| | | ??This week was, for biotechs and the contest portfolios, a return to the gradual decline more typical of the summer so far, as opposed to last week’s generally positive results. Again the NASDAQ ran counter to the biotech composites, up +2% for the week versus a drop of -1% for the NASDAQ biotech index, and -1.4% for the S&P biotechs.
Turning to individual stocks there was one big winner for the week, URGN +150% of their initial price, enough to move into fourth place for the YTD performance. Their prior performance had been pretty flat: moving from an initial price of $8.87 to last week’s close of $9.29. The jump on Thursday up to roughly $13 by 1:30 pm may have been in response to the announcement that morning of a $120 million dollar private placement of ordinary shares, which apparently more than doubled the number of shares outstanding. This new cash to a company with a pre-placement market cap of about $100 million must greatly improve the ability to take an promising product all the way to market. The placement price of $9.54 / share was at a slight premium, compared to last week’s closing price. But at $13 the placement share price was a 27% discount. But wait, there’s more. After 2:30 pm on Thursday, URGN was showing real activity, closing at $17.96, rising further on Friday to close for the week at $22.61. Maybe it took that long to digest the other piece of news URGN dropped Thursday morning of very favorable results from their Phase III trial of a pharmacological approach to reduce bladder cancer tumors, showing equivalent response and disease-free survival versus the standard of care invasive method of physical ablation of the tumor area. The participants of the private placement must be feeling pretty cocky, with their $120 M investment giving them more than 50% of a now $530 M market cap enterprise. There is the slight technicality that their shares were unregistered at sale, so they can’t go for a quick profit on the market until URGN finishes the process of registering the shares.
The second place winner for the week was QSI +25%, building on last weeks third place performance of +31%, though the net improvement is still below the brief peak it had on the 19th of July.
Looking at the losers for the week, last week’s big winner, INZY (+87%), is this week’s big loser, -200% of its initial price. This is still not enough to knock its YTD performance out of first place (+370%). The big hit was apparently in response to INZY’s announcement of a $60 M public placement, causing a drop in the share price from $6.25 before the announcement to $4.90 at the week’s close, only a bit above the offering price of $4.84.
Repeating the pattern, the second worst performer was CRVS (-55%), the second best last week (+35%), and also the second best YTD last week. Now CRVS has traded places (again) with JSPR, returning to the third place YTD (+170%).
We also note that last week’s 4th place winner PMGM (+28%) has as a result of a SPAC enabled merger morphed into the now public AEON, which was the fourth worst finisher for the week. That one contestant chose PMGM for their contest portfolio, gave me the opportunity to take a deep dive into the whole SPAC deal, at least as how it played out for PMGM/AEON. For those who might be interested I have placed a summary of what I learned after the report spread sheet.
For the contest generally, the poor showing this week erased most of the gains of the previous week. The median portfolio took a -$3.9k hit, and -$1.7 shaved off the average value. In terms of the YTD performance, the average portfolio is still (just) in the black (+$3.7k), mostly due to the contribution from our top performers.
Only four portfolios were in the black for the week, with the first and second place portfolios being real outliers: ERIKOTTO (+$10.7k) and MKMW (+$10k). For comparison, last week, a good one generally, ERIKOTTO, also the number one performer, managed just a +$7.2k return, thanks to a 5% position in INZY. This week ERIKOTTO and MKMW both included URGN. ERIKOTTO’s first place finish was due to having put 15% of their portfolio into URGN (versus MKMW’s 10%). That the two portfolios were so close is due to the fact that ERIKOTTO had to overcome the drag from their -$10k loss from INZY.
For the YTD standings, there was no change in the portfolios holding the top six spots, though the fact that ALONER dropped -$6k (from losses in CRVS), as opposed to BLADERUNNER’s loss of -$3.9k for the week, has tightened up the race between them for first place, with BLADERUNNER just $6k behind. A.J. Mullen returned to take the 7th place YTD position.
Don’t forget, I’ve left a cautionary tale from the PMGM / AEON saga after the spreadsheet, for those interested, my excuse for the late posting of the report. Otherwise, tune in next week.
