Strategic Review – TBD Upside
The idea was shared by SSI member Jim.
This is a strategic review of a tiny biopharma services company that trades at a significant discount to its net cash position. The situation appears fairly interesting, but there’s an added complication of ongoing litigation, which is difficult to handicap without a legal background. Any feedback or insights from the members would be appreciated. Despite the company’s size, average daily liquidity is around $100k.
Talis Biomedical is a molecular testing equipment developer that has just laid off 90% of its workforce and launched a strategic review. With only 10 employees remaining, TLIS is essentially a cash shell trading at an unusually large 64% discount to its current net cash. The company will explore various options under the strategic review, but the extent of the reorganization suggests that a reverse merger or liquidation may be among the likely outcomes.
A significant positive here is TLIS’ impressive shareholder roster. Baker Brothers, one of the most successful biotech investors and a major TLIS shareholder since 2021, holds a 66% stake and one board seat. David Einhorn’s (one of the most prominent hedge fund managers of all time) Greenlight Capital owns a 10% stake. TLIS management also holds an 8% stake. The presence of these reputable shareholders provides some protection against potentially value-destructive transactions, while the substantial discount to net cash offers a margin of safety as we await the outcome of the strategic review.
The major uncertainty that contributes to the discount is that TLIS is involved in a litigation process. Several equity holders have filed a securities fraud lawsuit against the company claiming that it failed to disclose material information in the IPO prospectus related to a study of TLIS’ Covid-19 testing system. The study was done to obtain emergency use authorization (EUA) approval, which is sort of like the FDA approval but for emergency situations, when regulators have no time to wait for all the information that would be needed for an FDA approval. One month after the IPO (completed in Feb’21), TLIS announced that it had withdrew the EUA application after FDA had said that comparator assay used in the study was not appropriate to support the application. This resulted in substantial share price drop. In turn, TLIS announced plans to launch another study (with a different comparator assay), which led to material delays in the development timeline and further share price decline. The full complaint is available here. Damages have not been specified. In December 2022, the court dismissed the initial complaint filed by the shareholders, but the plaintiffs successfully amended their complaint, and the court denied TLIS’s subsequent motion to dismiss in April 2023. The lawsuit is still in its early stages, with the discovery process currently underway. I am not a legal expert and I’m not in a position to assess the likelihood of the plaintiffs’ success or the potential damages that could be awarded if TLIS loses the case. However, to my uneducated eye, this type of lawsuit is looks like something that should be relatively common in the biopharma space and it should probably be very difficult to prove that management intentionally misled investors about the studies. Nonetheless, the ongoing litigation creates several difficulties for the strategic review thesis, including a diminished likelihood of a liquidation, potentially prolonged timeline and additional expenses. It might also deter potential suitors from pursuing a reverse merger with the company. Some (and maybe significant) discount should exist here, yet the current gap to net cash seems just a bit too large to just ignore.
Net cash calculations are provided below:
- $88m – net cash as of Sep’23.
- Less $7m of cash burn from Sep’23 until the strategic review announcement in mid-November. This estimate is in line with the cash burn displayed over the last quarters.
- Less $6m of restructuring costs. This is the upper range of management’s restructuring cost guidance of $5m -$6m (see here, p. 22). The above results in $75m current net cash.
- Less $6m in cash burn for two additional quarters. TLIS’s management did not explicitly state that they will discontinue R&D on its key asset. However, with the reduced workforce and one of the two facilities closed, a $3m/quarter cash burn rate seems to be conservative enough.
This results in a net cash estimate of $69m as of Q1’24. Delving further, solely for illustration purposes, and deducting working capital liabilities ($6m), lease termination expenses ($3m, equivalent to one year’s rent expenses), and remaining wind-down/severance costs ($10m), we arrive at a liquidation value of $50m compared to the current market capitalization of $27m. This liquidation value does not assign any value to TLIS’s intellectual property assets.
TLIS has been developing Talis One, a rapid testing system that consists of a portable device and a cartridge into which a patient’s nasal swab is inserted. After facing initial delays in securing approval for its COVID-19 testing system, the company eventually obtained emergency use authorization from the FDA in November 2021. However, it has since encountered difficulties in initiating a commercial launch due to manufacturing-related challenges. The recently announced strategic review stems from TLIS’s unsuccessful commercialization attempts, its deteriorating net cash position, and a challenging broader financing environment.
