I've decided to close my position on Aclaris following certain recent developments, as well as recent language emanating from management.
This includes:
1) The indication of a "corporate update" being released alongside 1Q24e results on May 7th - this doesn't sound like something that would be said in anticipation of significant change such as a liquidation, merger or reverse merger
2) The stake reduction of Tang Capital, and the exit of Forsite - both who are noteworthy sector specialist activists / funds that could have purchased $ACRS outright
3) Lack of announcement regarding any further reduction of the remaining 50 FTE's
My conclusion is that at the 1Q24e earnings, management is likely to announce a partial return of capital, alongside that they've found / are looking for a partner for the trial progression of ATI-1777 and that they’ll maintain the 'Discovery' platform (which has not had any success thus far in developing noteworthy candidates).
IMO it's ambiguous how the stock reacts to this, and as a result I do not feel confident maintaining risk here.
- Seems okayish - all drugs are on standstill, the contingent liability has unwound, BUT saying "we'll continue the Discovery platform".
- Re-iteration too is that Neal is a "interim CEO" with no timeline on a permanent replacement
- Neal has the option to buy 497k shares at $1.20 - big incentive to get the SP up (also has 142k RSU's). Both vest equally over the N15M with a CoC and BoD award discretionary clause
Note - Neal Walker, the Chair and interim CEO (and co-founder) has a track record of founding and selling businesses - bio here:
Dr. Walker co-founded Aclaris and has served as Aclaris’ Interim Chief Executive Officer and President since January 2024, and Chair of Aclaris’ board of directors since January 2023. Dr. Walker previously served as Aclaris’ Chief Executive Officer until December 2022 and has served as a member of the board of directors since its inception in July 2012. He is a board-certified dermatologist and serial entrepreneur with over 20 years of experience in the life science industry. He began his pharmaceutical industry career at Johnson & Johnson. Dr. Walker co-founded NeXeption, LLC, a biopharmaceutical assets management company, in 2012, and its affiliated companies. Prior to Aclaris, he co-founded and served as President and Chief Executive Officer and a member of the board of directors of Vicept Therapeutics, Inc., a dermatology-focused specialty pharmaceutical company, from 2009 until its acquisition by Allergan, Inc. in 2011. Previously, Dr. Walker co-founded and led a number of life science companies, including Octagon Research Solutions, Inc., a software and services provider to biopharmaceutical companies (acquired by Accenture plc); Trigenesis Therapeutics, Inc., a specialty dermatology company, where he served as Chief Medical Officer (acquired by Dr. Reddy's Laboratories Inc.); and Cutix Inc., a commercial dermatology company. He also co-founded and previously served on the boards of the Dermatology Summit, Dermatology Innovation Forum, and Advancing Innovation in Dermatology. Dr. Walker is on the board of directors of Aldeyra Therapeutics, Inc., a publicly held biotechnology company, as well as several private companies. In 2016, Dr. Walker was awarded the Frank Baldino Bioscience CEO of the Year award and the Ernst & Young Entrepreneur of the Year Greater Philadelphia award. He is a Fellow of the American Academy of Dermatology. He received a Master of Business Administration from The Wharton School of the University of Pennsylvania, a Doctor of Osteopathic Medicine from the Philadelphia College of Osteopathic Medicine, and a Bachelor of Arts in biology from Lehigh University.
Sorry for the delay in responding here, Substack locked me out of my account the last month!
As the discussion in the comments mostly already covered, the end result is going to be driven by whether the board liquidates/sells, or reaches for the glittery prize of a reverse merger. I will say I think odds are in our favor here for a couple of reasons.
First the SEC just issued updated SPAC guidance that requires significantly more work and doesn't allow them to use such optimistic forecasts AND they specifically applied them to reverse mergers, making them more expensive and less attractive.
Secondly, while Foresite sold out after three years of holding (maybe for a year end tax benefit), and Tang reduced his stake (after making a 50% gain in three months), the shareholding percentage of large shareholders I consider Activists (such as BML, Tang) has stayed roughly the same (around 21-22%). But the percentage of shareholders i consider passives or biotechs that might vote for a reverse merger has declined from 45% to 24%. And share turnover since November has been so huge that I have to think most of the shareholder base is going to be liquidation oriented and voting against a reverse merger.
Historically, Tang offers a percentage of Net Cash - meaning net of liabilities, severance, etc. He does not offer a percentage of gross cash.
The real downside scenario is a reverse merger. See NLTX for an example of a company that was taken over at a value of roughly 50% of cash (by an affiliate of majority shareholder, so a bit different here). Not sure but I think AVRO is in the same bucket.
I saw you mentioned on March 14 that mgmt said the review would be concluded by the end of April - did you get a sense the direction is towards liquidation, rev merger, nothing?
Thanks for the write-up. Why do you think the likeliest outcome is a company sale? As you point out in your write up, the language in the press release points towards further development or possible M&A. The involvement of Tang and BML is a positive, however it is unclear how much influence they have in this situation as ACRS has a staggered board with 10 directors. They still have around 50 employees, so it's clear the plan isn't to shut up shop. Clearly it would work out very well in a liquidation/sale scenario, but I wouldn't assume that as my base case based on the available facts.
I've decided to close my position on Aclaris following certain recent developments, as well as recent language emanating from management.