Report Time Ranges
|
|
|
|
|
|
From
|
To
|
|
|
|
|
|
|
|
|
Recent
|
7/14/2023
|
7/28/2023
|
|
|
|
|
|
|
|
|
YTD
|
12/31/2022
|
|
|
|
|
Index Portfolios’ Performance
|
|
|
|
|
Symbol
|
Recent P/L
|
Recent %
|
YTD P/L
|
|
|
|
|
|
|
|
|
^IXIC
|
$2,712.00
|
2.0%
|
$36,785.77
|
|
|
|
|
|
|
|
|
^NBI
|
-$978.83
|
-1.0%
|
-$1,885.31
|
|
|
|
|
|
|
|
|
^SPSIBI
|
-$1,393.74
|
-1.4%
|
$696.25
|
|
|
|
|
Share Performance
|
Recent Performance
|
YTD Performance
|
|
Top Five
|
|
Bottom Five
|
|
Top Five
|
|
Bottom 5
|
Symbol
|
P/L / Initial Price
|
Symbol
|
P/L / Initial Price
|
Symbol
|
YTD P/L / Initial Price
|
Symbol
|
YTD P/L/ Initial Price
|
URGN
|
150.2%
|
INZY
|
-199.5%
|
INZY
|
367.1%
|
AVTX
|
-96.2%
|
QSI
|
25.1%
|
CRVS
|
-54.7%
|
JSPR
|
218.8%
|
APTA.L
|
-90.1%
|
TDOC
|
20.2%
|
BCDA
|
-48.0%
|
CRVS
|
169.4%
|
PTEIQ
|
-89.3%
|
LRMR
|
18.2%
|
AEON
|
-43.2%
|
URGN
|
154.9%
|
TCON
|
-81.9%
|
KZIA
|
16.3%
|
MRSN
|
-42.5%
|
PRVB
|
136.5%
|
ALT
|
-80.2%
|
Average and Median Portfolio Performance
|
|
Recent P/L
|
|
|
|
YTD P/L
|
|
|
|
Avg.
|
Median
|
|
|
|
Avg
|
Median
|
|
|
|
-$1,723.67
|
-$3,860.65
|
BLADERUNNER
|
|
$3,733.04
|
-$6,597.88
|
TOMATO
|
Top Seven Portfolio Performances
|
Top Recent Performers
|
Top YTD Performers
|
Contestant (Prev. Rank)
|
Recent P/L
|
P/L vs. ^SPSIBI
|
YTD P/L (Rank)
|
Contestant (Prev. Rank)
|
YTD P/L
|
vs. Top Portfolio
|
P/L vs. ^SPSIBI
|
Rec. P/L (Rank)
|
1 - ERIKOTTO (1)
|
$10,661.55
|
$12,055.29
|
$32,921.34 (4)
|
1 - ALONER (1)
|
$48,855.97
|
——
|
$48,159.72
|
-$6,011.98 (12)
|
2 - RKRW (4)
|
$9,985.07
|
$11,378.81
|
$28,668.91 (5)
|
2 - BLADERUNNER (2)
|
$42,861.32
|
$5,994.65
|
$42,165.07
|
-$3,860.65 (8)
|
3 - A.J. MULLEN (8)
|
$1,166.98
|
$2,560.71
|
-$1,561.03 (7)
|
3 - STEVE LOKNESS (3)
|
$38,722.05
|
$10,133.92
|
$38,025.80
|
$998.63 (4)
|
4 - STEVE LOKNESS (7)
|
$998.63
|
$2,392.37
|
$38,722.05 (3)
|
4 - ERIKOTTO (4)
|
$32,921.34
|
$15,934.63
|
$32,225.09
|
$10,661.55 (1)
|
5 - TECHNETIUM (12)
|
-$6.87
|
$1,386.87
|
-$7,075.58 (9)
|
5 - RKRW (5)
|
$28,668.91
|
$20,187.06
|
$27,972.66
|
$9,985.07 (2)
|
6 - BMAZ001 (11)
|
-$1,227.96
|
$165.78
|
-$46,850.66 (15)
|
6 - ARTHUR RADLEY (6)
|
$8,588.17
|
$40,267.80
|
$7,891.92
|
-$3,428.65 (7)
|
7 - ARTHUR RADLEY (14)
