Quick Pitch: Aptinyx (APTX)
Liquidation – 25% Upside
This idea has been hinted by SSI member Aviva. This is a tiny $5m liquidation of a failed biopharma. The wind-down process is already at an advanced stage. Management expects liquidating distribution to be $0.07-$0.1/share. APTX currently trades at the lower end of this range, so risk/reward seems skewed to the positive side. However, the trading liquidity is limited (ADV of $300k) and the margin for error on liquidating cost estimates is rather narrow.
A few months ago Aptinyx terminated the development of its only two drug candidates, laid off most of the workforce, and announced a strategic review. Last week, management decided it will wind down the company and issued a preliminary proxy for the dissolution. In the proxy management included the liquidation value estimate:
We estimate that the aggregate amount of cash that will be available for distribution to our stockholders in the Dissolution will be in the range between approximately $5.0 million and $6.6 million and the total amount distributed to stockholders will be in the range between approximately $0.07 and $0.10 per share of common stock.
Management was also nice enough to provide the assumptions used in the calculations:
We used the following assumptions when calculating the estimated distributable cash value: (i) $0.8 million payable for insurance, (ii) $3.5 million payable for wind-down operations, general and administrative costs, and research and development costs, (iii) $0.2 million payable for legal fees, (iv) $3.7 million payable for wages and (v) $0.4 million payable for rent, (vi) $0.2 million for accounting fees, and (vii) $0.2 million for other costs.
These assumptions seem to be reasonable. The indicated liquidation range ties in with the Q1 financials. The company has only 4 employees left to manage the wind-down of operations. Chairman, CEO, CFO, and CBO have already been terminated from their positions.
So far management seems to be focused on an efficient liquidation process. The strategic alternatives review process was started only in March and in the beginning of May the board already started implementing the plan of dissolution. Management owns 11% of shares. The shareholder list also includes Bain Capital Life Science with a 13% stake and PE Firm Adams Street Partners with 8%. I find it quite surprising that APTX opted for liquidation and was not able to monetize neither its NOLs ($270m federal and $26m state) nor the public listing. This might be due to tiny amount of net cash, which makes APTX less attractive for a reverse merger.
Nothing has been said on the timeline for the distributions so far. In order to preserve cash, APTX intends to delist and stop trading shortly after the shareholder’s approval. Based on the previous experience with liquidations, it’s fair to expect a large distribution shortly after shareholder approval, while the residual distributions might take some more time (maybe a couple of years) to drop in.
Almost entirely reliant on management estimates here because the margin of error is so small making projections useless imo…. Which leads me to the question, how often (base rates) have you seen distributions end up below the lower end of management estimates?
Thanks
Any guidance or experience on this would be much appreciated.
I do not have any stats on the average accuracy of management’s liquidation guidances. And that would be case-by-case driven anyways. I am just guessing that the liquidating distributions are unlikely to land below the low end of the indicated range. Management is not incentivized to post the range they are unable to meet. This would just raise a lot of questions from potentially unsatisfied shareholders.
Obviously, any unforeseen expenses that management was unaware of at the time, might push the liquidating distributions lower. As you suggest te margin of error is tiny.
The proxy meeting is scheduled for June 30.
https://www.bamsec.com/filing/110465923067587?cik=1674365
A 13D/A was filed but it doesn’t seem to say anything about the purpose/intensions of the >5% owners.
https://www.nasdaq.com/market-activity/stocks/aptx/sec-filings
DT, would you be able to explain the relevance of this filing given it doesn’t seem to specify any specific intensions? (I may have simply missed it).
Thanks
As I understand this was filed because of a change in ownership only. Shares owned by Adam Street Partners went from 5m (as of Jan 2020, the first 13D filing) to 5.4m as of now. It is quite often 13D fillings do not specify any intentions.
This month the company has replaced several executives, including the interim CEO, principal financial officer, and others, with significantly cheaper appointees who will simply oversee the liquidation.
Also, APTX has delisted from Nasdaq and now trades on OTC.
