Description

Sio Gene Therapies Inc (OTC: SIOX) is a failed biotech that is in the process of liquidating and returning cash to shareholders. At the current price of $0.40, shares are trading at the midpoint of the initial liquidating distribution guidance of $0.38 and $0.42. The initial distribution excludes the conservative contingent reserve of $6-7mm ($0.08-$0.09 per share), which is 16-20% of the cash net of liquidation costs. We think the vast majority, if not all, of these funds will ultimately be returned to shareholders.

Sio Gene had three programs aiming to treat Parkinson's disease and GM1 and GM2 gangliosidosis. The IP underlying these three programs was licensed from Oxford Biomedica and the University of Massachusetts Medical School (UMMS). In February 2022, SIOX terminated the partnership with Oxford Biomedica and in April 2022 they terminated the partnership with UMMS. In the spring of 2022, the company sought several strategic alternatives before ultimately deciding to liquidate the company.

The operating structure today is fairly simple. The company has already terminated its leases in NYC and Durham, North Carolina. They reduced headcount from 42 to 12 and now only the CEO David Nassif remains after the vote to liquidate the company was approved by shareholders. Mr. Nassif will work on a contract basis for three years (the likely timeline to fully settle contingent claims, if any arise) at $500 per hour.  We note that he did receive a generous exit package, but it is already included in the calculation for the initial liquidation. The company currently does not have any open legal proceedings, but this is always a risk in liquidations.

The important complication for this liquidation is the existence of three international subsidiaries in Ireland, the UK, and Switzerland. While the dissolution was approved by shareholders in early April 2023, and the shares have been delisted from the NASDAQ, the company has not yet provided a final timeline for the initial liquidating distribution. We believe the delay is due to the three international subsidiaries taking longer to liquidate than expected, though the impact of these delays on the distribution amount should be minimal.

With the stock trading very close to the value of the initial distribution, which should be paid in a matter of months, the eventual release of the $0.08-$0.09 from the reserve in three to four years provides an attractive IRR.

Catalyst

Payment of initial liquidating distribution

Ultimate wind-down and payment of final liquidating distribution