|
-$3,428.65
|
-$2,034.91
|
$8,588.17 (6)
|
7 - A.J. MULLEN (8)
|
-$1,561.03
|
$50,417.00
|
-$2,257.28
|
$1,166.98 (3)
|
Top Portfolios’ Contents
|
Top Recent Performance Portfolio (ERIKOTTO)
|
Top YTD Performance Portfolio (ALONER)
|
Symbol (Rank)
|
Current Allocation
|
Value/Total | ROI
|
YTD Stock P/L
|
Recent Stock P/L
|
% Current Price Change for $1,000 P/L
|
Symbol (Rank)
|
Initial Allocation
|
Value/Total | ROI
|
YTD Stock P/L
|
Recent Stock P/L
|
% Current Price Change for $1,000 P/L
|
CABA
|
15.0%
|
15.6% | 38.2%
|
$5,724.32
|
-$1,135.14
|
4.8%
|
AFMD
|
10%
|
4.4% | -48.3%
|
-$6,103.19
|
-$253.74
|
15.3%
|
DAWN
|
10.0%
|
4.6% | -39.2%
|
-$3,921.93
|
$455.39
|
16.5%
|
CDTX
|
10%
|
10.3% | 21.3%
|
$2,684.94
|
-$1,381.20
|
6.5%
|
FULC
|
10.0%
|
4.0% | -47.1%
|
-$4,711.54
|
$0.00
|
18.9%
|
CLSD
|
10%
|
9.4% | 11.2%
|
$1,408.15
|
$0.00
|
7.1%
|
ICVX
|
5.0%
|
4.3% | 15.5%
|
$774.56
|
-$37.78
|
17.3%
|
CRDF
|
10%
|
9.5% | 12.6%
|
$1,585.21
|
$888.32
|
7.0%
|
INZY
|
5.0%
|
17.6% | 367.1%
|
$18,357.14
|
-$9,976.19
|
4.3%
|
CRIS
|
10%
|
11.4% | 33.9%
|
$4,277.60
|
-$352.74
|
5.9%
|
LIFE
|
10.0%
|
6.9% | -8.2%
|
-$821.92
|
-$273.97
|
10.9%
|
CRVS
|
10%
|
21.6% | 155.1%
|
$19,592.21
|
-$6,542.53
|
3.1%
|
OCUL
|
10.0%
|
12.1% | 60.5%
|
$6,049.82
|
-$249.11
|
6.2%
|
KZIA
|
10%
|
11.7% | 38.3%
|
$4,839.36
|
$1,821.33
|
5.7%
|
PDSB
|
10.0%
|
3.1% | -58.9%
|
-$5,886.36
|
$15.15
|
24.3%
|
MGTA
|
10%
|
15.6% | 83.5%
|
$10,544.22
|
$398.14
|
4.3%
|
PRQR
|
10.0%
|
3.1% | -58.8%
|
-$5,878.38
|
-$662.16
|
24.3%
|
MRNA
|
10%
|
6.0% | -28.7%
|
-$3,624.36
|
-$589.57
|
11.1%
|
URGN
|
15.0%
|
28.8% | 154.9%
|
$23,235.63
|
$22,525.37
|
2.6%
|
PRVB
|
10%
|
0.0% | 136.5%
|
$13,651.84
|
$0.00
|
--
|
THE TALE OF PMGM and AEON: A SPAC IN NAME ONLY?
A SPAC, or Special Purpose Acquisition Corporation, was conceived as a way to simplify the process of a collection of ordinary investors making a capital investment in a cash poor company in return for equity. The formation of the SPAC as a publicly traded entity was more straight fowward than a typical IPO. In addition, the mechanism of capital investment was by the SPAC’s acquisition of the target company, in a smoother, less regulated, process than a typical M&A would be.