This includes:
1) The indication of a "corporate update" being released alongside 1Q24e results on May 7th - this doesn't sound like something that would be said in anticipation of significant change such as a liquidation, merger or reverse merger
2) The stake reduction of Tang Capital, and the exit of Forsite - both who are noteworthy sector specialist activists / funds that could have purchased $ACRS outright
3) Lack of announcement regarding any further reduction of the remaining 50 FTE's
My conclusion is that at the 1Q24e earnings, management is likely to announce a partial return of capital, alongside that they've found / are looking for a partner for the trial progression of ATI-1777 and that they’ll maintain the 'Discovery' platform (which has not had any success thus far in developing noteworthy candidates).
IMO it's ambiguous how the stock reacts to this, and as a result I do not feel confident maintaining risk here.
Summary from the 4Q23 10-K (released 27/02/2024):
- Seems okayish - all drugs are on standstill, the contingent liability has unwound, BUT saying "we'll continue the Discovery platform".
- Re-iteration too is that Neal is a "interim CEO" with no timeline on a permanent replacement
- Neal has the option to buy 497k shares at $1.20 - big incentive to get the SP up (also has 142k RSU's). Both vest equally over the N15M with a CoC and BoD award discretionary clause
Foresite has sold it's stake as of 14/02/2024 - not great.
BML has gone to 13% as of 08/02/2024.
Note - Neal Walker, the Chair and interim CEO (and co-founder) has a track record of founding and selling businesses - bio here:
Dr. Walker co-founded Aclaris and has served as Aclaris’ Interim Chief Executive Officer and President since January 2024, and Chair of Aclaris’ board of directors since January 2023. Dr. Walker previously served as Aclaris’ Chief Executive Officer until December 2022 and has served as a member of the board of directors since its inception in July 2012. He is a board-certified dermatologist and serial entrepreneur with over 20 years of experience in the life science industry. He began his pharmaceutical industry career at Johnson & Johnson. Dr. Walker co-founded NeXeption, LLC, a biopharmaceutical assets management company, in 2012, and its affiliated companies. Prior to Aclaris, he co-founded and served as President and Chief Executive Officer and a member of the board of directors of Vicept Therapeutics, Inc., a dermatology-focused specialty pharmaceutical company, from 2009 until its acquisition by Allergan, Inc. in 2011. Previously, Dr. Walker co-founded and led a number of life science companies, including Octagon Research Solutions, Inc., a software and services provider to biopharmaceutical companies (acquired by Accenture plc); Trigenesis Therapeutics, Inc., a specialty dermatology company, where he served as Chief Medical Officer (acquired by Dr. Reddy's Laboratories Inc.); and Cutix Inc., a commercial dermatology company. He also co-founded and previously served on the boards of the Dermatology Summit, Dermatology Innovation Forum, and Advancing Innovation in Dermatology. Dr. Walker is on the board of directors of Aldeyra Therapeutics, Inc., a publicly held biotechnology company, as well as several private companies. In 2016, Dr. Walker was awarded the Frank Baldino Bioscience CEO of the Year award and the Ernst & Young Entrepreneur of the Year Greater Philadelphia award. He is a Fellow of the American Academy of Dermatology. He received a Master of Business Administration from The Wharton School of the University of Pennsylvania, a Doctor of Osteopathic Medicine from the Philadelphia College of Osteopathic Medicine, and a Bachelor of Arts in biology from Lehigh University.
Sorry for the delay in responding here, Substack locked me out of my account the last month!
As the discussion in the comments mostly already covered, the end result is going to be driven by whether the board liquidates/sells, or reaches for the glittery prize of a reverse merger. I will say I think odds are in our favor here for a couple of reasons.
First the SEC just issued updated SPAC guidance that requires significantly more work and doesn't allow them to use such optimistic forecasts AND they specifically applied them to reverse mergers, making them more expensive and less attractive.
Secondly, while Foresite sold out after three years of holding (maybe for a year end tax benefit), and Tang reduced his stake (after making a 50% gain in three months), the shareholding percentage of large shareholders I consider Activists (such as BML, Tang) has stayed roughly the same (around 21-22%). But the percentage of shareholders i consider passives or biotechs that might vote for a reverse merger has declined from 45% to 24%. And share turnover since November has been so huge that I have to think most of the shareholder base is going to be liquidation oriented and voting against a reverse merger.
Historically, Tang offers a percentage of Net Cash - meaning net of liabilities, severance, etc. He does not offer a percentage of gross cash.
The real downside scenario is a reverse merger. See NLTX for an example of a company that was taken over at a value of roughly 50% of cash (by an affiliate of majority shareholder, so a bit different here). Not sure but I think AVRO is in the same bucket.
I saw you mentioned on March 14 that mgmt said the review would be concluded by the end of April - did you get a sense the direction is towards liquidation, rev merger, nothing?
Thanks for the write-up. Why do you think the likeliest outcome is a company sale? As you point out in your write up, the language in the press release points towards further development or possible M&A. The involvement of Tang and BML is a positive, however it is unclear how much influence they have in this situation as ACRS has a staggered board with 10 directors. They still have around 50 employees, so it's clear the plan isn't to shut up shop. Clearly it would work out very well in a liquidation/sale scenario, but I wouldn't assume that as my base case based on the available facts.
Curious to hear your thoughts + reflections after the 10Q was released today.