What is the net effect of convertible preferred stock on potential distribution?
“trading at an unusually large 64% discount to its current net cash”
I don’t think it is once you account for the preferred equity, please verify.
That was what i came to the conclusion of but maybe i am missing something.
Commitments and contingencies (Note 5)
Stockholders’ equity:
Series 1 convertible preferred stock, $0.0001 par value—60,000,000 shares authorized as of
September 30, 2023 and December 31, 2022; 29,863,674 shares issued and outstanding as of
September 30, 2023 and December 31, 2022; aggregate liquidation preference of $3 as of September
30, 2023 and December 31, 2022 3 3
Common Stock, $0.0001 par value; 200,000,000 shares authorized as of
September 30, 2023 and December 31, 2022; 1,819,136 and 1,811,396 shares issued and outstanding
as of September 30, 2023 and December 31, 2022, respectively — —
Additional paid-in capital
There is no mistake and the effect of the preferred convertible shares has already been accounted for in the write-up, using the 3.81m of diluted shares outstanding. This consists of: 1,821,128 outstanding shares of common stock + 1,990,910 common shares which would be issued during the pref. stock conversion.
The confusion probably comes from the recent 1 for 15 common stock stock split, which did not impact the number of outstanding convertible pref. shares (29.8m), however, accordingly changed the conversion ratio into common from 1 for 1 into 1 for 15. So 29.8m of outstanding pref. stock is now convertible into 1.99m common shares. The pref. stock is convertible at any time at the discretion of the holder, or upon any sale or transfer of such shares. As I understand, all of the convertible pref. stock is held by Baker Brothers.
Moreover, TLIS doesn’t have warrants, the options are out of money and the amount of outstanding RSUs is miniscule.
I hope this clarifies it.
Thanks for clarifying
What timeline would you put against any sort of a deal? Does the strategic review give the plaintiff of the lawsuit more leverage?
Usually, as a rule of thumb, 2-3 months should be enough to come up with some sort of an action plan, especially for a company like this with minimal operations and assets. Regarding your second question, maybe, but I just do not have the capacity to evaluate the lawsuit dynamics.
“The Company has engaged TD Cowen to act as a financial advisor in its review of strategic alternatives. Seyfarth Shaw has been appointed as legal advisor to the review process.”
Is that a bad sign for liquidation? I’ve fly-specked some of these busted biotechs, and invested in a few, and it *seems* like the majority of the time, the companies DO NOT hire outside I-banks or law firms immediately….even if they end up doing a deal.
That the company has done so here, at the outset, suggests they really, really want a deal or transaction of some kind, rather than a liquidation.
Or am I wrong in my assumption?
I wouldn’t read too much into this without conducting a proper backtesting analysis.
FWIW, spent an hour checking failed/broken biopharma/biotech strategic review cases that were posted on SSI since mid-2022 (when these setups became more common), don’t see any relation between hiring advisors and liquidation.
– ABIO -> did not hire anyone, still trading/no liquidation as of yet.
– TYME -> engaged Moelis & Company LLC as its financial advisor and Faegre Drinker Biddle & Reath LLP as its legal advisor. Entered into a merger with another company/no liquidation.
– IMRA -> did not hire anyone. Entered into a merger with another company/no liquidation.
– SIOX -> engaged SVB Securities. Liquidation announced.
– FNCH -> did not hire anyone, still trading/no liquidation as of yet. Note that the company used a slightly different language in its strategic review announcement.
– MGTA -> did not hire anyone. Entered into a merger/no liquidation.
– OTIC -> did not hire anyone. Announced liquidation.
– TALS -> did not hire anyone. Entered into a merger/no liquidation.
– MEIP -> engaged Ladenburg Thalmann. Announced liquidation.
– AVRO -> did not hire anyone. Still trading/no liquidation as of yet.
– GRPH -> did not hire anyone. Entered into a merger/no liquidation.
– THRX -> did not hire anyone. Still trading/no liquidation as of yet.