The idea was that the SPAC investors, the regulatory focus of the definition of a SPAC, would use the expertise of SPAC management in identifying a good candidate target and negotiating the best deal, maximizing how much of the target’s equity the SPAC investors would end up with.
This process is a “blind” (or “blank checkbook”) investment. In order to protect the investor interests, SPACs had some basic operational rules:
The SPAC IPO prospectus should include a general description of the intended target characteristics, to allow the investors to evaluate the SPAC management’s ability to identify a target and consummate the merger, though the management are actually granted a very large latitude in the characteristics of the actual target.
The money raised by the SPAC IPO is held in a trust account, accruing interest from its investment in safe, highly liquid, US government bonds. This generally means that the publicly traded shares in the SPAC, while underwritten by the trust, should be a stable investment.
The acquisition of a target company (referred to as the “initial business combination” to include additional mechanisms to acquire equity short of a complete acquisition) had to occur within eighteen months of the IPO, (in the case of PMGM it was extended to two years) to not indefinitely lock up the investors money.
The investors must have transparent access to all aspects of the “combination", so that they individually could conduct their due diligence in evaluating it. There may or may not be a stockholder vote to approve the combination.
On that basis, the individual investors are able to redeem their shares in the SPAC, returning a proportional share of the trust’s value immediately before the combination consummation, in cash with the intention to provide the redeemer with a return of their original investment.
The SPAC’s merger target could be either privately or publicly held, but it was quickly realized that by bending the intention if not the letter of the rules a SPAC could be a cheap and less scrutinized way to take a privately held company public, as compared to an IPO. Much of SPAC activity of the last few years has been of this nature. A notorious example was the more or less advertised plan for Trump Media to use a “custom” SPAC predestined to “find” and merge with Trump Media, thereby taking it public.
Here follows a timeline of the particulars of how the investors in PMGM fared in the acquisition of AEON BioPharma, Inc.:
Sometime prior to or at the incorporation of Priveterra Acquisition Corporation, Nov. 2020, Priveterra Sponsor, LLC, is formed by three principles: Bob Palmisano, Vin Malik, and Oleg Grodnensky, referred to throughout the documents as the “Sponsor” or “sponsor” of Privaterra Acquisition Corporation. Though introduced as a three person combine, at the end of the day, Bob Palmisano is the sole beneficiary of its assets. The three are anointed as the CEO/Chairman of the Board of Directors , President and Director, and COO/CFO respectively. The management team is rounded out by David Meredith, Secretary and Chief Legal Officer. Three more board members are identified.
Given how things eventually shake out it is worth knowing that Malik is one of two Managing Partners at “the physician-owned cooperative growth equity firm Strathspey Crown Holdings”, and Grodensky is a Partner. Strathspey Crown is a significant (roughly half) equity holder in the private corporation AEON BioPharma, Inc. Malik is a Director of AEON, and Grodensky is a an “observer on the board of AEON”.
Notwithstanding these connections, the Prospectus for the Priveterra Acquisition IPO states that "We have not identified any potential business combination target and we have not, nor has anyone on our behalf, initiated any substantive discussions, directly or indirectly, with any potential business combination targets.”
On Dec 17, 2020, Priveterra Acquisition receives its initial capitalization, $25,000 from the Sponsor in return for 6,900,000 “founder” shares of class B stock, that will automatically be converted to class A, on a one for one basis, at the consummation of the initial business combination. The Class B stock has the same voting rights as the Class A. It turns out that half of these shares owned by the sponsor will vest dependent on the combined business entity meeting certain technical performance targets.
On Feb 11, 2021 the IPO for Priveterra Acquisition is held, at a price of $10 per “unit”, consisting of one Class A Share, and one-third of a warrant that can be exercised after the initial business combination, for one Class A share for $11.50. 20,000,000 units were on offer, but after the underwriters exercised their options for additional units and with a private placement with the sponsor of 5,213,333 warrants at a cost of $1.50/warrant, the final result was 27,600,000 units, covered by a $276 Million Trust. That certainly looks like a pretty big checkbook to go shopping with. The sponsor, with all those Class B shares, has 20% of the total number of votes. The IPO and other statements say that these shares will automatically be counted as “Yes” votes to any proposed target for the initial business combination. Priveterra trades on NASDAQ with three different symbols PMGMU for the units, PMGM for just the Class A shares, and PMGMW for the warrants.
Time passes, and the value of PMGM is very stable, showing a gain above $10 reflecting partially the accumulation of interest income in the trust fund total value. As you might expect, any tentative explorations of possible targets are not publicized. But with no proposed target as November 2022 rolls around, I would think that things are starting to look tight as the Feb 11, 2023 deadline looms. The vaunted biomedical networking expertise of the PMGM management seems unable to identify a suitable target that would be interested in the merger. Finally, Dec 13, 2022, AEON has a press release “AEON Biopharma to Become Publicly Listed via Merger with Priveterra Acquisition Corp.” One of the bullet points is that the combination "is expected to provide $276 M in gross cash proceeds” which is true, so long as the number of redeemed shares is small enough to not cause a significant drain on the Trust. The press release even states that Priveterra will be issuing 16.5 Million Shares for 100% of AEON, with a price of $10 / share, implying that a critical point of negotiation had been settled, the value of the target company. The idea is that Priveterra will form a wholly owned subsidiary (imaginatively titled “Priveterra Merger Sub, Inc.”), that AEON will merge with said subsidiary, in return for shares in the holding company. At some point it is announced that Priveterra Acquisitions Corporation will be renamed AEON Biopharma, Inc., to be traded on the NYSE under the symbol AEON (and AEON-WT for the warrants).
The press release states that the combination has been approved by both Boards of Directors, “and is expected to close the “First half of 2023”, "subject to approval by Priveterra’s stockholders and the satisfaction or waiver of certain other customary closing conditions.”
There are references to “Priveterra Capital LLC”. No Idea what it’s for.
Perhaps given the connections that two of PMGM’s officers with AEON and Strathspey Crown, it was a case of hiding in plain sight. (“If it was a snake, it would have bit me.”) Maybe AEON was considered a fall back position if nothing better turns up. Maybe this was the intention all along, notwithstanding their declaration in the IPO prospectus.
Dec 27 Priveterra filed a Form S-4 with the SEC, with a draft “Notice of Special Meeting of Stockholders”, on a TBD date. This meeting is to adopt the Business Combination Agreement dated Dec 12, 2022 (two whole months before PMGM turns into a pumpkin), and to approve the Charter and other documents for the new combined company. The Combination Agreement is VERY complex with tons of boilerplate, and no helpful tables. One clear point is that the agreement requires “there being at least $45,000,000 in Available Closing Cash.”
If I had read all of the material more carefully, a date of Jan 24 is identified as the date for the stockholders meeting, with shareholders of record at COB Dec 21, 2022 entitled to vote. The PMGM has opened the floor for proxy submission, and submissions of requests the redemption of their shares. It’s not clear just how quickly PMGM management were able to get a sense of shareholder sentiment.
Perhaps more substantively, I had missed that the “Rechartering”, which I had presumed only covered boring stuff like the name change, new directors, etc., in fact included an extension for the time to consummate the Combination agreement to as late as August 11, 2023. Oops.
On Jan 10, 2023, AEON announced that it had “entered into interim financing agreements with certain investors” with an aggregate value of $20 million, which will be converted at the closing of the initial business combination to shares of the new AEON for $7.00 a share. Getting more funding seems necessary enough to offer a significant discount. Hmmmm.
As per a DEFA14A filed with the SEC on Jan 23rd, the special stockholders meeting scheduled for "Tuesday, January 24, 2023 has been postponed to Monday, February 6, 2023 in order to allow additional time for the Company to engage with its shareholders.” Uh-oh.
