Description

Summary: 

Nuvation Biotech (NUVB) is shaping out to be a Medivation look-alike, with an upside of 20% (likely realized within a year) in a harshly conservative probabilistically based analysis. This abandoned SPAC could have some gas if their main product candidate NUV-868 gets traction in advanced solid tumors in Phase 1/1B. Unlike most other cash shells, the founder owns 27% and is highly aligned to make this work for shareholders rather than clip director fees.

Background: 

Nuvation is a busted SPAC that went public with a whopping $850M in cash to pursue various oncology IND applications. Surprisingly, private investors showed a lot of hope for this SPAC, including approximately $144 million held in Panacea's trust account and $500 million from concurrent private financings. This includes $25M additional from the sponsor and $20M from the Founder/CEO, David Hung. This is all despite not having a single drug in Phase 1 at a pro-forma valuation of $2.2B and EV of $1.3B.

Fast forward to today, the last candidate being explored outside of the DDC platform is NUV-868 in 3 variants (NUV-868, NUV-868 + olaparib, NUV-868 + enzalutamide). ~$630M in cash is left on the balance sheet as of Q2 2023 end with a market capitalization of $376M, or EV of -$254M. Most of the funds, particularly Baupost sold out likely due to the termination of NUV-422.

There are one of three main ways I think this could go, so this can easily be valued probabilistically.

The first and most likely is that NUV-868 fails to meet its Phase1/1B endpoints - 65%

In this case, we can value Nuvation as a cash shell. Since rates have gone up, this has mitigated cash burn to around $20M a quarter. Say the Phase 1/1B data is poor, which causes the program to be canceled around the end of Q2 2024. Including the cash burn and $20M of additional costs of shutting down the program would leave a ~40% IRR to cash. This also includes some burn related to the DDC IND applications.

Napkin Math end of Q2 2024: $520M market cap

The second is that NUV-868 fails to meet its endpoints later in Phase 2 or 3 - 30%

I believe if strong Phase 1/1B data comes out, that the price will move very favorably so this is more of a bet that the study data is more marginal on continuing. I think in this case Dr. Hung may throw in the towel since he owns 27% of the company and isn't incentivized to continue shredding money. I think there would be a strong incentive for him to liquidate or leverage his reputation to do a reverse merger with a large promising oncology private. 

Napkin Math end of Q2 2024: $50M market cap (likely in 2025-2027, discounted to today). This seems harsh given some value in the DDC platform.

The third is that NUV-868 meets its Phase 1/1B endpoints with flying colors, in which case things will work out very well from here - 5%

Napkin Math end of Q2 2024: $2B market cap (could use some help on determining this piece, likely sandbagged)

The expected value of these conservative probabilities is $450M, or a 20% increase from the share price today. I believe 30% in the study continuing case is aggressive considering it will be difficult to raise capital given the highly negative EV staring the company in the face.

Aside on David Hung: He is most known for Medivation which reverse merged with a SPAC back in 2004 and worked astronomically well for shareholders. Medivation raised $433M and sold at $14.3B to Pfizer. However there is another story with Axovant on which sabordesoledad explored in 2017. Axovant didn't work out and was exploring a failed AD drug from GSK. However, the day David Hung joined Axovant as CEO the stock was up 23%, allowing the company to raise $143M in a secondary. This is notable since, contrary to other biotech cash shells, Dr. Hung has a meaningful reputation to leverage and is aligned with shareholders. This would allow for ease in another potential sale or minimally dilutive capital raise should NUV-868 pan out.

SPAC Slides: https://www.sec.gov/Archives/edgar/data/1811063/000121390020032470/ea128648ex99-2_panaceaacq.htm

Catalyst

Phase 1/1B readouts for NUV-868

Acquisition by a larger oncology player in need of a capital raise