Atea Pharmaceuticals
,
a biotech that is working to develop antiviral treatments for Covid-19 and hepatitis C, could be worth more dead than alive.
If you bought all of Atea’s stock (ticker: AVIR) and paid off all of its debt, the cash and other liquid assets remaining on its balance sheet would be worth more than you spent.
It’s not alone. The collapse of biotech valuations since the start of 2021 has left a significant number of biotechs in this position, known to have negative enterprise value. This is a stark sign of the seriousness of the situation for small biotechs and the distance that separates the sector from recovery.
On Wednesday, there were 23 biotechs with negative enterprise values in the
SPDR S&P Biotech ETF
(XBI) and the
iShares Biotechnology ETF
(IBB). Many others were on the brink. Of the roughly 280 stocks in the two ETFs, nearly 60 have enterprise values below $100 million.
The question for a growing number of companies in the sector is how long they can last.
Last week, a little-known company offered
A tea
a lifeline: Concentra Biosciences, which is controlled by an investment fund called Tang Capital Partners, said it would buy Atea for $5.75 per share, along with a conditional value right that would give shareholders a ‘Atea 80% of the proceeds from any license or sale of Atea. drugs.
Concentra’s offer was at a 55% premium to Atea’s closing price of $3.70 the day before the unsolicited proposal was released. But he still valued the company’s stock at only $479.5 million, significantly less than the roughly $618 million Atea had in cash and cash equivalents less its debt at the end of the month. March.
On Tuesday, Atea posted a response: no way. Shares of Atea fell 12%, closing Tuesday at $4.12.
Today, Atea (ticker: AVIR) has a market value of $390 million. Its enterprise value, which is calculated by subtracting the company’s cash from the sum of its market value and debts, was -$248.8 million on Wednesday, according to
set of facts
.
Atea’s dramatic development underscores the strain facing smaller biotech companies struggling with declining cash balances and low investor interest. Valuations are low: The sector-tracking SPDR S&P Biotech ETF is down 50% from its peak in early 2021. But even as biotech after biotech announces layoffs, executives and Boards cling to the hope of a rebound and remain largely reluctant to accept that their companies are worth as little as the market says they are.
The clock is turning. Small biotech companies need money to develop drugs and have no product sales. With little ability to raise new funds, it is only a matter of time before the clock runs out.
The scale of the problem for each of the companies depends on whether they have enough cash on hand to survive until financing terms change, or whether they can make meaningful progress on the drugs they are developing.
One of the companies on the brink is
Alector
(ALEC), which works on treatments for neurodegenerative diseases. The shares are down 26% this year. FactSet calculates its enterprise value at -$7 million.
The company, which recently announced layoffs, says it has two years of trail. “We are well funded through the end of 2025 and have several notable milestones ahead of us,” the company said in a statement.
The enterprise value of the drugmaker
EQRx
is -$465 million, according to FactSet. The company notes that it recently restructured and has $1.3 billion in cash. He says he expects to spend $275 million or less this year. “With our recent reset, our organization will have significantly lower expected cash burn, which…opens up degrees of freedom to deploy our significant scale of capital,” the company said in a statement.
Rate hikes by the Federal Reserve since the start of 2022 have soured investors on risky long-term bets like biotech. A prominent biotech analyst, Michael Yee of Jefferies, wrote in early May that he expects biotech stock prices to start rising in the second half of this year as investors forecast lower interest rates. interest in 2024.
Otherwise, the sector could see more companies suffer drastic cuts. The increased stakes could create an opportunity for companies like Concentra, which is targeting Atea.
Concentra has run this game before, most recently in March when a small biotech company called Jounce Therapeutics said Concentra had agreed to buy it for $1.85 a share plus a
CVR
,
a premium of 75% over the closing price before the announcement of the transaction.
Atea shares fell to $5.06 after Concentra’s offer. Concentra did not respond to a request from Barrons on Atea’s response on Tuesday to his offer. Atea declined to comment beyond her public statement. Given the structure of the proposed deal, it seems likely that Concentra would break up the company and license its drugs.
Atea continues to develop bemnifosbuvir, its Covid-19 antiviral. It is also testing bemnifosbuvir in combination with another antiviral as a treatment for the hepatitis C virus.
Concentra-related entities own 10.9% of Atea, according to a May filing. Now investors will be waiting to see if Tang and Concentra continue their pursuit of Atea and if other similar offers reach other struggling biotechs.
Write to Josh Nathan-Kazis at josh.nathan-kazis@barrons.com