Ikena Oncology - Value Analysis

Ikena Oncology, Inc. (IKNA) - 6 min read

Ikena Oncology, Inc. (NASDAQ: IKNA) is a clinical stage oncology company focused on developing cancer related therapies.  In layman’s terms, it is a small, pre-revenue (and cashflow negative) biotech company spending money primarily on R&D to develop various cancer treatment candidates and conduct clinical trials.  The market cap was recently $80M with the stock trading just under $1.70 per share.

On May 28, 2024, the Company announced a Restructuring Plan that included:

(i) Discontinuing the clinical development of IK-930 (previously the Company’s lead program), while continuing the development of IK-595 (now the Company’s sole remaining program in development)

(ii) A reduction-in-force (“RIF”) of approximately 18 employees (53% of its workforce), down to 16 remaining employees

(iii) The Board’s approval of a process to explore, review, and evaluate a range of potential strategic options

Value Analysis & Investment Thesis:

The investment thesis lies in the net asset value on the Company’s balance sheet, which well exceeds the current market cap of the Company and will likely be unlocked as part of any transaction that the Company pursues in evaluating strategic alternatives.

As of Q1’24 (ended March 31, 2024), the Company had total current assets of $161M consisting of cash ($53M), marketable securities ($104M), and other prepaids ($4M).  Offsetting this, the Company had total liabilities of $17M (inclusive of $9M of operating lease liabilities related to two leases for office & lab space in Boston and San Francisco).  This leaves a net current asset value of $144M, compared to the current market cap of $80M.  As mentioned, the Company is cashflow negative, so the current asset value will have decreased further since March 31, 2024.  However, based on my analysis (as well as the Company’s own estimate), the Company will continue to have value in excess of the current market cap during the time period in which it is likely complete a transaction.  This presents a potentially attractive investment opportunity.

Below is my estimate of the Company’s net current asset value, accounting for expected cash burn during the next 3 quarters through Dec 31, 2024.  Given the announcement regarding exploring strategic alternatives on May 28, 2024, it seems reasonable that the Company can complete a transaction prior to the end of Q3’24 (allows for a 4-month process).  An estimated net current asset value of $112M as of Sep 30 reflects a 40% upside from the current $80M market cap.  This does not include any value associated with the Company’s development pipeline/intellectual property, which may represent additional upside.

A potential transaction involving the Company could include an acquirer offering shareholders of Ikena cash consideration for somewhere close to net current asset value of the Company, plus a contingent value right (“CVR”) for any future monetization of the IP currently owned by Ikena.

These estimates of cash burn are likely conservative and understate the full cost savings from the two RIFs the Company has completed during 2024.  The Company had previously done a RIF of 20 employees (35%) during Q1’24 to focus on the development of IK-930 and IK-595.  The RIF announced in May 2024 reflected an additional 18 employees (53%) to focus on the development of IK-595.  The estimates above add back the portion of these cost savings that are specifically broken out in the Company’s R&D expense, but likely do not capture the full cost benefit of the RIFs.  Below is a summary of the RIF actions taken during 2024.

Notably, the Company’s original press release from May 28, 2024 had actually noted the Company had “$157 million in cash and equivalents as of March 31, 2024; Projecting cash and equivalents at December 31, 2024 to range from $110 million to $120 million.”  Interestingly, the Company provided an updated press release 30 minutes later that removed the sentence regarding the projected cash balance, but it generally aligns with my estimates above.

Development Pipeline/Intellectual Property:

The Company’s development pipeline includes primarily the following programs.  I have no medical/technical knowledge that gives me any sense for what this IP might be worth, but below is some of the background on each of these programs.

-          IK-930, a TEAD Inhibitor

• The Company announced it was discontinuing clinical development of this candidate; however the Company noted it believes IK-930’s profile may enable combination opportunities with other targeted agents through partnerships.  This was previously the Company’s lead program.

-          IK-595, a Dual MEK-RAF Inhibitor

• This is the sole program the Company is continuing development of following the strategic announcement on May 28, 2024.  In a presentation the Company released as of May 28, it notes “IK-595 is well positioned for potential near-term value inflections.”

-          IK-175 aryl hydrocarbon receptor antagonist program and IK-412, a kynurenine-degrading enzyme

• The Company entered into a collaboration agreement with Bristol-Myers Squibb (a large, $85B market cap pharmaceutical company) in January 2019 to jointly develop these programs.  Under the agreement, the Company was obligated to advance R&D activities through the earlier of Jan 2024 or the completion of a Phase 1b clinical trial for each program.  Bristol-Myers Squibb had the option to receive global-development, manufacture and commercialization licenses for the product candidates, but opted not to opt-in to either of the programs. If Bristol opted-in, the Company was eligible to receive $90M and up to $450M in future milestone payments and a royalty sales.  When Bristol did not opt-in in Jan 2024, the Company announced it would not invest further in the clinical development of these programs, but it would pursue strategic business development opportunities with respect to the programs, including out-licensing.

• It is unclear if there is any value in this IP, but it is notable that the original agreement with Bristol-Myers included upfront consideration of $95 million paid to Ikena and reflects significant investment in these programs to date.

-          Several other immune oncology programs that are available for potential sale or outlicensing, including: PY314, a Phase 2 ready TREM2 antagonist; PY159, a Phase 2 ready TREM1 antagonist, and PY265, an IND-ready MARCO antagonist

• Again, unclear if there is any value here but any value would reflect upside to the investment case.

Other Noteworthy Items:

-          In April 2024, the Company entered into a sublease for its office and lab space in San Francisco, which it was not currently using.  The sublease is expected to generate $2.5M through April 2027, which will offset just under $7.5M of future payments the Company will make on the original lease through April 2027.  The Company had acquired this lease as part of an acquisition (Pionyr) in Q3’23.  While the sublease will not fully offset the cost of the original lease, it will mitigate some of the cash burn.  The Company still leases one other office/lab space in Boston, Massachusetts where it is headquartered.

-          OrbiMed Advisors LLC owns approximately 21% of the common stock outstanding.  OrbiMed is a New York based investment firm focused on investments in healthcare and biotech.  OrbiMed has been a significant owner in other recent similar situations (KNTE and THRX) that have produced buyouts with good results for shareholders.  There are a few other notable significant owners including Gilead Sciences ($88B market cap biopharmaceutical company) and other funds focusing on biotech investments.

-          The CEO of the Company, Mark Manfredi, Ph.D. owns about 3% of the Company (worth about $2.7 million at current prices).  Mark is a founding member of the Company, was previously an in-house oncology expert at Atlas Venture (one of the funds owning a 10% stake in the Company), and currently serves as an advisor to Atlas.  The next largest owner among individual management team/board members holds about $700K worth (0.8%).

Appendix (Historical Cash Flows and Balance Sheet):

Disclosure: I own shares of IKNA