Great stuff, thanks for doing.
its safe to assume on this one there wont be a liquidation. Baker probably will look for fairness opinion on some asset they want to reverse merge in.
conflict transactions have additional litigation risk and the Baker Bros directors are already being sued…not sure the juice is worth the squeeze for them on this
Do you think $6M in remaining restructuring costs PLUS $10M in “wind-down severance” is double-dipping a little, and thus maybe a bit high?
On the other hand, if there is a non-liquidation strategic transaction, I think you’d have to include some deal fees for the the bankers + lawyers to paper, maybe a couple mil.
I was curious how these busted biotechs that result in a deal rather that liquidation have done, and here’s some rough numbers drawing on Lukas’ work above and a little browsing. Some of my start and stop dates are a little arbitrary — if DT closed it out I used his numbers, else I followed until the delisting. Barchart.com is helpful for charts on delisted stocks. Probably some I’m missing.
IMRA -> did not hire anyone. Entered into a merger with another company/no liquidation. +400%
TYME -> engaged Moelis & Company LLC as its financial advisor and Faegre Drinker Biddle & Reath LLP as its legal advisor. Entered into a merger with another company/no liquidation. +33%
LMNL -> 25%
TALS -> 20%
ARIX -> +4%
NLTX -> 0%
GRPH -> did not hire anyone. Entered into a merger/no liquidation. -3% (so far)
MGTA -> did not hire anyone. Entered into a merger/no liquidation. -18%
Pretty decent results. There’s a long comment thread on MGTA I haven’t gotten to review in detail, and I wonder what kind of lessons can be derived from MGTA.
FIXX -> -50%
Yikes, brutal chart. I see it wasn’t covered on SSI though, despite the similar set-up. I wonder what gave DT and others pause.
Not sure what were the reasons for others to skip FIXX, but I have looked at it multiple times since August, and I just could not see much upside here. Any upside would have come from the CDMO business side, on which we basically had zero visibility.
Another busted biotech that did a reverse merger that was originally terrible but has become a big winner in last couple days is AMTI. It went from trading at a nice discount to liquidation value at 21 cents, announced the reverse merger in early October and traded down to 13 cents by early November. It’s merger partner announced some kind of positive FDA meeting this week and it shot up as high as 30 cents and is around 28 cents now.
The problem with it, and with FIXX is the lack of activist shareholders IMHO. That might be why DT dodged it (but not me, unfortunately).
What’s your view on FIXX? OXB valued Homology’s put option at $25.8 million as of 6/30 taking into account sales declines from Homology ceasing operations. So the CVR maybe looks interesting? Not sure what to make of Q32’s prospects but looking at its spending it should have a long runway from here.
FIXX was a 10% position for me before the merger announcement and I continue to hold. No idea on Q32 prospects, but in liquidation I have to think its worth close to $1.50/share. For example, FIXX is being valued at $1.37 in the deal, and I think that’s what the PIPE shareholders have agreed to pay. So I’m hoping shareholders vote down the merger, or the company does something to sweeten the deal to get the stock price up and increase likelihood of it getting voted through.
I don’t think the put option is likely worth anywhere near $25.8M at the moment, Homology pulled all their business from OXB after June 30th, reducing it’s revenues which also reduces the put option value significantly. And OXB has to have the cash to pay it. That said, OXB has 2 years to build the business so there is upside, but right now I’ve marked it down to about 20 cents per share in value ($12M) to be conservative.
Talis spent $100m on equipment and inventory ($60m) which were all expensed. There is probably some value.
Pref share liquidation value is $3 dollars. Virtually none.
New K out last week shows year-end cash of $76M, not too far off the $69M estimated in the original post.
The securities class was certified, which does create a moment for settlement potential — otherwise the company/lawyers will want to ride through MSJs.
Not sure what is otherwise taking so long.
Taking a long time doesn’t always result in good outcome.
Current pending:
Lease termination settlement
Shareholder lawsuit settlement
Reverse merger candidate or biotech asset acquisition
Selling of legacy assets (there is some value to Baker investing $300 million). Might be EIGR moment.
What else?
The securities lawsuit is proceeding along through discovery. The costs of the litigation and any settlement should almost certainly be covered by D&O insurance.
On the other hand, the sublease lawsuit is bizarre and I wonder what the company did to screw things up like this.
