IBIO - Catalyst Biosciences: Shareholders Should Reap Benefits From Owning The Stock

• Catalyst Biosciences is highly committed to its cash distribution plan to shareholders of up to $65 million in the near future, with only a $58 million market capitalization.
• If the proxy contest is cleared up between Catalyst and JDS1 and goes in favor of the executives of Catalyst, shareholders should expect an initial cash distribution of $45 million.
• JDS1 is a prominent shareholder of CBIO with 8.4% ownership of the outstanding float; however, this group is known for taking advantage of cash-rich companies.
• The Catalyst executives and leading independent proxy advisory firms ISS and Glass Lewis urge CBIO shareholders to vote "FOR" All Catalyst nominees on the white proxy card.
• There is a ton of potential for a prospective reverse merger that would be in play, succeeding the cash distribution and liquidation of the remaining MarzAA and DalcA assets.

Company Introduction and Investment Thesis

Catalyst Biosciences (NASDAQ: CBIO ) is a company that has been historically involved with protease therapeutics to address disorders and treatments of cardiovascular disease, digestive disorders, inflammation, and many other health issues. Catalyst's technology is meant to treat illnesses and conditions that result from the dysregulation of the complement and coagulation systems. Now that the company has established its presence in the bioscience space and was able to sell a significant amount of its assets for $60 million to Vertex, the board of CBIO is extensively focused on distributing available cash to stockholders and monetizing the value of our remaining assets.

With the decision to distribute up to $65 million to shareholders and even more in potential future distribution after monetizing all assets, owning this stock can prove extremely valuable moving forward. Given that the market capitalization is under the management's cash distribution projections, shareholders are likely to receive a positive return on their investment and still own their original shares, most likely at a lower valuation.

I am writing this article because I believe a significant catalyst that can drive this stock forward is the cash distribution from the Catalyst board. I am very bullish on this taking place because the Catalyst executives have done an exceptional job at monetizing assets and putting the company in the financial standpoint to distribute this significant amount of cash. Although the stock price should correct following the distribution (Because assets in the company will be significantly lower), this doesn't matter given that the projected distribution to shareholders is 9% higher than the current share price. I think it is essential that people move on this stock soon and before the shareholder meeting because that is likely the time there is a decision.

Why This Catalyst is Not Yet Priced in and How it Can Drive Catalyst Stock Even Higher

Shareholders love dividends, and who wouldn't love a dividend that pays 109% of the company's current market capitalization? Yes, there is risk in owning this stock, like the proxy contest potentially going the wrong way in favor of JDS1. However, this is very unlikely given the past of JDS1 and the Singer Family, which are heavily related parties against the vision of the Catalyst Biosciences executives. The Singer family got caught up in something very similar a few years back with SITO Mobile , which further strengthens my point on their shady past and not working in favor of the shareholder's best interests.

The Singers are a family of investors with a value-oriented approach in their investment strategies. Led by Gary Singer, a convicted felon and being banned by the SEC , this is a sketchy family and a family that investors should vote against. As long as shareholders vote in favor of Catalyst representatives rather than JDSI (Singer Family) board members, the proxy contest will go away, and the distribution will take place.

Since the Vertex transaction earlier in the year, the stock has increased by more than 350%. Because the deal was worth $60 million and the market value of CBIO at the time was $12 million, the stock moved monumentally higher. Given its market value, the board has chosen the route of returning this value to shareholders now that the company has an extraordinary amount of cash and cash equivalents. I believe this is in the shareholder's best interests because of the instant return the payout will yield, as well as holding onto their original shares moving forward (to note: likely at a much lower share price).

Of course, the stock has run up significantly in hopes of the cash distribution going through cleanly, although there is still a grey area with the proxy. With the Singer family and JDS1 still being involved, there is still a chance that the cash distribution will get locked up and pushed to a further date. This is why I do not think the distribution is fully priced into the stock yet. I believe if it were priced in, the stock would hold a market value of $65 million+, given that the company has noted further distributions beyond $65 million. Next, another part of the corporation that I believe is not priced in is the fact that the company will still own some intellectual property and will be a clean-listed shell entity with value. Per the company website and Vertex press release , CBIO still has rights to a few products, including:

• "Catalyst's product candidates consist of the coagulation-related assets marzeptacog alfa (activated) (MarzAA), dalcinonacog alfa (DalcA), and CB 2679d-GT ."

Dr. Usman continued , “In addition, we have aggressively reduced costs through headcount reductions, ceased all R&D activities, terminated our lab lease, and monetized lab and other equipment. We now have six employees – enough to manage the orderly transfer of the technology we sold, continue efforts to monetize the Company’s remaining assets, and satisfy our public company reporting obligations.” I definitely believe there is potential for the stock to run at or even above its intended distribution plans, taking into account that it will still report as a public company and will monetize more assets moving forward.

Catalyst's Outstanding Balance Sheet and Valuation

After reviewing the recent Vertex transaction and August Shareholders Letter , I have been able to denote that the company has around $80 million in cash and cash equivalents. With a reported $87 million in cash, they have around a 150% cash to market capitalization ratio, which is outstanding. Although they note that they have allocated around $20 million towards general expenses since March, this still leaves $65 million+ in liquid assets to distribute.

