Achilles Therapeutics PLC
A promising biotech net-net
Achilles Therapeutics PLC (ACHL) (US filings) is a biotech company "developing transformative precision T cell therapies to treat multiple types of solid tumors." The company is based in the UK and in the US. The company has developed software for analyzing the genetics of tumors. Based on this analysis the company is able to manufacture "a clonal neoantigen-reactive T cell therapy, or cNeT, that specifically targets multiple clonal neoantigens to eradicate the tumor."
The US-listed securities listed are American Depositary Receipts or ADRs. One ADR is equivalent to one share. There are 40,603,489 shares and one deferred share. According to pages 198 and 199 of the IPO prospectus the deferred share probably has less value than its nominal value of about 92k GBP.
Warning: for this stock I compute an extremely high Beneish number, implying high chances of accounting fraud. But a search on the company name and keyword "fraud" did not reveal any relevant information.
I estimate the company spent about 67 million USD on research and development since the beginning of 2018, including about 30 million USD during the first 9 months of 2021. The company has focused on 2 tumor types: "advanced NSCLC and metastatic or recurrent melanoma". Currently the company is doing 2 clinical trials: a phase 1/2a trial for metastatic or recurrent melanoma and a phase 1/2a trial for advanced NSCLC. On page 1 of the prospectus the company writes it expects to "report interim data from these trials in the second half of 2022."
The balance sheet is very strong with low leverage, a big cash pile and no debts. With current cash burn the company has several years of runway.
I estimate liquidation value at 265 million USD and therefore Liquidation Value/Market cap is almost 1.9 at 3.59 USD per share.
Substantial shareholders (page 194 of prospectus): Syncona Limited through Syncona Portfolio Limited 27.3%, Forbion Capital Fund IV Cooperatief U.A. 5.2%, affiliates of Baker Bros. Advisors LP 8.0%, Invus Public Equities LP 5.6% (most likely acquired during or after IPO), RA Capital Management LP 12.34% (including some shares that must have been acquired during or after the IPO). Five senior managers/directors each own more than 500k USD in shares.
Director Rogier Rooswinkel is an affiliate of Forbion Capital Fund IV Cooperatief U.A. He has a Cum Laude Ph.D. for cancer research at a prestigeous research institute and hospital in the Netherlands. I have sent him this article but unfortunately he did not reply.
According to page 85 of the prospectus there was a lockup period of 180 days after the IPO. Therefore, insiders and other pre-IPO shareholders were free to sell from the beginning of October 2021. I have not found anyone of these people and funds selling into the IPO or after the IPO. I find that very encouraging.
I did not find any worrisome related party transactions. I suppose there is nothing. But I could not find detailed information on compensation of directors and senior managers. On page 10 of the prospectus the company writes it is "exempt from certain more stringent executive compensation disclosure rules". On page 125 it says personnel expenses were 6.8 million USD in 2020 (and 2.3 million USD for professional service fees).
My take on Achilles Therapeutics
I do not understand why this European biotech stock is so cheap based on Liquidation Value/Market cap. From what I read it seems promising. The high Beneish number is a red flag but I have not found any fundamental issues suggesting fraud. The company has made large investments in research and development compared to the current market cap. Insiders are patiently holding, nobody seems to have sold into the IPO or afterwards. Therefore, it should be able to trade above book value.
There might be lots of issues we do not know. An issue might be that the 2 phase 1/2a trials are still in early stage. The company expects to report interim results in the second half of 2022. That might be nearly a year away, with potential delays related to COVID.
At the current share price of 3.59 USD per share I still think this is a good stock for a small position. Long Achilles Therapeutics PLC.