These sort of biotech subleases are pretty standard and it’s weird to see one ripen into lit.
D&O insurance was not cheap for newly IPO’d biotechs in 2021. They could have a very high deductible
Per Q1 10-Q, they are spending a lot of money on legal fees ($2M more in quarter compared to Q1 of prior year); my guess is legal fees related to litigation are not being covered by D&O, at least not yet. “Selling, general and administrative expenses were $11.7 million for three months ended March 31, 2024, compared to $6.4 million for the three months ended March 31, 2023, an increase of $5.3 million. …An increase of $2.0 million in legal fees also contributed to the increase in selling, general and administrative expenses for the three months ended March 31, 2024.”
Per Q1 10-Q, they are spending a lot of money on legal fees ($2M more in quarter compared to Q1 of prior year); my guess is legal fees related to litigation are not being covered by D&O, at least not yet. “Selling, general and administrative expenses were $11.7 million for three months ended March 31, 2024, compared to $6.4 million for the three months ended March 31, 2023, an increase of $5.3 million. …An increase of $2.0 million in legal fees also contributed to the increase in selling, general and administrative expenses for the three months ended March 31, 2024.”
Setting the stage for a Chapter 7 or Chapter 11 bankruptcy? Are they expecting the class action judgement to go against them and want to put it in the hands of a bankruptcy judge?
Very curious development.
I don’t recall seeing a similar press release in other biopharma strategic review cases, but I’m interested to see how this develops. Currently, there appears to be around 30% upside in a liquidation scenario, assuming no major litigation expenses arise. The decision to potentially pursue bankruptcy might well be related to existing litigation, but I have no view on it, hence no position.
What’s the recommendation on this currently? Buy or sell?
Lol.
So liquidation scenario:
EST cash $65m at 7/31
Full lease obligation undiscounted $25m (probably more like $15m)
Remaining exec term and liabilities $5m
Wind down fees $2m
Preferred liquidation preference $0 (it’s less than $3K)
$33m net remaining before SH litigation or $8.68/share
Total max SH litigation (5.9 m shares X $16 IPO shares, assume all certified class sold at $0) = $95m. 10% is $9.5m
$23.5m remaining available to common and preferred or $6.18/share
Variables:
Lease obligation $10 million upside if early termination is based on discounted and subleases obtained
SH lawsuit $9 million upside if settle for less or Talis wins and D&O insurance covers large majority.
Lap equipment ($12m) and pre-launch inventory ($30m)- liquidated value upside $2m
$21 million upside additional or $44.5 million – $11.71/share
What am I missing here? I see the logic for chapter 11 and setting for special restructuring committee given the range of potential SH litigation and lease liabilities but I think they went over board with this one.
Thanks for the detailed calcs Joe. Is there any further current information floating around other than that 8/6/24 8k? And may I ask: Where are you getting 7/31/24 COH estimates?
Hi JESQ,
$72.5m as of 3/31/24
Cash flow outlay is $1.5m-$2m per month X 4 = $65m estimated
Hope that helps.
Regarding full lease obligation, on the books as of 3/31/24 undiscounted is $25m
Present value is $19m
Breakout estimated as follows:
$7m for PV of California sublease
$12m for PV of Chicago lease
The current $7m California lease is the one that is in a lawsuit which we will know more 8/28. Latest update on 8/7 is Talis saying Sublessor had breach of contract and other issues therefore no lease is due ($7m). So there is something there for Talis to challenge paying early termination.
Actual PV at higher discount rate is $6m.
Regarding Chicago lease, the PV is based on lower discount rate, at 8.5% WSJ Prime rate, potential settlement is $8m.
So my comment above more like $15m is probably more accurate than $25m. I think there is additional upside.
BML bought in on 8/7/24, additional 7.4 percent. Now close to 10% of common. Interesting development in addition to 10Q-NT. This was right after the NT filing today.
Some thoughts on TALS *before* even getting into the lawsuit with Kriya, it’s Redwood City sublessor landlord:
— BK is the last thing a company should do if it has any interest in returning money to SHs. It’s an absolute cash shredder, and it’s not like it magically makes creditors disappear. They just show up and demand every dollar they can theoretically dream up they are owed. So the Chicago landlord will show up and say, “I’m owed $17.1M in remaining rent, thanks!” And Kriya will show up and say, “We’re owed $6.3M in rent too …plus a TRILLION DOLLARS in damages!” And the securities plaintiffs lawyers will do the same.
