Quick Pitch: Checkpoint Therapeutics (CKPT)

Free CVR (at $3.99)

Checkpoint Therapeutics is a biopharma company with a recently approved skin cancer treatment. It is being acquired by Sun Pharma, an Indian pharmaceutical giant with a $47bn market cap. The consideration includes a cash payment of $4.1/share plus a non-transferable CVR, which could pay up to $0.70/share. CKPT trades at $3.99/share, offering not only a “free” CVR but also 2.7% spread to the cash portion of the offer (9%-10% annualized). The transaction is expected to close in Q2, pending regulatory and shareholder approvals, neither of which are expected to present any hurdles.

CKPT’s cancer drug Unloxcyt was approved by FDA in Dec’24. The CVR payout hinges on Unloxcyt securing approval in the EU. The payout size will depend on two factors: how quickly the approval is granted and whether EU regulators stick to the FDA-approved dosing schedule of once every three weeks (Q3W in biopharma terms). Sun Pharma will have to submit the drug for EU approval no later than 12 months after the buyout closes, though the buyer is obviously incentivized to move as quickly as possible. The CVR structure breaks down into four payout scenarios:

• $0.70/share – EU approval is received within 24 months of submission and with a Q3W dosing schedule.
• $0.45/share – approval comes within 24 months of submission, however, the dosing schedule is more frequent than Q3W.
• $0.45/share – approval comes in between 24 and 36 months following submission, and the dosing schedule is Q3W.
• $0.20/share – approval is granted between 24-36 months after submission, and the dosing schedule is more frequent than Q3W.

If EU approval takes longer than 36 months after submission, or isn’t granted at all, the CVR will expire worthless. This seems quite unlikely. The FDA and EU regulators align on new drug approvals 90% of the time. Furthermore, CKPT’s Unloxcyt is the first and only approved treatment for advanced cutaneous squamous cell carcinoma (CSCC). CSCC is the second most common type of skin cancer (and in turn is one of the most prevalent cancers overall). Unloxcyt targets advanced stage of this disease in patients who can’t have surgery or radiation treatment. Given the clear unmet medical need, European regulators should be highly motivated to approve the drug.

As for the timeline, EU approvals typically take up to 210 active review days, but that excludes “clock stops” where regulators request more information. In practice, the full review process tends to be 12–18 months, which fits well within the CVR’s timeline requirements.

CKPT was running trials for 800mg dosing every two weeks and 1200mg every three weeks. The FDA opted for the latter, likely due to higher efficacy, though I couldn’t find detailed trial results to confirm this. While it’s possible the EU regulators could decide differently, it seems more likely they’ll align with the FDA’s decision.

Overall, the odds of at least some CVR payout seem strong, and there’s a real shot getting the full $0.70/share.

The buyout itself looks likely to close. Shareholder approval requires a majority of disinterested common stockholders to vote in favor. CKPT is controlled by FBIO, which holds most of the voting power through supervoting shares and owns 11.2% of the common stock. That means the deal needs consent from a majority of the remaining 88.8% of common shareholders. The only other major shareholder Armistice Capital (10% stake) is already in support. Armistice has been financing CKPT for years, and has accumulated a huge stack of in-the-money warrants (diluted Armistice stake would be ~40%). The shareholder has agreed to a cashless exchange for most of its warrants in the buyout.

The remaining minority shareholders should also be in support. The merger cash consideration is a 66% premium over pre-announcement levels. More importantly, CKPT doesn’t have the resources or infrastructure to commercialize Unloxcyt on its own. If it wasn’t for this sale, the company would have to look for commercialization partners or a dilutive financing. Together with the buyout announcement, management noted that the company had run a strategic review after the FDA approval. So the current offer is probably the best CKPT shareholders can expect. The decision to sell was probably related to CKPT parent’s (FBIO) weak financial position. FBIO is a tiny $44m market cap biotech with just $6m in net cash as of Q3 2024 and rapid cashburn. It will get a nice chunk of cash as a result of this buyout. The bottom line is that if the current merger fails, CKPT’s share price would likely fall substantially. I don’t think minority shareholders will risk voting against the transaction.