With plans to do an initial distribution of $45 million+ and $65 million or more as quickly as possible, investors will be able to take advantage of this opportunity before any concluding announcement comes out. Investors have a few days to take a stab at this stock until the annual meeting and new board nominees are announced.

This company has had a history of burning around $10-15 million per quarter, which is why the original $87 million in cash and equivalents stated at the end of March is likely now in the range of $60-70 million. The reason why I think this rapid cash burn would halt is that their R&D costs will be slashed to nearly nothing, given that the Vertex transaction sold off most of Catalyst's intellectual rights/property. The CEO commented about CBIO's decrease in cash burn moving forward in the Vertex sale press release , stating, "We have significantly reduced our cash burn and continue to work with our advisors to evaluate additional strategic alternatives for Catalyst."

Pictured above, it is clear that CBIO is fundamentally in a solid place when looking at its balance sheet highlights. The asset value is definitely under the actual value, given the recent Vertex transaction that netted CBIO $60 million in current assets. From the company press release back in May , management states that " Vertex has acquired Catalyst's portfolio of protease medicines that regulate complement, including CB 2782-PEG, for $60 million in cash." Ultimately this places Catalyst Biosciences in a tremendous strategic standpoint to expeditiously distribute cash to its shareholders.

Compared to some microcap Biotech peers like (NASDAQ: APM ) and (NASDAQ: IBIO ), Catalyst Biosciences boasts an excellent industry comparison for a price-to-sales multiple and EV/Sales multiple.

Given that these stocks are in the healthcare sector and biotechnology industry with low market capitalizations, they mostly carry along riskier multiples. CBIO is at the lower end for notable industry valuation metrics compared to its peers. This is another fantastic outlook investors must view before taking a stock position before the catalyst.

Recent Notable Shareholder Reactions and Insider Transactions

After viewing the August Shareholders Presentation , I stumbled upon some shareholder quotes that I found very significant. One of the quotes I found very important was from Michael Torok, a managing director at JEC II Associates, LLC, and CBIO's largest shareholder to date, "I applaud the Catalyst Board of Directors for its actions in exploring strategic alternatives and for developing the Cash Distribution Plan. I am fully supportive of this Plan, and I call upon JDS1 to drop its proxy contest and litigation so that the company can make its initial distribution of cash to shareholders. I am pleased to support the company's nominees at the Annual Meeting, and I look forward to my role as an observer to the Transaction Committee as it works to monetize additional assets and implement the Cash Distribution Plan."

Another remarkable statement from an anonymous top 10 CBIO shareholder was, "I know how difficult it is for management to decide to liquidate a company they have put their heart and soul into. … I think your communication has been excellent, and I think returning capital in a tax-efficient manner and maximizing the value of the remaining assets is the best thing for shareholders at this point. … I think so far, you guys have done great for shareholders."

Both of these statements were from prominent shareholders of CBIO and significantly supported the recent efforts of the company's executives. Coming from two of the top ten shareholders, they undoubtedly have a strong influence on the company, and with them being satisfied with the potential cash distribution, it indeed shows the nature of the whole CBIO shareholder base. I'm confident as a shareholder as well that fellow shareholders voted in favor of the company's nominees rather than JDS1's candidates and will be waiting for this catalyst to come to fruition.

Another thing that came about recently was some insider transactions. Miller Seline E. (SVP Finance; Interim CFO & PAO), Blouse Grant E. (Chief Scientific Officer), and Usman Nassim (President & CEO) purchased shares on the same date. Through the Issuer's 2018 Employee Stock Purchase Plan, all of the executives were able to acquire 3,250 units at $0.47 or $1,528 each. Clearly, this isn't much; however, I can speculate that this is the maximum amount the executives could purchase through the plan, given the exact unit sizes on all purchases, and the timing of the acquisition of shares seems perfect for a catalyst.

Risks to Investing in CBIO Prior to the Major Catalyst and Final Thesis

Of course, investing in a biotechnology company with a microcap valuation carries some risk. However, in this case, I see little to no hazards in this investment. The only red flag in owning this stock would be if the JDS1 nominees won more votes than the more equipped Catalyst selections at the upcoming annual meeting. If the Singer Family and JDS1 won the proxy contest, the cash distribution still could go forward, just in a manner most likely not best suited for shareholders, given the Singers' past . Nonetheless, I feel the risk in investing in CBIO is well worth it, given the 9% discount the stock has on the current intended cash distribution ($65 million), as well as continuing to own shares moving forward if the board vows to monetize the remaining assets of the company for further distributions.

All things considered, I feel that Usman has done an outstanding job with liquidating assets and positioning the company for a potential reverse merger in the future. Following the intended $65 million is distributed along with licensing out or selling the remaining assets (MarzAA, DalcA, and CB 2679-GT), CBIO can go into clean shell status and merge with a private entity. This would be favorable for the private company and CBIO shareholders because this is a relatively quick method and cheaper alternative to gain a public listing rather than an IPO and paying hefty SPAC sponsor fees. Once these companies potentially merge, the private company post-merge would own 95%, and shell owners would usually own around 5%. This is another positive prospective catalyst shareholders should look forward to because reverse mergers are extremely popular for biotechs that go into shell status.

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