
