Description

My submission on JNCE generated a nice return in a short time without requiring investors to do a lot of work so lets try another stock with a similar set up and a similar investor.  This write up is brief because people may want to get involved tomorrow. 

QNCX is a cash rich biotech that trades below cash, is facing shareholder activism and oddly is heavily shorted.  The stock trades at $1.56 but the company had $2.50 per share in cash at the end of 2022 and projects to have ~$2.20 per share of cash per share at the end of 2023 (after spending over $10mm on o/h).  The company isn’t developing any drugs so its only cash burn is corporate overhead.  In March the company received a buyout offer from Echo Lake Capital for $1.60 per share in cash.  What I think makes this idea especially interesting/actionable is that late last Friday, Tang Capital disclosed it owned 9.9% of the company via a 13g.  For those who looked at JNCE, Tang also initially filed a 13g and about 10 days later filed a 13D which included a buyout offer for JNCE.  Is Tang also interested in buying QNCX? Will Tang pressure QNCX to maximize shareholder value?  Will Echo raise its bid?  Will another bidder emerge? Will QNCX liquidate? Will QNCX fight any takeover offers?  Enquiring minds want to know!!    

Even though QNCX trades below cash and there is a takeover offer on table (and now Tang has entered the picture), there is a very high short interest in the name and the cost to borrow ranges from 45-100%.  I would not want to be short this name, but others are.

Before Echo’s bid QNCX had stated it wanted to use its cash to make acquisitions.  The company has had a disappointing past (read Echo’s buyout offer for more details) especially after its key drug had disappointing phase 2 results (and development was halted) and a (related party) acquisition further crushed the stock last May.

I think the key issue is whether QNCX’s BOD will fight Echo (and potentially Tang and other activists) or will the BOD move to maximize shareholder value.  Tang owns ~10% of the company as does the company’s Chairman, David Lamond.  David is the son of Pierre Lamond who appears to have done very well financially https://en.wikipedia.org/wiki/Pierre_Lamond .  Does David Lamond want a public fight over an investment that I assume isn’t meaning to his personal AUM?  Besides Tang and Lamond there do not appear to be any other large shareholders (Echo has not disclosed its ownership).  Management (excluding Lamond) doesn’t own much stock (but they own options that are deeply outta the money).

On March 27 one of QNCX’s board directors resigned “immediately”… interpret that as you will.

Most of the Board has a heavy scientific background....one Director is Chris Senner who is the CFO of EXEL , a $6bn biotech which itself if facing shareholder activism.

QNCX does have some other assets besides cash, including some earnouts on drugs it has out-licensed and a large NOL.  I value these at $0 besides because they are hard to value and there is so much upside in the name even when these assets are valued at $0. 

Catalyst

Echo's Bid

Tang Capital's recent involvement