I am slightly late posting this one, however as talked about within the remark part of my Mid-Yr replace, I did add Aerovate Therapeutics (AVTE) ($55MM market cap) to my damaged biotech basket.  Again in June, Aerovate, a one-shot-on-goal biotech, announced poor topline results from the Phase 2b portion of their AV-101 study for the therapy of pulmonary arterial hypertension (PAH).  Just a few weeks later, the corporate announced they were laying off 78% of their staff, costing them $5.6MM, $3MM of which is able to hit in Q3 and This autumn.  Then one other week later, AVTE formally announced they were exploring strategic alternatives:

Aerovate has engaged Wedbush PacGrow as the corporate’s unique strategic monetary advisor to help within the strategy of exploring strategic options, which can embody however are usually not restricted to, an acquisition, merger, reverse merger, enterprise mixture, liquidation or different transaction.

Notably, they listed a liquidation as a potential final result, usually we do not see a liquidation known as out within the preliminary strategic options announcement.  One cause is perhaps they have no different product candidates, from their newest 10-Q:  

Overview

We’re a biopharmaceutical firm. Our preliminary focus was on advancing AV 101, our dry powder inhaled formulation of imatinib for the therapy of pulmonary arterial hypertension, or PAH, a devastating illness impacting roughly 70,000 individuals in america and Europe. On June 17, 2024, we introduced topline outcomes from the Part 2b portion of our Part 2b/Part 3 Inhaled Imatinib Pulmonary Arterial Hypertension Scientific Trial of AV-101, or IMPAHCT. Topline knowledge confirmed that, whereas AV-101 was usually properly tolerated throughout all dose teams, the examine didn’t meet its main endpoint for enchancment in pulmonary vascular resistance in comparison with placebo for any of the studied doses or present significant enhancements within the secondary endpoint of change in six minute stroll distance. We additionally reviewed knowledge from a number of further secondary endpoints of the Part 2b portion of IMPAHCT, which additionally failed to point out significant enhancements. Based mostly upon these outcomes and in settlement with the unbiased examine advisory committee, we halted enrollment and shut down the Part 3 portion of IMPAHCT in addition to the long-term extension examine. AV-101 for the therapy of PAH was our solely product candidate in improvement. Presently, we don’t intend to renew improvement of AV-101 or another product candidates. In July 2024, we introduced the choice to conduct a complete evaluate of strategic options centered on maximizing shareholder worth. We additionally engaged Wedbush Securities Inc. (Wedbush PacGrow) as our unique strategic monetary advisor to help within the strategy of exploring strategic options, which can embody however are usually not restricted to, an acquisition, merger, reverse merger, enterprise mixture, liquidation or different transaction.

I am nonetheless making an attempt to get my arms round how the brand new SEC shell company rule goes to play out after going efficient July 1, 2024, however it seems that these one-shot-on-goal kind biotechnology firms, like AVTE, with out different property may fall into the shell firm bucket and might be pushed in direction of a liquidation consequently.  Others which can be persevering with improvement similtaneously pursuing strategic options may make for higher reverse merger candidates, which have usually labored out properly this yr.  However I am not a lawyer, and thus not fully certain if this new rule means a lot to this a part of the market since biotechs usually do not make outlandish SPAC-like income projections regulators try to stamp out.  If others have extra clever ideas, as regular please share.

My again of envelope liquidation math:

AVTE is fairly clear, there are minimal dilutive securities excellent, minimal working lease remaining and sure the IP worth is nugatory.  I nonetheless battle a bit with estimating wind down bills, be happy to make use of your individual estimate, however at in the present day’s worth, AVTE appears to be comparatively low cost in comparison with my estimate of liquidation worth.

In the event that they do go the reverse merger route, there’s some good possibility worth, curiously RA Capital owns ~32% of AVTE and engineered a successful reverse merger at ELYM with Tenet Medicines that is seen the inventory go up virtually 200% since that deal was introduced in April.

Disclosure: I personal shares of AVTE