Regulatory approval (antitrust) doesn’t seem like a concern either. Sun Pharma is a broadly diversified company, mainly focused on generic drugs and dermatology. Its only relevant asset in the context of this buyout is Odomzo, used for locally advanced basal cell carcinoma (BCC). BCC and CSCC are both skin cancers, but they’re fundamentally different—distinct in origin, appearance, aggressiveness, and treatment approaches. It’s hard to imagine regulators seeing this as an antitrust issue, especially when the medical need for CKPT’s treatment is high and the drug cannot be commercialized by CKPT on its own. Sun Pharma looks like exactly the right buyer here, given its existing BCC drug, and commercialization infrastructure in place both in the US and EU.

So this is a pretty compelling arb/Free CVR play. The main question is why does such opportunity exist? Usually, similar setups (e.g. the recently covered FNA) trade at zero spread or even incorporate some of the CVR value into the price.

One of the reasons could be Sun Pharma’s somewhat tainted reputation when it comes to M&A. You can find a number of similar mentions of this on fintwit (e.g. here). The bad blood traces back to Sun’s 17-year-long takeover saga of TARO, which finally closed last year. The initial offer was made and rejected in 2007. Then, in 2012 Sun acquired a 77% stake in TARO and started squeezing out the minority shareholders. The saga dragged through multiple lowball offers, shareholder rejections, and boardroom fights. Many investors were betting on TARO’s buyout. There’s even a 2014 VIC pitch covering this same setup, when it was still in the early innings. After a decade, Sun finally got the deal done—but at a price far lower than what shareholders had once hoped for. This has left a lot of investors frustrated and bitter. What also didn’t help was that after the buyout finally closed, it took several months for shareholders to actually get paid.

I think this TARO example is not really relevant to the current CKPT situation, which is a straightforward acquisition rather than any attempt to squeeze out minority shareholders. Also, TARO is only one bad apple among many—Sun Pharma has a long history of M&A, including the CNCE (also previously covered on SSI), which closed on time without issues. As for the complaints about buyout proceeds taking time—TARO was an Israeli company, and Israeli buyouts are notoriously complex, these typically involve a lot of paperwork and various withholding tax complications for foreign investors. Delays in merger consideration payments are not unusual. So it wasn’t specific to Sun Pharma/TARO. The whole “bad buyer” narrative seems to be rather unfounded, and I don’t expect it to have any impact on the CKPT’s transaction.

Now, if I really had to push it hard trying to look for plausible reasons for why this opportunity exists, there are two additional wrinkles worth mentioning.

In December, right before the drug approval, CKPT was trading between $3.3-$4.3/share (as I understand positive FDA decision was highly anticipated). Post-approval, the stock gradually tumbled to $2.4/share by February, due to a biopharma sector sell-off and extended silence from CKPT about the drug commercialization plans. The then-ongoing strategic review was revealed only with the buyout announcement. Given that CKPT traded higher than $4/share just few months ago, some shareholders might find the the current offer (or the indicated 66% premium to pre-announcement prices) as unattractive.

That seems like a minor risk. It wasn’t a secret that CKPT needed to secure some form of deal to facilitate commercialization, e.g. licensing partnership, dilutive fundraising, or a sale. The pre-approval prices had likely already reflected some anticipation of these developments. CKPT’s drug isn’t expected to be a blockbuster and previously faced doubts about its competitiveness, particularly against established CSCC treatments like Merck’s Keytruda, which generates annual revenues of around $29bn.

Another wrinkle is that CKPT’s drug received FDA approval after only a Phase 1 trial, likely through an expedited process due to the treatment’s medical necessity. The trial wasn’t that small, and involved 108 patients, which was deemed sufficient by the FDA. The EU also has mechanisms for expediting drug approvals for post-Phase 1 trials. However, there is still a possibility that EU regulators may require some additional studies, which would extend the review timeline. But even then, the total 36 months review period post-submission allowed by the CVR conditions provides a decent margin of safety.