Inhibrx Acquisition Structured Like the Biohaven Deal – Merger Arbitrage Mondays

Inhibrx (INBX): $37.62

Market Cap: $1.77 billion

The $2.2 billion acquisition of clinical stage biotech company Inhibrx (INBX) by Sanofi (SNY) that was announced last week reminded me about the structure of Pfizer’s acquisition of Biohaven (BHVN) that we discussed in our May 2022 mid-month update here.

Much like that deal, Sanofi is only interested in one line of treatment from Inhibrx’s pipeline and will be spinning off the rest of the pipeline into a separate company (SpinCo) that will be funded with $200 million in cash. Upon completion, shareholders of Inhibrx will receive $30 per share in cash, one contingent value right (CVR) worth up to $5 per share if certain milestones are met and one share of SpinCo for every four shares of Inhibrx.

The day the deal was announced Inhibrx rose to $36.30 and has trended upwards to settle at $37.62 as of Friday’s close. On account of the CVR and the SpinCo, we are tracking the deals as a “special conditions” deal in the Merger Arbitrage Tool.

The therapy from Inhibrx’s pipeline that Sanofi would like to retain is INBRX-101 for the treatment of AATD. As outlined by the company, “Alpha-1 antitrypsin deficiency (AATD) is an inherited disease that causes an increased risk of developing pulmonary disease defined by progressive loss of lung tissue and function and is associated with decreased life expectancy.”

The other three drugs in Inhibrx’s pipeline are all focused on cancer. According to Inhibrx’s last 10-Q filing, the company had 47.12 million in share outstanding and another 6.7 million options and warrants. The company had also issued warrants through a private placement and those warrant holders will receive new warrants in the SpinCo instead of shares of the SpinCo. Sanofi will own 8% of the SpinCo.

Using a 53.82 million diluted shares outstanding, the $200 million that will be transferred to the SpinCo works out to approximately $3.72 per Inhibrx share or $3.42 per share after taking Sanofi’s 8% stake into account.

The $5 per share CVR payment is related to the approval of INBRX-101 by the FDA for the treatment of AATD on or before June 30, 2027. The CVR is not transferable and I like the fact that it is based on a single milestone and not based on multiple sales related milestones. Incentives of both companies are also aligned in this case.

Overall at $30 per share in cash, $3.42 in SpinCo cash (not assigning any value to SpinCo’s pipeline) and $5 per share CVR ($3.65 discounted back to current time using a 10% discount rate), the total deal value works out to approximately $37.07 assuming the deal closes and the CVR gets paid. The current $37.62 price of Inhibrx implies that the market is assigning significant value to the SpinCo’s pipeline. While not interesting at the moment, the situation is interesting enough that I want to keep an eye on it.

M&A activity declined sharply last week with two new deals announced and four deals completed.

You can find all the active deals listed below in our Merger Arbitrage Tool (MAT) which automatically updates itself during market hours.

Merger Arbitrage

Deal Statistics:

New Deals:

1. NS: The acquisition of NuStar Energy (NS) by Sunoco (SUN) for a closing value of $7.3 billion. Under the terms of the agreement, NuStar common unitholders will receive 0.400 Sunoco common units for each NuStar common unit.
2. INBX: The acquisition of Inhibrx (INBX) by Sanofi (SNY) for an approximate closing value of $2.2 billion. Under the terms of the agreement, Inhibrx shareholders will receive $30 per share in cash, a contingent value right (CVR) worth up to $5 per share and 0.25 shares of a newly created entity called New Inhibrx per share. New Inhibrx will be capitalized with $200 million of cash at distribution. Sanofi will retain an 8% stake in New Inhibrx.

Approvals:

1. SAVE: JetBlue (JBLU) has informed Spirit (SAVE) that certain conditions of their planned deal may not be satisfied before the outside dates outlined in the merger agreement and that the deal may be terminable on and after January 28, 2024. JetBlue also stated that it is continuing to evaluate its options under the merger agreement. Spirit believes there is no basis for terminating the merger agreement.
2. SRC: On January 19, 2024, Spirit Realty Capital (SRC) announced that its stockholders approved all of the proposals necessary for the closing of the previously announced merger with Realty Income (O). The deal is expected to be completed on January 23, 2024.
3. ORTX: At a hearing held on January 22, 2024, the High Court of Justice of England and Wales sanctioned the scheme of arrangement under Part 26 of the United Kingdom Companies Act 2006 providing for the proposed acquisition of Orchard Therapeutics (ORTX) by Kyowa Kirin International. The transaction is expected to close on January 24, 2024.
4. ESMT: On January 23, 2024, Shareholders of EngageSmart (ESMT) approved the company’s acquisition by Vista Equity Partners at a special meeting of shareholders.
5. CSTR: Old National (ONB) and CapStar (CSTR) need to obtain consents including approvals from the Federal Reserve Board and the OCC.
6. HOLI: Institutional Shareholder Services advised shareholders in Hollysys Automation Technologies (HOLI) to reject a $1.66 billion takeover proposal from private equity firm Ascendent Capital Partners. Glass, Lewis & Co. also recommended shareholders of Hollysys Automation Technologies (HOLI) to vote against the takeover proposal.

Hurdles:

1. SIX: Six Flags (SIX) and Cedar Fair (FUN) each received a request for additional information and documentary materials (Second Request) from the Department of Justice in connection with the DOJ’s review of the Mergers.