— All those creditor claims will have to be resolved, settled, estimated, or litigated before the BK can conclude and any remaining money goes to SHs. We can get into what that process looks like, but it’s…ugly, and takes time.
— The “value” of BK vis-a-vis outstanding litigation is typically to centralize the disputes in the BK forum and, for potential long-term uncertain lit, get some estimation proceedings going to bring the cases to conclusion. But sometimes cases get kicked back to the original forum to simply litigate them out…and the parties fight about all that too.
— This all costs money. I’d say to very very conservatively estimate BK fees of $1M a month, and with NO DISPUTES you’re talking 6 months to get to a confirmed plan. If you’re fighting multiple parties in lit, double both those numbers.
— So why do it? Why threaten it? I’m not sure. Maybe could be a tactic to threaten Kriya, Chicago, and securities plaintiffs to settle now? “Would you like to be reasonable, or would you like us to write a $20M check to Kirkland & Ellis as debtors counsel and then maybe maybe they’ll be some pennies left over for you in 2026?”
— Along these lines, why haven’t they subleased out Chicago? They have 26k square feet for 10 employees. That’s a good-sized house per employee! I know they say in the last Q they were continuing “minimal R&D” until end of quarter, but really? It’s dereliction by the company, or hardball by Chicago landlord, or lack of subleasing opportunities given Chicago biotech real estate market. I dunno.
— Subject to that, I think Joe’s estimate of valuing the remaining lease obligations at $15M is pretty good. When Graphite Bio was liquidating, I asked a buddy who’s a GC at a biotech to value the cost of getting out of the lease, and he estimated 35-50% of remaining payments. GRPH ended up settled with landlord at 44%. So seems like a decent comp. But note: The March 2023 sublease deal with Kriya seems like it WAS the big renegotiation in Redwood City that brought total lease payments down to $7.3M for 7 years (for space they wouldn’t ever use). So I don’t know if that number is getting any smaller. And that’s before the lawsuit. But estimating 35-50% payment “required” on remaining Chicago lease gets you to $6-8.5M to “get out” of Chicago.
— So taking the above and Joe’s very helpful and compelling cost breakdown, I get about $42.5-45M remaining cash in a wind-down, against a current market cap of $17.1M ($4.5 share price * 3.81M diluted shares).
But that doesn’t include (1) costs of the securities lit in legal fees and any settlement (2) legal fees of Kriya lawsuit (3) whether Kriya lawsuit ultimately moves the $6.3M remaining-on-lease number up or down.
But oh just go ahead and subtract another $6-$20M for BK if it comes to it!
I guess what I’m saying is: IF you think company is just threatening BK to get Kriya, Chicago, and securities lawyers to come to the table for reasonable settlement talks, could be a great opportunity here.
If they actually file BK, I would expect stock to take another big hit just on market mechanics alone, and then maybe maybe maybe we can take a look at a new set of numbers.
And again, this is before getting into the weeds on the Kriya and securities lawsuits.
What do you think?
@JESQ – Agree with most of your points. However:
(1) I do think that TLIS is threatening BK/liquidation as a threat to get plaintiffs to settle. The automatic stay of pending litigation triggered by BK/liquidation should further provide TLIS with bargaining power in settlement negotiations. Also, I’d flag that the two board members TLIS added have significant experience in restructurings – notably, John Young, Jr.’s previous work focused on maximizing unsecured claim recoveries in BK proceedings.
(2) Notwithstanding the above, if TLIS is indeed serious about BK/liquidation, I think you’ve overestimated the associated fees. We’re talking about a stub company with no operations – it’s essentially a cash box with litigation overhang. Many bankruptcy proceedings that are far more complex and contentious, including ones where the debtor is still operating, incur fees of much less than $1mm/month. IMO, I would estimate fees closer to $100k/month (or less).
Ah, I see Joe’s 8/10/24 comment estimate of $65M COH is before the new Q, which shows $59.9M COH, so my above calculations need to be revised down by $5M.
