Description

Eiger is a bankrupt biopharma company.  It filed in early April with several assets in various stages of development/commercialization.  Asset sales have gone better than anyone could have expected, with its first asset sale (Zokinvy) bringing in $45m with a net of $36m to the company and the assumption of about 700k of cure claims.  A big portion of the delta between sale price and net was a payment to Merck to transfer the licensing agreement for Zokinvy. The second asset sale (avexitide) initially had a stalking horse bid of $10m and an auction ultimately resulted in a winning bid of $35m with the assumption of 300k of cure claims.  This bid hasn’t been posted to the docket, we only know about it because the stalking horse bidder emerged as a backup bidder and filed an 8k on Tuesday to reflect that status.  

"Item 1.01 Entry into a Material Definitive Agreement.

On June 13, 2024, Spruce Biosciences, Inc. (the “Company”) entered into a “stalking horse” asset purchase agreement (the “Asset Purchase Agreement”), pursuant to which the Company agreed to acquire substantially all of the rights, title and interests in, to and under certain assets and interests used by Eiger BioPharmaceuticals, Inc. (the “Seller”) with respect to Avexitide (as such term is defined in the Asset Purchase Agreement) (the “Transferred Assets”). The Asset Purchase Agreement provides that the acquisition of the Transferred Assets by the Company is subject to approval of the United States Bankruptcy Court for the Northern District of Texas (the “Bankruptcy Court”) in the cases captioned In re Eiger BioPharmaceuticals, Inc., et al, Case No. 24-80040 (the “Chapter 11 Cases”), and one or more auctions, if necessary, to solicit higher or otherwise better competing bids in respect of all or any part of the Transferred Assets in accordance with the terms of the bid procedures previously approved by the Bankruptcy Court.

Under the Asset Purchase Agreement, the Company agreed, subject to the Bankruptcy Court’s approval and absent any higher or otherwise better bid, to acquire the Transferred Assets from the Seller for $10.0 million, subject to certain adjustments pursuant to the Asset Purchase Agreement. The Asset Purchase Agreement includes customary representations and warranties and various customary covenants under the circumstances that are subject to certain limitations, including, without limitation, a termination fee of $0.3 million payable to the Company, and the right to designate executory contracts and unexpired leases to assume or reject.

The foregoing description of the Asset Purchase Agreement remains subject to approval by the Bankruptcy Court, is not complete, and is qualified in its entirety by reference to the Asset Purchase Agreement, a copy of which is attached to this Current Report on Form 8-K as Exhibit 10.1, and is hereby incorporated herein by reference.

Item 8.01 Other Events.

In connection with the Chapter 11 Cases, on June 17, 2024, an auction was conducted with respect to the Transferred Assets as part of the Seller’s court-supervised sale process under Section 363 of chapter 11 of Title 11 of the United States Code. Following the completion of the auction, the Company was designated the back-up bidder, with a final back-up bid during the auction of a purchase price in the amount of $35.0 million less a credit in the amount of $0.3 million for the termination fee resulting in a net purchase price in the amount of $34.7 million, plus the assumption of specified contractual cure amounts up to $0.3 million. The sale of the Transferred Assets remains subject to approval by the Bankruptcy Court at a hearing scheduled for June 26, 2024. In the event the sale of the Transferred Assets to the winning bidder is approved by the Bankruptcy Court and the winning bidder fails to consummate the acquisition of the Transferred Assets in accordance with the bid procedures approved by the Bankruptcy Court, then the Company would be obligated to promptly consummate the acquisition of the Transferred Assets as the back-up bidder; otherwise, the Company will be paid the $0.3 million termination fee in accordance with the terms of the Asset Purchase Agreement."

The company has two remaining assets that target HDV (hepatitis delta variant).  During the first day hearing, the company’s lawyers represented that the Gates Foundation was looking to grant them $15m to develop the assets.  Its hard to know what the remaining assets are worth, presumably something, but beyond that its hard to say.  Fortunately, based on what we already know, shares look cheap to a workout value.  

The amount owed to the lender is a matter of some dispute.  On the petition date the company believed it owed its lender (Innovatus) $41.7m and while the lender believers it is little over $44m with penalties/interest/etc.  It appears the company and lender are at odds over pre-petition activity of the lender and there is a discovery demand that is the precursor to the company pursuing causes of action.  

Trade claims are pretty small, $4.7m as of the petition date, about $1m has been assumed in sales so far, so call it $3.7m of claims.  

As of the last MOR, there was about $12m of cash.  After the Zokinvy sale, the company took $15m of the proceeds and paid down some of the Innovatus loan, so the company put $21m on the balance sheet.  While there’s no doubt been some burn, the company has somewhere between $30-32m of cash now, and proceeds from avexitide coming in.  This is against either $26 or $29m outstanding on the term loan and $3.7m of claims, call it $30-33m.  The net from the avexitide sale essentially accruesto the equity against a share count of 1.5m.  

I think, based on what we know right now, workout value is in the high teens per share and there are still sources of value.  Perhaps some settlement with the lender, proceeds from remaining asset sales, D&O claims, etc.  

This is a situation where an equity committee is likely to be formed, as it seems clear the equity is well in the money.  The stock is illiquid, there’s a NOL trading limitation of 4.5% with the bankruptcy court, so the most a fund or individual can own without violating the order is about 67k shares.  

Catalyst

sale closes, liquidation process continues