Quick Ideas #5
I have ventured out again into failed biotechs that trade below net cash and are in strategic review. First one is Galecto (GLTO). Has just over $30m of net cash after liabilities and a market cap of $16m. Cash burn last quarter was about $6m and in late September management announced a workforce reduction of 70% and a strategic review. Assuming Q4 will see about $5m in cash burn then $4m in Q1 then $2m for 2 more quarters that is $18-19m in net cash left over a year from now under pretty conservative assumptions.
But most interestingly, GLTO still has some intellectual property which may be worth multiples of their current market cap. This Twitter thread by former health care exec Erik Otto goes into more detail. Erik thinks just one of GLTO’s remaining treatments could already be worth $50m (he seems to be putting his money where his mouth is with a 6.6% stake).
Half his Twitter thread reads like gobbledygook to me because I know very little about biotech but he seems like a smart guy who knows what he is talking about. And I am getting a free lottery ticket here basically. Since there isn’t that much cash left here I think the risk of a reverse merger is low. And if this resolves sooner than 1 year (which I think is likely) upside to net cash is 15-30% alone.
So I am long GLTO at $0.6/share. Small position though.
Then another interesting Biotech special situation is AvroBio (AVRO). About $1.5-1.8 in net cash depending on cash burn (which will greatly decrease this quarter). And three drugs in early development (which have been halted) which could be worth some money. Reverse merger unlikely due to Tang capital involvement and cancellation of share registration. I think it is likely the company will give more clarity within the next few months.
Long AVRO shares at $1.27/share.
Obviously these are somewhat speculative bets, so I am keeping my position sizing small. Everyone reading this post should do their own due diligence before buying or selling anything, since I have been wrong before and cannot guarantee all information in this write-up is 100% factual. And I may buy or sell the above mentioned stocks at any time.