Yes JESQ, correct $59 million COH. Legal fees definitely higher burn and $2m retention bonus. Still comes out similar to my initial calc, $65- $5 exec and other liab, – $2 wind down fees.
California lease they could have paid $7m and be done for yet litigate which Talis claims damages on their end…
Getting more interesting with BML keeping on buying (latest 8/28). Are they trying to scalp $2 upside from this or much more?
NASDAQ delisting on the 3rd of September. I assume this moves OTC then.
https://www.bamsec.com/filing/95017024100200?cik=1584751
Yikes. https://www.sec.gov/ix?doc=/Archives/edgar/data/1584751/000095017024102921/tlis-20240829.htm
On August 29, 2024, the Plaintiffs, the Company and the Co-Defendants signed a Settlement Term Sheet to resolve the Class Action Litigation that includes a release of all claims against the Company and all of the Co-Defendants. Within 14 days of the execution of this Settlement Term Sheet, (i) the Company shall file a voluntary petition to commence proceedings under chapter 11 (the “Chapter 11 Case”) of title 11 of the United States Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”) to implement Settlement, as described more fully below, or (ii) if the Company has not commenced the Chapter 11 Case within such time, the Plaintiff shall file a Stipulation of Settlement and motion for preliminary approval in the United States District Court for the Northern District of California (the “U.S. District Court”).
Under the terms of the Settlement Term Sheet, the Company will pay an aggregate of $32.5 million (the “Settlement”) to a settlement fund to settle all claims asserted in the Class Action Litigation, class counsel’s fees, and the costs of administering the settlement. The Settlement Term Sheet establishes procedures for the notification of claimants and the administration of the settlement. The settlement fund will be used to pay notice and administrative fees relating to the Class Action Litigation and to compensate those individuals who were class members during the applicable class period; no amount of the settlement fund will revert to the Company. The settlement fund will be managed by a neutral third-party claims administrator, which will be authorized to communicate with class members and make payments from the fund in accordance with the terms of the Settlement Term Sheet. The Company’s liability insurers have agreed to and are expected to directly fund approximately $5.0 million of the settlement fund. The Company will directly contribute approximately $27.5 million of the Company’s available cash to the settlement fund.
Beyond surprising outcome here. Anyone see a scenario where this some meat left for equity holders or assume all gets eaten up if they still do file BK?
So did BML just roll some dice on this and lost?
The proposed litigation settlement amount is crazy. It’s also crazy with lack of D&O insurance coverage that management had.
Based on 8-K issued yesterday, looks like after litigation settlement, maybe left with $5-$6 million which is the D&O coverage. Which tells me the management and the board just wanted to get themselves off the hook and screw the equity holders.
Am I missing something? The settlement filing says they would have $35.7m post-bankruptcy for equityholders, less $27.5m for the settlement leaves $8.2m or $2.15/sh?
I can’t seem to find the “$35.7m” figure anywhere. Where have you found it? Is it net of all the liquidation, legal, operational fees, etc.?
https://www.sec.gov/ix?doc=/Archives/edgar/data/1584751/000095017024102921/tlis-20240829.htm
The link at the bottom of the 8-K. Sounds like it’s net, but curious of other interpretations. Not sure if includes the $1.9m sublease settlement…
Thank you. Yeah, the wording is a bit unclear and confusing. If that $35.7m estimate is indeed net of all costs and expenses, there is a chance shareholders could receive $2.15/share. Too bad the price has already moved up quite a lot and only 16% spread remains.
FWIW, I tried doublechecking that $35.7m estimate:
– Cash as of August 23 (unrestricted) = $47.82m
– WC adjustment (based on working capital lines needing settlement) = -$1.6m
– Severance costs (90% workforce reduction in November 2023; $0.6m expenses already included, and an estimated $0.1m still expected, I just roughly took $1m) = -$1m
– Miscellaneous liquidation costs and further cashburn (also a guess) = -$5m
Equals to roughly $40m.
That still leaves the lease liability settlement. So management’s $35.7m estimate assumes somewhere around $4.5m for the settlement. It seems to be leaning more towards the optimistic side. So at current spread, this definitely seems way too risky. A few $m higher settlement would eliminate all of the upside and more. To be honest, I’m not even sure what kind of spread would be needed for it to become an attractive bet. The margin of safety is just too small.
