Many biotech companies are worth more dead than alive

Atea Pharmaceuticals
,

A biotech company working to develop antiviral treatments for Covid-19 and hepatitis C could be worth more dead than alive.

If you bought all the shares of Atea (ticker symbol: AVIR) and paid off all the debt, the company’s remaining cash and other liquid assets on the balance sheet would be worth more than what you spent.

It’s not alone. The plunge in biotech valuations since early 2021 has left a significant number of biotech companies in what is known to be negative for shareholder value. This is a clear sign of how dire the situation is for small biotech companies and how far the sector is from recovery.

As of Wednesday, there were 23 biotech companies in the industry with negative equity values

SPDR S&P Biotech ETF

(XBI) and the


iShares biotechnology ETF

(IBB). Many more were on the brink. Of the roughly 280 stocks in the two ETFs, nearly 60 have enterprise values ​​of less than $100 million.

For a growing number of companies in the industry, the question is how long they can hold out.

Last week, a little-known company offered

A tea

A lifeline: Concentra Biosciences, which is controlled by an investment fund called Tang Capital Partners, said it would buy Atea for $5.75 a share, along with a contingent stock option giving Atea shareholders 80% of the proceeds from each license or any sale of Atea would bring in drugs.

Concentra’s offer represented a 55% premium to Atea’s closing price of $3.70 the day before the unsolicited offer was published. Still, the company’s shares were valued at just $479.5 million, significantly less than the approximately $618 million in cash and cash equivalents that Atea had at the end of March, net of its debt.

On Tuesday, Atea replied: No way. Atea shares fell 12% to close at $4.12 on Tuesday.

Today, Atea (Ticker: AVIR) has a market value of $390 million. Its enterprise value, calculated by subtracting the company’s cash from the sum of its market value and debt, was -$248.8 million as of Wednesday

FactSet
.

The unfolding drama at Atea underscores the tensions facing smaller biotech companies struggling with shrinking cash balances and weak investor interest. Valuations are low: The SPDR S&P Biotech ETF, which tracks the sector, is down 50% from its early 2021 peak. But even as biotech company after biotech announces layoffs, executives and boards of directors hope for a recovery and remain largely unwilling to accept that their companies are worth as little as the market says they are.

The clock is ticking. Smaller biotech companies need money to develop drugs and have no product sales. With few opportunities to raise new money, it’s only a matter of time before the clock runs out.

The size of the problem for each company depends on whether they have the funds available to survive until financing conditions change or whether they can make significant advances in the drugs they are developing.

One of the companies on the brink is

alector

(ALEC), which is working on treatments for neurodegenerative diseases. Shares are down 26% this year. FactSet estimates its enterprise value at -$7 million.

The company, which recently announced layoffs, says it has two more years to go. “We are well funded into the end of 2025 and have some notable milestones ahead of us,” the company said in a statement.

The company value of the drug manufacturer

EQRx

is -$465 million according to FactSet. The company notes that it recently restructured and has $1.3 billion in cash on hand. It is expected to spend $275 million or less this year. “With our recent realignment, our organization will have significantly lower expected cash burn, which opens up … degrees of freedom in deploying our significant amount of capital,” the company said in a statement.

Federal Reserve rate hikes since early 2022 have angered investors in risky, long-term bets like biotech. A top biotechnology analyst, Jefferies’ Michael Yee, wrote in early May that he expected biotech stock prices to rise in the second half of this year as investors anticipate falling interest rates in 2024.

Otherwise, there could be dramatic cuts at other companies in the industry. The increased stakes could create an opportunity for companies like Concentra, which is targeting Atea.

Concentra has played this game before, most recently in March when a small biotech called Jounce Therapeutics said Concentra agreed to buy it for $1.85 a share plus a

CVR
,

a premium of 75% over the closing price before the deal was announced.

Atea’s shares rose to $5.06 after Concentra’s bid. Concentra has not responded to a request from Barrons on Atea’s reaction to his offer on Tuesday. Atea declined to comment beyond public comment. Given the structure of the proposed deal, it seems likely that Concentra would break up the company and license its drugs.

Atea continues to develop bemnifosbuvir, its antiviral for Covid-19. Bemnifosbuvir is also being tested in combination with another antiviral to treat hepatitis C virus.

According to a filing in May, companies related to Concentra own 10.9% of Atea. Now, investors will wait and see if Tang and Concentra continue their quest for Atea and if more deals like this one come to other troubled biotechs.

Write to Josh Nathan-Kazis at [email protected]

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