Updates:

1. SQNS: Japan’s Renesas Electronics extends tender offer for proposed acquisition of chip maker Sequans (SQNS) to February 5, 2024.
2. KRTX: Karuna Therapeutics (KRTX) and Bristol-Myers Squibb Company (BMY) filed notifications with the Antitrust Division and the FTC on January 9, 2024.
3. EGLE: Eagle Bulk Shipping (EGLE) and Star Bulk Carriers Corp. (SBLK) filed their respective HSR Act notification forms on December 22, 2023 and the waiting period under the HSR Act is set to expire on January 22, 2024. Star Bulk filed the applicable notification under the German Act against Restraints of Competition (GWB) on January 3, 2024, and received clearance from the FCO with respect to the merger on January 12, 2024. Star Bulk submitted the applicable Business Combination Report to the Korea Fair Trade Commission (KFTC) with respect to the merger on January 10, 2024. On January 15, 2024, the KFTC issued a request for information (the “First RFI”). The initial review period is expected to last approximately four to six weeks (or longer) in view of the nature of the transaction and the First RFI.
4. DSKE: Daseke (DSKE) and TFI International (TFII) made the filings required under the HSR Act on January 9, 2024. The companies also made a filing to the Commissioner of the Competition Act (Canada) requesting an ARC (advance ruling certificate) or a Part IX waiver (a waiver from the obligation to submit a notification)  on January 18, 2024. Filing to the Minister of Transport was also made on January 18, 2024, for approval under the Canada Transportation Act (the CT Act).
5. CNSL: Consolidated Communications (CNSL) announced that a leading independent proxy advisory firm, Glass Lewis & Co., has joined Institutional Shareholder Services  in recommending that Consolidated shareholders vote “FOR” the proposed acquisition of the company by affiliates of Searchlight Capital and British Columbia Investment Management. The company’s special meeting of shareholders to vote on the proposed transaction is scheduled to be held on January 31, 2024.
6. X: According to the preliminary proxy statement filed, the completion of the acquisition of U.S. Steel (X) by Nippon Steel requires the following approvals: i) the waiting period applicable to the merger under the HSR Act should have expired or been terminated ii) CFIUS approval iii) regulatory approvals in the European Union, Mexico, Slovakia, Turkey, the United Kingdom, Canada, and Serbia.
7. RYZB: Bristol-Myers Squibb (BMY) and RayzeBio (RYZB) intend to file on January 25, 2024, a premerger notification and report form under the HSR Act with the Antitrust Division and the FTC. The initial expiration date of the tender offer is February 22, 2024.
8. IMGN: ImmunoGen (IMGN) and AbbVie (ABBV) filed a notification with respect to the merger with the German Federal Cartel Office (the “FCO”) on January 11, 2024.
9. FNCB: FNCB Bancorp (FNCB) and Peoples Financial Services (PFIS) file their definitive proxy statement and schedule shareholder vote on March 22, 2024.

Shareholders Meeting Schedule:

1. ROVR: On January 22, 2024, Rover Group (ROVR) announced that the special meeting of shareholders will be held on February 22, 2024.

Closed Deals:

1. MRTX: The acquisition of Mirati Therapeutics (MRTX) by Bristol-Myers Squibb Company (BMY) was completed on January 23, 2024. It took 107 days for the deal to complete.
2. SRC: The merger between Spirit Realty Capital (SRC) and Realty Income Corporation (O) was completed on January 23, 2024. It took 85 days for the deal to complete.
3. ORTX: The acquisition of Orchard Therapeutics (ORTX) by Kyowa Kirin Co., Ltd. was completed on January 24, 2024. It took 111 days for the deal to complete.
4. ESMT: EngageSmart (ESMT) announced the completion of its acquisition by Vista Equity Partners. It took 95 days for this deal to complete.

Weekly Spread Changes:

The table below shows weekly spread changes between January 8, 2024, and January 12, 2024.

Top 10 Merger Arbitrage Deals With The Largest Spreads:

Please do your own due diligence on deals with large spreads. Some of these large spreads might be related to regulatory issues or because of the way the deal is structured. We classify some of these deals as “special situation” deals in our merger arbitrage tool and provide additional details to help with the analysis. There may be unique situations related to special dividends, spinoffs, proration, etc. that need to be accounted for when looking at these spreads.

Deals In The Works

1. TELL: According to Bloomberg, Tellurian (TELL) has engaged Lazard to evaluate a potential sale.
2. DYN: According to Bloomberg, Dyne Therapeutics (DYN)  a developer of drugs to treat muscle diseases, is considering options after receiving takeover interest from larger pharmaceutical companies.

Updates:

1. WH: According to Reuters, Choice Hotels International (CHH) nominates a slate of directors to replace Wyndham’s eight-member board (WH).
2. M: According to the NY Post, Private-equity giant Sycamore Partners is exploring a possible bid to buy Macy’s (M). Sycamore has been in quiet talks with Macy’s since at least late December.
3. USM: T-Mobile (TMUS) Chief Financial Officer Peter Osvaldik said it’s looking at the US Cellular (USM) sales process on its conference call.

SPAC Arbitrage

Business Combination

1. CSLM: On January 23, 2024, Consilium Acquisition Corp I (CSLM) entered into a definitive merger agreement for a business combination with Fusemachines Inc.

Completed

1. NCAC: On January 25, 2024, Newcourt Acquisition Corp (NCAC) completed the business combination with Psyence Group (PBM).

Terminated

1. GSD: On January 23, 2024, Global System Dynamics (GSD) terminated its business combination with DarkPulse.

List of all pending Merger Arbitrage deals:

Disclaimer: I hold long positions in Cerevel Therapeutics (CERE), Capri (CPRI) and Genetron Holdings (GTH). Please do your own due diligence before buying or selling any securities mentioned in this article. We do not warrant the completeness or accuracy of the content or data provided in this article.