There was a lot of volatility in the shares yesterday (23-Aug-2023) which seems odd given there have been no SEC filings made recently and no other news that I could find.
If anyone has any news or insight explaining this it would be great to hear.
Looks ordinary to me. It’s an OTC stock with rather limited liquidity and <$5m mcap. Only around $13k was traded yesterday, so it's normal that trading is choppy.
Thanks for your feedback. It just seemed odd for a company in liquidation that has already specified a distribution range for shares to trade materially below the bottom of the distribution range.
I think the reason has been outlined by Aviva in the write-up. It’s a very small company, so the margin of safety on their cost estimates is thin.
Has anyone come across any information with regard to liquidation? They just have an email address on their site and nothing more. I haven’t seen any filings.
I have not seen any new developments, but the company still reports on OTC and the filings can be tracked here: https://www.otcmarkets.com/stock/APTX/disclosure
In a surprising turn of events the liquidation proceeds of the $5m market cap (but relatively liquid) APTX ended up at the upper limit of management’s guidance of $0.07-$0.1/share.
Shareholders will now receive $0.0986975 per share. The stock has been trading under $0.07/share for most of the time since the announcement of strategic review.
Aviva, thank you for sharing this setup.
Thanks for the positive update! How were you able to receive a notification for the filling of the 8K ?
Curious if anyone knows how one could gain access to the expert markets? There was a ~10% spread today in APTX. Some shares even traded at .06. Will certain brokers give you access if you are a qualified retail investor or do you need an institutional account??
If nobody here knows @alluvialcapital would for sure.
I suspect the arb is, in part, due to the expert market restriction. Nothing like the government telling you want you can and can’t do with your money?!
I suspect it isn’t easy at all, and if you qualify then you would be considered a ‘professional’, and that will probably trigger all sorts of data fee hikes and additional compliance etc.
IB labelled me an affiliate buying this stock and restricted my trading. That scared the sh1t out of me as it was my largest position and the last thing I wanted was not to be able to trade out if my views on it changed. They then needed me to continue to prove I wasn’t an affiliate every two weeks. All this because I bought a lot of volume for a few days! I didn’t even own close to 1% of shares outstanding!
I don’t know which broker you use, but if you can find one with extensive OTC coverage and acceptable fees when trading penny stocks it might be worth having an account just for that in the hope you can avoid IB jacking your trade.
Did anybody receive this in cash in their accounts yet? I’m with IB and I’m still waiting.
Yes, and that was with IB too. Give them a nudge.
Oddly the old shares are still marked to the last traded price so my account NAV is artificially inflated.
Any update with IB on this?
I got the cash from IB but the stock is still marked to market in my account and therefore inflating the value.
At least they didn’t treat it like a dividend and withhold tax on it like they have with a Canadian liquidation that distributed less than their paid up capital and therefore should not have had withholding tax applied. I’ve sent them three message and had a live chat and after 2 weeks they still haven’t gotten back to me….
In my account they are using this stock that hasn’t existed for almost two months as collateral for borrowing.
Perfect! Then if/when it gets corrected, here comes an instant margin call for you accompanied by the liquidation of some illiquid nano cap and a bargain price for….. the rest of the market!
IB scares me given my life savings are under their administration…
I spoke to them about this and they responded with a disclaimer about data accuracy. I replied saying, I get it, and but could you manually override what is non sensical so clients can have an accurate net asset value…. they said, nah, read the disclaimer again.
At the same time my SIOX shares won’t share up in TWS.
Someone at IB finally woke up. Now valued at zero.
Check your account summary in TWS. Mine was still marked to the liquidation value and therefore my NAV was still inflated even though on the trade monitor it showed 0. Perhaps this will be fixed soon…. Or perhaps they’ll ignore it like they have with my tax issue…
I did. Mine was marked down to zero over the weekend, recorded in Monday’s account summary. NAV took the expected hit. Seems weird they would book down mine, but not yours.
Mine is updated now as well. Perhaps there was just a temporary mismatch between my TWS monitor and the account summary within TWS. (Those risk stats and monthly returns may take a misleading hit in March).
Either way, the big picture, a great return!