IMRA - Imara: Potential Liquidation

Summary

• Imara has announced strategic alternatives and has announced the sale its key asset.
• It now trades 37% below its Pro Forma net cash levels and a liquidation would be ideal.
• The main risk here is management pursuing a reverse-merger.

Imara (IMRA) is a failed $60m MCAP biotech company trading at a 37% discount to its Pro Forma net cash levels. In April , the company reduced its workforce by around 83% (to a total of 6 employees), discontinued its treatment development pipeline (relating to both IMR-687 and IMR-261), and commenced a strategic review. A couple of positive developments have occurred since then.

• In July, the company terminated its headquarter lease agreement to reduce operating expenses. Quite strange that their website still shows their office location;
• On the 7th of September, IMRA surprised the market by signing a deal to divest its IMR-687 treatment assets to Cardurion Pharmaceuticals. A key condition here is shareholder approval (majority of votes cast need to support the sale), which should easily pass as management holds 40% of shares outstanding. Management has recently released a preliminary proxy related to the sale but the shareholders' meeting date is yet to be announced. Overall it seems that this is a done deal that should close swiftly as there are no major conditions that stand in the way. The company will continue to explore strategic alternatives post-transaction.

Discount to Pro-Forma Cash

Upon closing of the aforementioned IMR-673 sale, IMRA will receive an upfront cash payment of $34.75m plus two contingent payments. The contingent payments are structured as follows:

• $10m will be received if the buyer (Cardurion) achieves a proof on concept milestone or other specified clinical milestones;
• $50m will be received if the buyer (Cardurion) achieves specified regulatory and/or commercial milestone events.

Cardurion is a private company, specializing in cardiovascular disease. The company is developing new therapeutics for heart failure and cardiovascular diseases. Looking at their existing portfolio it is highly likely that the IMR-687 purchase will be used for similar purposes. As IMRA reported only plans of clinical development for IMR-687 in heart failures, it seems that even if the milestones get achieved, they would be hit a long way from now. Hence I view the contingent payments as more of a free option here. For context, if both milestones are achieved, shareholders stand to receive another $2.3/share on top of the existing $3.6/share Pro Forma net cash.

The table below shows a more conservative scenario where IMRA only received the upfront payments.

Cash burn was still elevated in Q2 at near $12m but this was due to R&D expenses still being present and some one-off layoff compensations. Excluding the $7.4m in R&D expenses and excluding the one-off compensations, we arrive at an $8m/year cash burn or $0.3/share. According to these assumptions, after 1 year the company would still be trading at a 31% discount from its cash levels. I believe this provides a decent margin of safety for IMRA especially as it continues to explore strategic alternatives.

As a bonus, the company also has its IMR-261 asset that can add additional value. However, the upside from such a sale would likely be minimal. Imara purchased this asset in 2020 for an upfront $75k payment plus uncertain contingent payments. This is a very small sum and Imara has done little work with this asset to suggest it is worth more than it did two years ago. IMR-261 is barely in phase 1 vs phase 2 for the sold IMR-687 treatment.

As a side note, management did not comment on whether these sale proceeds will be taxable or not. IMRA has around $270m worth of NOL’s which can most likely be used to offset taxes. So the upfront cash payment of $34.75m is treated as net proceeds.

Possible Scenarios

Though the outcome of the strategic review is still uncertain, the ideal scenario would be a full-on liquidation of the company. Post-asset sale Imara is basically a cash shell with no operations and no headquarters. Management owns 40% so it would also benefit from a liquidation.

The main risk here is that management pursues a reverse merger. Though management owns 40%, they are also used to receiving high salaries. A similar situation has recently happened with IMRA’s peer Sesen Bio. On the 21st of September SESN announced a reverse merger sending SESN’s shares down by 40%. Note that SESN was also a failed biopharma that traded below net-cash levels and announced a strategic review.

A portion of the company is also held by an activist. In April (very shortly after IMRA announced strategic alternatives), BML Investment Partners initiated a 6.2% stake in the company. BML Investment Partners is mostly focused on small-caps and has exposure to some similar biopharma situations. 10 days later, the fund increased its position to 12%. It is not truly clear what outcome the activist sees here. However, the fact that they continue to keep their shares despite IMRA’s stock price doubling after the aforementioned sale announcement, suggests they sees value here.

Also, in the recently released proxy management clearly hinted the company was willing to accept a reverse merger but chose to sell their asset only because it was more financially beneficial for them to do so at the time. Management mentions that they received multiple interests in a reverse-merger transaction and initiated talks with some of the interested parties. IMRA continued to consider a reverse-merger with one party when they already had the option of selling their IMR-673 asset to Cardurion but later decided that a sale of assets would be more financially beneficial. Management clearly states they will continue to include a reverse-merger within their strategic alternatives considerations. So the outcome likely boils down to which option will be more financially beneficial.

About IMRA

Imara is a Boston, Massachusetts-based company founded to treat hemoglobinopathies (a range of rare inherited genetic disorders in which there is an abnormal production of haemoglobin) and other serious diseases. The company IPO’d in 2020 as it was seeking funding to develop its small pipeline of drugs. Prior to the IPO, management disclosed no cooperation agreements and was thus on its own to develop the treatments. IMRA's share price peaked in June of 2020 at just over $60/share before beginning to drop sharply. The recent tightening of financial conditions and the announcement of a strategic review sent this stock even more south as it reached the $1/share mark in April. In January of 2022, the company managed to receive a green light from the FDA regarding a Phase 2 trial for tovinontrine (the sold asset) as a treatment for heart failure with preserved ejection fraction .

The company’s treatment pipeline consisted of two products (IMR-687 and IMR-261). The former was in Phase 2 clinical development for the treatment of sickle cell disease and ?-thalassemia. IMRA expected to begin clinical development of IMR-687 in heart failure in Q2 but this was scrapped after the company discontinued its treatment pipeline. IMR-261 was acquired in 2020 but the company wasn’t able to begin any clinical developments.

Conclusion

Though the outcome of this strategic review is still uncertain, there is a possibility that the company may indeed liquidate. If so, conservatively assuming the strategic assessment takes another year, the expected discount to cash would still stand at over 30%. However, we believe the risk of the company pursuing a reverse merger, which would likely destroy shareholder value, is too high.

For further details see: