Talaris Therapeutics: Cashing Out Ahead Of Tourmaline Merger (NASDAQ:TALS)

Talaris Therapeutics (NASDAQ:TALS) initially attracted my consideration a number of months in the past. On the time, TALS was a failed biopharma buying and selling at a giant low cost to its internet money and working a strategic overview. After a dying of a patent in a single of the trials in late 2022, TALS subsequently suspended the event of its medical pipeline and laid off the overwhelming majority of its workforce which appeared to point that the corporate was laser-focused on minimizing money burn and maximizing shareholder worth. Whereas it was not completely clear if a liquidation was within the playing cards, the numerous presence of distinguished VC/PE corporations on TALS’s register (together with Blackstone with a 25% stake) and their management over the corporate/administration indicated {that a} value-destroying reverse merger was out of the query. Here is how I described the setup to Particular State of affairs Investing subscribers in April:

What has occurred since? Effectively, given TALS’s extremely risky share worth, I used to be in a position to play the state of affairs efficiently greater than as soon as. Initially, I exited the place when the shares ran as much as $2.90/share and the hole to the estimated internet money narrowed considerably, resulting in a 20% acquire. The market introduced one other alternative to play the state of affairs as TALS share worth retraced again to $2.40/share, attractive me to re-enter the place. The anticipated optimistic announcement got here a number of weeks after the re-entry as TALS concluded the strategic overview, agreeing to a merger with a late-stage biopharma Tourmaline Bio. TALS share worth jumped as a lot as 31% on the day, permitting me to shut the place at $2.80/share.

Since then, TALS share worth has continued their ascent earlier than settling within the $3.03-$3.20/share vary ($3.07/share at present), proving my second exit to have been a bit early. Having stated that, at present share worth ranges I’m inclined to remain on the sidelines given restricted additional upside. As a part of the introduced transaction, TALS fairness holders will retain c. 21% possession within the mixed entity and obtain a money dividend of $65m. TALS’s administration has estimated the worth of the 21% stake at $1.92/share which coupled with the $65m or $1.51/share money dividend would worth TALS at $3.43/share. Nonetheless, I feel the administration’s estimate of the worth of 21% stake is perhaps overly optimistic. Here is a breakdown of the mixed entity’s worth as estimated by the administration:

• $230m worth of Tourmaline.
• $82.5m worth of Talaris internet of as much as $64.8m in money dividend.
• $75m funding coming from PIPE buyers.

This results in a complete worth of $387.5m, implying $82.5m ($1.92/share) attributable to present TALS shareholders. The principle uncertainty lies in figuring out the worth of Tourmaline which accounts for almost all of the mixed entity’s estimated worth. Tourmaline’s major asset, TOUR-006, is at present in section 2 of medical trials for treating thyroid eye illness (TED), and section 2b is anticipated to begin in Q3 2023. Moreover, Tourmaline plans to provoke a section 2 trial for atherosclerotic heart problems (ASCVD) in 2024. Estimating TOUR-006’s worth is clearly not easy and I’ve restricted experience within the area to double-check the administration’s estimate ($230m). Price noting that Tourmaline has just lately secured $112 million in collection A financing led, nonetheless, it’s unclear how a lot of the corporate’s possession stake that funding represents.

I feel that the mixed Talaris/Tourmaline entity would possibly very effectively be valued roughly at its internet money ranges. A related instance to think about is the merger of Syros Prescription drugs and Tyme Applied sciences, which was accomplished in September 2022. Similarly to the Talaris/Tourmaline merger, the transaction concerned personal funding in public fairness (PIPE) from well-regarded biotech buyers. Nonetheless, subsequent to the merger, SYRS inventory skilled a big decline and is at present buying and selling at roughly one-third of the valuation on the time of the personal placement. By valuing the mixed Talaris/Tourmaline entity at its pro-forma internet money ranges of $210 million, the 21% share held by TALS’s shareholders can be price roughly $45 million. This interprets to roughly $1 per TALS share. Coupled with the money dividend of $1.51/share, this sums as much as $2.51/share – considerably beneath present share worth ranges.

Extra Particulars on The Merger And Tourmaline

A bit extra particulars on the merger. The transaction would require shareholder approvals on each side and is anticipated to shut in This autumn’23. I feel the merger is very prone to shut efficiently on condition that TALS has been managed by a number of respected PE/VC corporations (personal 57% of TALS, led by Blackstone) whereas TALS’s administration owns an extra 17%.

The merger will broaden the Tourmaline’s money runway by way of 2026, permitting it to proceed the event of its key program TOUR006. This system has been licensed by Tourmaline from Pfizer in Might’22. Apparently, the corporate boasts a line-up of respected executives and buyers which suggests the corporate’s pipeline might need excessive potential:

• Tourmaline’s co-founder/CEO has earlier expertise because the COO at IMVT which is a $2.7bn market cap biotech firm.
• The chairman of the merged firm will probably be Tim Anderson, who’s at present a accomplice and co-founder of Cowen Healthcare Investments, an oblique subsidiary of TD Financial institution, a serious Canadian banking establishment. Just lately, Cowen raised $550 million for its fourth fund.

As a part of the transaction, Tourmaline will increase $75m from a bunch of life sciences buyers, together with Deep Observe Capital and Cowen Healthcare Investments. The funding from present Tourmaline shareholders displays robust confidence within the firm’s future prospects. One other optimistic indicator is that Cowen has chosen to boost its stage of involvement by appointing Tim Anderson because the chairman.

Takeaway

At present share worth ranges, I’m exiting my place in TALS. Given a considerably related biopharma merger the place the mixed firm’s inventory worth ended up considerably beneath administration’s valuation on the time of the merger, I feel there’s a good probability the mixed TALS-Tourmaline would possibly commerce nearer to the corporate’s internet money ranges. In such a state of affairs, the mixed firm would commerce at c. $1/share, implying that the worth TALS shareholders are receiving with the transaction is beneath present share worth ranges.