Agreed the narrower spread has made this look a lot less interesting. I will say these liquidation estimates (especially dealing with bankruptcies) are typically more conservative than optimistic. For a simple prepack bankruptcy like this I think $5M of expenses there seem high. I’m just trusting the calc they did and the pattern of these being more conservative. But you’re right that this is a more “levered” liquidation stub here where small changes in costs move the needle a lot. Definitely needs to be sized appropriately if the stock price drops back down a bit.
Any opinions on how this situation changes now that they’re going the dissolution route rather than bankruptcy?
Can you please share a link to where they changed course? I couldn’t find it. The latest update I found was about lease termination.
Just got notice for a special meeting on Nov 12th. I don’t see it posted publicly though…
Dear Shareholder:
We write to give you notice that on October 22, 2024, the directors of Talis Biomedical Corporation (the “Company”) adopted a resolution recommending the dissolution of the
Company (the “Resolution”) and calling a special meeting of shareholders to consider and act upon that Resolution. The Board of the Company made this recommendation after resolving securities litigation and potential claims of its landlords asserted under Company leases. These resolutions were disclosed in several Form 8-Ks, or amendments thereto, filed under Section 13 or 15(d) of the Securities Exchange Act of 1934 on September 3, 2024, September 5, 2024, September 6, 2024, and September 17, 2024, each of which remains available on the SEC’s EDGAR website which can be viewed here:
As required by the Resolution, we give you this notice of a special meeting of the shareholders that will be held on November 12, 2024 by live webcast for the purpose of acting upon the Resolution for the dissolution of the Company. You may cast your vote on the Resolution by internet, mail or phone prior to the meeting by complying with the instructions on the voting card or as indicated in those materials by registering for the special meeting of shareholders and attending that meeting on November 12, 2024. If the Resolution is approved, the Company intends to file a Certificate of Dissolution and to then wind down the Company’s affairs in accordance with Delaware law.
Shareholders of record at the close of business on October 24, 2024, will be entitled to vote on the Resolution.
A copy of the Resolution and Voting Card with instructions to cast your vote are provided with this notice.
Dated: October 31, 2024
Secretary of Talis Biomedical Corporation
Thanks.
From what I see, these are the most recent updates:
– On September 3, 2024, it agreed to a $32.5m settlement (with $5m covered by insurance) over allegations that its IPO registration statement was misleading.
– On September 6, TLIS settled a sublease dispute with Kriya Therapeutics, paying $1.9m to end its Redwood City, California lease.
– On September 17, TLIS terminated its Chicago lease with Fulton Ogden Venture, paying $3.6m.
In total, TLIS paid $33m across these settlements.
As a rough ballpark, as I haven’t seen any updated financials, let’s take my previous $40m net cash level (after WC adjustments, severance costs, misc. liquidation costs, and further cash burn). If we subtract the $33m, we get around $7m, or $1.9/share, vs a current share price of $1.81.
So while there might be some meat on the bone (especially with more precise calculations), this more or less looks fairly valued especially with the very limited liquidity. Unless I missed something obvious. Trading volume is pretty much non-existent.
The Sept 3rd 8-k gives you a $2.15/sh estimate for equity liquidation proceeds. All the actions since – sublease dispute settled, Chicago lease terminated – support that estimate.
The language below in the Special Meeting Notice, references all the filed 8ks from Sept. 3rd onwards WITHOUT ANY CHANGES or ADJUSTMENTS. That’s what Shareholders are voting on.
“The Board of the Company made this recommendation after resolving securities litigation and potential claims of its landlords asserted under Company leases. These resolutions were disclosed in several Form 8-Ks, or amendments thereto, filed under Section 13 or 15(d) of the Securities Exchange Act of 1934 on September 3, 2024, September 5, 2024, September 6, 2024, and September 17, 2024, each of which remains available on the SEC’s EDGAR website.”
Has anyone spoken to the Board here for clarity?