Jan 26 the SEC sends a letter to Priveterra where it expresses a number of “comments” on the S-4 submitted Dec 27. Apparently, a pro has taken the time to go over it point by point, identifying some possible deficiencies. At the top of the letter they politely request: “please respond to this letter by amending your registration statement and providing the requested information.” After six pages of comments, (the $45 million requirement was one particular area where they felt the need for more detail), it closes with: "Please allow adequate timer us to review any amendment prior to the requested effective date of the registration statement.” Uh-oh
Perhaps coincidentally, on January 26 Wells Fargo Securities, one of the IPO underwriters, sends a letter to the Secretary of the SEC, waving its entitlement to the payment of a deferred underwriting discount, and that though they have no role with respect to the Transaction (aka the business combination agreement), to be clear the firm has resigned from any dealing that might possibly be associated with said transaction, and will not be responsible for any part of the Registration Statement, or the execution of the Transaction as an underwriter or in any other role. Uh-oh.
On Feb 6, the Meeting is postponed to Feb 10. Oh, no! Talk about the last minute.
Feb 6, There are certain loans required from the Sponsor to PMGM for every month after Feb 11, that the Agreement has not been consummated. They are substantial but not enough to move the needle in terms of available capital.
Feb 6 PMGM responds to the Jan 26 SEC letter, Very Respectfully.
Feb 10: The results of the Stockholders meeting: Moving the final deadline to Aug 11, 2023 and various other technicalities: Approved 24.5 million shares for, 3.2 million shares against. In connection with this vote, the holders 25,597,728 shares exercised their right to redeem their shares at $10.11 per share, with an aggregate draw on the turf of $258,793,030.08. There is only $21 million remaining of that big pile o’cash. This probably is going to require some rethinking. Especially as there will be a second opportunity for redemption tied to the consummation.
Well, there is more back and forth with the SEC. Two sets of funding via convertible bonds are found, $40 million plus from Daewoon Pharmaceutical, manufacturer and licenser of the botulin toxin that AEON has an exclusive license for pharmaceutical use in much of the world, which will convert to 6.57 Million shares:, or roughly $7 a share. Another 6.35 million shares will be given to two firms in respect to funding by Forward Purchase agreements, with an additional 1 million shares sold for $7 / share as part of a potential ongoing source of capital.
There is another special stockholders meeting, on July 3. No surprise, the combination was approved. Another 1.45 million shares were redeemed at $10.68/share. Leaving 540,000 shares remaining from the PMGM IPO, and a Trust containing about $5.92 million. Don’t spend it all in one place. Their $10/share investment is by far the most expensive contribution to participate. Most of the new funding used $7.00 / share. Not to mention Bob Palmisano, who paid in 0.36 CENTS per share.
When the smoke clears the business combination was consummated on July21 and began trading on the NYSE on July 24. The new AEON has roughly 37.4 million shares outstanding. 13.9 million shares were compensation for the additional cash from various (non PNGN) sources. 16 million shares went to the equity holders of old AEON. The largest single fraction of the new company is owned by Strathspey Crown Holdings, 9.4 million shares (25.4% of the new AEON). 6.9 million shares (18.6% of the company) are owned by the PNGN Sponsor, now revealed to be solely Bob Palmisano (Chairman of the Board of the new AEON)., though half of these vested on condition of the achievement of certain technical milestones. This is much larger than the 1.4 million shares (3.5%) owned by Marc Forth the CEO and Founder of AEON, but require him to exercise certain options in the 60 days after closure. And even then they vest according to the same achievement milestones laid on half of Bob Palmisano’s holdings.
In summary: This SPAC tied up hundreds of millions of dollars of capital, ultimately redeemed by the investors (so they didn’t lose anything, except opportunity cost). I have no idea how transparent (if at all) PNGN management was as it went along. I am curious about what sort of deal would have kept the original investors on board. What is it about AEON (which seems at least has several therapeutic uses well advanced in the pipeline) generated this response to flee? The primary accomplishment of the SPAC was to take AEON public. Perhaps a traditional IPO would have conserved more of private AEONs equity in the public company. The big winner with the SPAC is Bob Palmisano.
I’m not sure after all this I’ll consider a SPAC for future investment opportunities. As always, your mileage may vary.
(I’m afraid that my eye kept reading Priveterra as Privateer.) |
|
