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Recently there have been a few situations where failed companies are getting bought out at below cash values. In biotech situations there have been a few CVRs involved to get boards over the line to agree to what are essentially liquidations. A recent writeup like that has been Embark Technology by Patt110. 

It makes a lot of sense to me that a lot of these types of situations (JNCE, EMBK, QNCX, STSM are examples) will come up because we are coming off a few years where monetary policy has been very easy. Now it is much harder to justify risky business with a short term yield of 4-5%.

From observing these other situations I think GRPH could be quite interesting. 

The most recent cash and marketable security position totaled $283.6 million vs the market cap of $160 million.  

By now the cash/securities could be down to $260 million but the burn rate is likely reduced going forward because the company is shutting down its key program nula-cel for sickle cell disease, the board approved a restructuring (including letting go of 50% of employees) and initiated a process to explore strategic alternatives. The good news is that the company pre-emptively decided to preserve capital while exploring strategic alternatives. The bad news is that they intend to continue research activities for its early-stage non-genoticox program(more on that later). 

The burn-rate before restructuring sat at around $25 million per quarter. I estimate the company will manage to reduce that to $6-$10 million per quarter (the yield on the securities is actually helpful) in short order. It could go down much further depending on the choices that are made.  

The above isn’t great by itself if it wasn’t for BML Capital (active in a number of situations like; EMBK,) and Tang Capital (acquiring JNCE at a discount to cash+CVR) both being shareholders here. 

In the case of JNCE the board agreed to the takeout by Tang Capital in part because they believed in the funds ability to handle the obligations coming with the CVR. This included executing on limited ongoing operations. 

I’m going to speculate a bit and I’d love to hear it I’m completely off. 

I can see how it could be an interesting strategy for HF’s with life sciences experience to create a “platform” where they essentially facilitate programs to continue trials (but not additional R&D). This allows them to issue CVR’s to get access to liquidation situations that would be otherwise out of reach. 

Without this platform, you quickly run into problems where boards and management want to preserve their optionality (however much of a longshot it may be). It is also a bad look when hedge funds start liquidating biotech firms that have active programs. You can just imagine the headlines.     

In the case of GRPH major shareholders are Versant Ventures, Samsara Biocapital and Ecor1 Capital who I presume will be interested to preserve capital. 

In the February restructuring announcement, the company also said:

Graphite Bio is exploring the potential to continue nula-cel development externally. The company intends to continue research activities associated with its early-stage non-genotoxic conditioning program, with the goal of advancing toward potential development candidate(s).

The key phrase is here externally which IMHO points strongly to a situation where a liquidation can be achieved while viable assets can still be pursued in a more efficient structure. 

In March the CEO and CFO got a retention agreement with a bonus if they get fired and option package extensions. 

GRPH has a market cap of $160 million.

The real prize is the $286 ($260 by now) million in securities. However, for good measure, there are also $20 million in liabilities. I am not giving any value to any NOLs or non-cash/non-security assets of the company.  These include current assets and prepaid expenses of $7 million, property and equipment of $22 million, a few licenses and early-stage pharmaceutical assets.  

The risk here is that the strategic alternative is to slim down to a single program and run it as lean as possible but still fail in 2026. I think this is unlikely to be the most likely outcome here and it wouldn’t necessarily be horrible if costs are trimmed enough. 

Given the situation, the restructuring announcement, the shareholder base, the failed assets, the early stage of all other assets, the exec parachutes, and the delta between the share price and the value of the marketable securities; my inclination is to think we’re going to see some kind of JNCE type deal where shareholders get a premium of ~30%-50% to the current share price with or without a CVR. I’d expect this to happen sooner than later (ie 2nd or 3rd quarter). However, if the cost-cutting is aggressive enough the company could end up in a relatively balanced situation because the short-term yields are quite strong and the securities/cash portfolio is quite large.

Catalyst

strategic alternative determined
deal announced