Investment firm All Blue Capital has offered Zymeworks a way out of its current troubles. After watching the late-stage biotech’s share price collapse over the past year, All Blue has bid $773 million to take the company private—and torn into perceived leadership failures that contributed to its decline.
Zymeworks’ stock has fallen 85% to below $5 over the past year, with a chunk of the decline coming in January when newly minted CEO Kenneth Galbraith removed half the senior management team and laid off 25% of the staff. By making the cuts and raising cash, Galbraith extended Zymeworks’ runway out to the second half of next year but the stock is still in the doldrums. All Blue is clear about who to blame.
“We believe that the company has suffered from severe value erosion due to a number of serious missteps by an unfocused leadership with no clear strategy for improving performance. Over the past 12 months, stockholders have witnessed the company miss a number of important deadlines publicly announced in press releases, endured poorly executed earnings calls and experienced confusing and damaging public messaging, all of which has led to a significant loss of credibility and investor confidence in the company and its management team,” All Blue wrote in its April 28 letter to Zymeworks’ board.
Some of the events referenced by All Blue predate the appointment of Galbraith. Yet, the investor still found fault with his tenure, criticizing the decision to pursue a “highly dilutive equity offering in current volatile market conditions, in preference to other available alternatives for raising capital” after he took up the CEO post. Zymeworks raised the cash to fund a pipeline led by zanidatamab, a late-phase, HER2-targeted bispecific antibody.
In the letter, All Blue, which owns 5% of Zymeworks, made an unsolicited, non-binding offer to buy all the outstanding shares in the biotech for $10.50 a pop in cash. The offer represents a 116% premium over the closing price of the stock before news of the bid broke late on Thursday. Shares in Zymeworks climbed 43% to $7.09 in pre-market trading.
The offer moves All Blue outside of its traditional areas of focus. The investor lists Facebook, Twitter and Uber among its exits, and Airbnb, Bitcoin and SpaceX among its current investments. Biotech is notably absent from the portfolio. To fund the takeover, All Blue has entered into talks with potential co-investors and financing partners.
What happens next depends on the reaction of the Zymeworks board, which plans to “carefully review the proposal to determine the course of action that it believes is in the best interest of the company and all Zymeworks shareholders.” All Blue wants clearance to perform its confirmatory due diligence. Given its prior analysis of public materials, the investor expects to spend three to four weeks on the work.
SVB Securities analysts suggested a higher bid will be needed. “We believe that the board is likely to reject this initial offer, but it is possible a higher price could materialize through negotiation or a bidding process. In our view, we think this offer is largely opportunistic and the company should sell for a premium to our $18 PT,” the analysts wrote in a note to investors.