Achaogen Inc. (fka AKAOQ)

[finesand]

Possible Activities (Value, Cash Neutral Takeover, ..)

(Thx to SeaOfSand for the heads up, copying some info here.)

Today AKAO removed the upcoming conference from their 11/9 PR retro-active: Evercore ISI 2018 Healthcare Conference (Boston) on November 27th, 2018 at 2:20 p.m. ET

Compare: https://finance.yahoo.com/news/achaogen-announces-presentations-two-investor-130100674.html

AKAO IR: http://investors.achaogen.com/news-releases/news-release-details/achaogen-announces-presentations-two-investor-healthcare

As you can read below, a takeover would be cash neutral and free if bought up until $450M, see:

$450M BO (NOL) Value would equal to:

$450M - $87.52 total-liab + $36.64M cash = $399.12M or $8.65/sh

Good luck!

+++

AKAO Brief Financials
- On 10/29 + $25.0M (the “Term B Loan”) under the SVB Loan Agreement.
- TL 3q18 62.514M -> 4q18 $87.52M
- Cash 3q18 $55.64M -> 4q18 $80.64M - $28.68M = $51.96M
- OS 46.12M, MCAP $92.24M @ $2/sh
- EV @ $2/sh: 3q18 EV $99.11M -> 4q18 $127.80M ; EV @ $1.39 4q18 $100.13M
- EV @ $2/sh: Ranging $99M - $128M depending on sales timing.
- Revenue $2M total w/ $0.3M product 3Q18
- Opex Burn $44.13M 3Q18, 9month'18 $133.25M
- reduce total operating costs by 35% to 40% -> $26.48M - $28.68M

+++

SeaOfSand:

Below the EV $117.57M @ $2.40 this is simply too cheap, having the risk of FDA approval removed.
Yes, EU thing is late, but it will come for sure - also low risk.
Company even trying to avoid using the ATM is also bullish, usually.

Bottom line, what is drug and company w/ remaining pipeline worth?
I am sure much more than $100M EV

So the whole biotech sector was killed by all parties w/ CRG involved,
time to recover a bit.

Company is officially for sale, as stated on the Stifel conference 'eh?

Nov 13, 2018 at 3:30 PM EST

Stifel 2018 Healthcare Conference

...

Spartrap:

I took a deeper look at the tax carry-forward situation, and this is what I came up with:

- Net Operating Loss Carry-forward (with 20 years validity) can be used by the acquiring company, up to the annual limit defined under Section 382 of the IRS code [1].
- this limit is established according to the fair market value of the company at time of acquisition, times the IRS long-term tax exempt rate (2.47%)
- fair market value would be established by experts, using comparable deals and other instruments [2]
- Furthermore, if the difference between the acquisition price and the fair value minus debts is positive, their would be Net Unrealized Built-In Gain (NUBIG)
allowing the acquiring company to raise previous Section 382 established limit by the amount of this NUBIG for the 5 years following the acquisition [3].

Based on this, assuming a fair market value at least equal to the NOL (~$450M) and up to $650M (could use Melinta's partial acquisition of MDCO at $265M [4]
and acquisition of Durata for $675M [5] and other deals as reference), for a mean of $550M, thus establishing a base Section 382 limit of 13,585,000$ usable
annually for tax shielding purposes,

further assuming that a merger would happen at a lower price in this financially distressed situation, from which it would follow that there would be a significant
NUBIG allowing the acquiring company to raise that limit very significantly for the first 5 years after the transaction.

In conclusion, the acquiring company would be able to use the entirety of the $450M NOL as taxshield in a short span of time,
for a total value of ~21% of the $450M = $94.5 Millions

References:
1 m.bankingexchange.com/blogs-3/community-banking-blog/item/5379-nols-in-acquisitions-simplified
2 http://www.wipo.int/sme/en/documents/value_ip_intangible_assets_fulltext.html
3 https://www.cbiz.com/insights-resources/details/articleid/4548/calculating-section-382-limitations-an-important-lesson-for-loss-corporations-with-deferred-revenue-obligations-article
4 https://www.genengnews.com/topics/drug-discovery/melinta-to-acquire-infectious-disease-business-of-the-medicines-company/
5 https://www.marketwatch.com/story/actavis-agrees-to-acquire-durata-therapeutics-2014-10-06

...

SeaOfSand:

Thank you @Spartrap, excellent calculus reasoning high interest on this buyout speculation.
Even though while cheap, it would mark _at_least_ a 3x gain ($261M BO) from current SP at just around $87M EV now - if not 5x at $435M.

Notable at Stifel conference's Q&A at the end, they are negotiating to remove the $25M cash requirement to run into 2Q18.
And I assume they surely are working on these M&A negotiations as they emphasized, knowing they cannot do it alone.