A plain language read of the documents comes out at $2.15/sh – why should our finger in the air estimates be more reliable than theirs – unless someone has spoken to them specifically and can share…
For the record, I might be completely off on this, but here’s how I see it:
As of August 24, TLIS had $47.8m in unrestricted cash. The September 3 filing specified the Settlement Amount from the class action litigation at $32.5m, with $5m covered by insurance and $27.5m directly funded by Talis. There was no dollar value assigned to leases. After deducting litigation funding, we’re left with around $20m, creating a $17.5m gap from their estimated $37.5m for distributions. This discrepancy implies other potential cash sources, though it’s unclear what they are. Let’s assume the $37.5m distribution estimate (equivalent to about $2.15/share) is accurate.
Lease termination occurred after the September 3 filing, so if these costs were known and factored into the $2.15/share estimate, it’s odd they weren’t detailed earlier (e.g., in the September 3 filing itself). Usually, companies disclose known figures upfront rather than incrementally in later 8-Ks.
To me, the Special Meeting notice (posted in comments by users, which is all I have to go on) doesn’t confirm or update the $2.15/share target. It merely references past disclosures as part of the dissolution rationale without reaffirming the accuracy of the $2.15/share projection. The main counterargument here is that management would likely adjust the $2.15/share estimate if they thought it had changed. However, that assumes they’re committed to updating shareholders on every change, which may not be the case. I expect that some kind of proxy document will go to shareholders, hopefully clarifying this further. Would love to hear other takes; maybe Aviva is right on this.
So, based on all this, liquidation value could fall somewhere between my rough $1.9/share estimate and management’s $2.15/share estimate vs. the current $1.76/share price.
Also, I wanted to ask: how do you know the lease terminations support that $2.15/share estimate? You wrote, “The Sept 3rd 8-K gives you a $2.15/sh estimate for equity liquidation proceeds. All the actions since—sublease dispute settled, Chicago lease terminated—support that estimate”
Not the original poster, but I’m also in the camp that the $2.15 is probably the right bogey here. When calculating their distributable proceeds number in the 9/3 8-K, I’d have to believe that included costs to settle the leases. It doesn’t make sense that on the settlement term sheet dated 8/29 they wouldn’t have factored in the sublease termination dated 8/30 and the other lease termination dated 9/16. Also, just thinking about it, it shouldn’t cost $12m (Aug cash less distributable proceeds before class action settlement) to do what at the time was a simple pre-pack bankruptcy; $6-7m, factoring in the lease settlements makes more sense. It even seems a tad high given they’re going the presumably cheaper dissolution route now, although they’ll have to hold back a bit of cash for 3 years as they wind up. I’m sure Baker is pushing them to make an initial distribution as quickly as they legally can.
I pinged the CEO and CFO a few weeks ago to try to get some more info, but they refused to answer any questions not in the filings.
TLIS is now “closing orders only” at IB. Any impending corporation actions?
No, it moved to the expert market.
Thanks! Do companies moving to the expert market have to make an announcement before doing so? I didn’t see any 8-Ks or press releases. How do we track such development?
I don’t think the company has to make an announcement: it’s delisted already. I don’t think OTC markets gives updates about tier changes (https://www.otcmarkets.com/files/15c2-11%20Tier%20Chart.pdf) of stocks listed there.
However, if you look up the stock on otcmarkets.com I believe somewhere you will see this during the grace period:
““This security has entered a 15 calendar day Grace Period because OTC Markets Group is unable to confirm that the issuer’s disclosure is current and publicly available under Rule 15c2-11. It will be downgraded to the Expert Market at the end of this Grace Period unless OTC Markets Group determines another exception under Rule 15c2-11 applies, such as the Large Company/ADTV exception.””
Thanks. Next time we are in a similar situation ( an OTC stock in the liquidation stage), I will likely use a webpage tracking tool to monitor the “grace period” notice.
By the way, when are we expecting the liquidation distributions? with 1H of 2025?
I don’t think a clear timeline was announced, but expecting some kind of initial distribution within H1 2025 seems reasonable.
Settlement was approved on 3/21. Now just a wait on a distribution announcement…
Does anybody know who’s still running (or even employed) at the company anymore? Haven’t had any luck getting in touch with anyone.
Guessing this one will be just waiting until YE 2027 (end of 3-year dissolution period) and then whatever gets distributed gets distributed.