Astria Therapeutics
A biotech net-net
Astria Therapeutics (ATXS) (filings) was formerly known as Catabasis Pharmaceuticals. In October 2020 a phase 3 trial for a drug against Duchenne muscular dystrophy failed. Subsequently, the company stopped all development for that drug. Then the company did a reverse merger transaction with Quellis Biosciences. Its lead product candidate is now "STAR-0215 (formerly known as QLS-215), a monoclonal antibody inhibitor of plasma kallikrein in preclinical development for the treatment of hereditary angioedema, or HAE, a rare, debilitating and potentially life-threatening disease."
According to the description on Wikipedia this disease affects between 1 in 10,000 to 50,000 people.
My understand is that there are 2 ideas behind this candidate drug. First, it has shown to work much better than an already approved drug in some preliminary tests. After some reading I get that these experiments have been done with monkeys, but I am not 100% sure. Second, the half life of the drug is expected to be several months which might allow dosing only once in 3 months. That would probably be better than a competing drug.
See the annual report over 2020 (interactive data here), the last quarterly report (30 September 2021) and the proxy/circular for the annual meeting in December 2021.
On page 18 of the quarterly report the company writes it plans to "to initiate a Phase 1 clinical trial with initial results anticipated by the end of 2022." In 2023 a phase 1b/2 trial will follow.
According to the latest quarterly report (30 September 2021) there are convertible preferred shares that can be converted into 5.24 million shares. These stocks are non-voting but for the rest they are equivalent to common shares. They have not been converted into commons because such a conversion would destroy the company's tax assets (non-operating losses or NOLs). Furthermore, there are 498k warrants with exercise price 2.1 USD expiring in December 2030.
When adjusting for these instruments the share count is 18.7 million instead of 13.0 million. I compute a market cap of 89.5 million USD instead of 62.8 million USD. NCAV is 129.8 million USD, so NCAV/Market cap = 1.45.
Though the company is cheap based on NCAV/Market cap it has other metrics that are horrible, such as deeply negative cash flows. My computer program gives the final verdict: In an international net-net list this stock is among the best 51% at 4.73 USD per share. This is after manually having corrected the market cap for the preferred shares. Furthermore, this is also a falling knife but not a good one. It is among the best 89% in my falling knives list, again after having corrected the market cap.
The balance sheet is very strong with hardly any leverage, a big cash pile, and almost no liabilities. I estimate liquidation value at 128.4 USD and Liquidation Value/Market cap = 1.43.
Substantial shareholders: Xontogeny LLC 7.8%, Affiliates of Perceptive Advisors 13.7%, Affiliates of Fairmount 5.2%, RA Capital Management Healthcare Fund LP 5.1%, non-executive director Jonathan Violin 1.4% (about 1 million USD). All percentages on an as-if-converted basis for the convertible preferred shares.
Related party transactions: I could not find them in the proxy document though the annual report refers to a section "Related Person Transactions" in the proxy.
In 2020 the CEO Jill C. Milne, Ph.D. earned 1.3 million USD mostly through option awards and bonus. The 2 other executives earned 846k (Chief Medical Officer) and 758k USD (Chief Scientific Officer).
My take: Averaged ranked biotech net-net that is cheap based on NCAV/Market cap and cheaper based on Liquidation Value/Market cap. Almost certainly the company is going to spend all its cash on research and development.
It all seems to be promising but development is still in its initial stage. The disease is rare but not extremely rare. Based on conservative disease prevalence estimates I would say it could generate 200 million USD of revenue per year, when approved and indeed safer and substantially more efficacious than competing drugs. Using discounted free cash flow calculations that might be equivalent to 1 billion USD.
However, according to Wikipedia, a similar drug has been approved in the US in 2009 but has not been approved in the EU. So, the risk is that the new drug won't be approved in the EU either. In that case total value of successful development would shrink to 400-600 million USD.
I have not found any major governance issues. Another issue is high volatility of the stock price. Both 3-year monthly volatility and recent volatility are very high. That suggests higher risks than with other net-nets. It depends on what you prefer. I think for net-nets high volatility on average results in lower risk adjusted returns but higher absolute returns.
All in all, there are good chances the stock is higher in a year from now. Therefore, I think this is a good stock for a small position.
I forgot to mention it in the article: long Astria Therapeutics.