Eliem Therapeutics ($77.5M market-cap)  is a shell biotech company previously focused on building treatments for major depressive disorders. On Feb. 9th, 2023 they announced stopping all clinical trials amidst a challenging capital environment citing a 55% reduction in workforce.

Later on July 20th, 2023 they announced plans to explore strategic alternatives and shared a $102.6M approx. cash balance. The company has exercised expense discipline and the cash burn has been minimal since.

On March 18th, the company announced that it will acquire 100% of the outstanding equity interests of Tango on a fully diluted basis, as a tax-free reorg. The announcement reads:

At the closing of the Transaction (the “Closing”), each outstanding share of Tango capital stock will be exchanged for newly issued shares of Eliem common stock (the “Stock Consideration”) based on an exchange ratio of Eliem shares to be issued based upon the following: (i) an initial valuation for Tango of $20.0 million (“Tango Valuation”); and (ii) an initial valuation for Eliem of $110.0 million at the time of Closing (“Eliem Valuation”). It is anticipated that, subject to applicable diligence, the Stock Consideration will be issued under an exemption from the registration requirements under applicable securities laws.

 

Based on the foregoing and subject to further due diligence, it is anticipated that as of immediately after giving effect to the Closing (but before giving effect to the Concurrent Investment), (i) the equity holders of Tango immediately prior to the Closing (including all options, convertible securities and warrants) will own 15.4% of the equity of Eliem on a fully diluted basis and (ii) the equity holders of Eliem (including all outstanding equity awards) will own 84.6% of the equity of Eliem on a fully diluted basis. The fully diluted equity of Eliem will be calculated via the treasury stock method.

Pro-forma, this assigns a valuation of $93.06M to Eliem as compared to the current market-cap of $77.5M. Further, RA Capital roughly owns 49% of the company and retains a board seat that probably influenced this decision. Biotech reverse-mergers have been on a rip lately, and I remain optimistic about this one as well.

Disclosure: I own shares of ELYM