8-K: ESSA Pharma to be Acquired by XenoTherapeutics in All-Cash Deal with Contingent Value Rights

ESSA Pharma Inc. has entered into a definitive agreement to be acquired by XenoTherapeutics, Inc., with financing from XOMA Royalty Corporation, in an all-cash transaction that includes contingent value rights for shareholders.

Summary

• ESSA Pharma Inc. (ESSA) has signed a Business Combination Agreement with XenoTherapeutics, Inc. (Xeno) and Xeno Acquisition Corp. (Purchaser), with XOMA Royalty Corporation (XRC) providing financing.
• The Purchaser will acquire all issued and outstanding common shares of ESSA.
• ESSA shareholders will receive a cash payment per common share, determined by ESSA's cash balance at closing, after deducting transaction costs, a reserve for liabilities and legal expenses, and a $4,000,000 transaction fee to Xeno.
• Each shareholder will also receive one non-transferable contingent value right (CVR) per common share, entitling them to a pro rata portion of up to $2,950,000 (approximately $0.06 per CVR) within 18 months post-closing.
• An initial cash distribution to shareholders is expected prior to closing, subject to Supreme Court of British Columbia authorization, to expedite cash receipt.
• The total estimated cash payment, including the initial distribution and closing payment, is approximately $1.91 per common share, exclusive of CVR payments.
• The transaction is structured as a court-approved plan of arrangement under the Business Corporations Act (British Columbia).
• Required approvals include 66% of votes cast by shareholders, 66% of votes cast by securityholders (including options and pre-funded warrants), and a majority of votes cast by shareholders excluding certain interested parties.
• The transaction is subject to customary closing conditions, including court approval and dissent rights not exceeding 5% of outstanding common shares.
• ESSA's Board of Directors, following a unanimous recommendation from its independent Transaction Committee and financial advisor's opinion, unanimously approved the transaction and recommends shareholders vote in favor.
• Directors and senior officers, collectively owning approximately 2.23% of outstanding common shares, have entered into voting and support agreements in favor of the transaction.

Sentiment

Score: 7

Explanation: The sentiment is positive as the company is being acquired in an all-cash deal with a CVR, presented as a superior outcome to liquidation for shareholders. The unanimous board recommendation and the stated benefits of expedited and more certain value contribute to this positive outlook, despite the company's discontinuation of operations.

Positives

• The transaction provides a clear path to deliver cash value to shareholders in an expedited timeframe.
• It offers less complexity and value risk compared to a traditional liquidation process, providing more certain value.
• The Board of Directors and an independent Transaction Committee unanimously recommended the transaction, deeming it fair from a financial point of view and in the best interests of the Company and shareholders.
• The inclusion of a Contingent Value Right (CVR) provides shareholders with potential additional upside of up to $2,950,000 (approximately $0.06 per CVR) based on future events related to legacy liabilities and litigation.

Negatives

• The transaction involves the discontinuance and winding-up of ESSA Pharma's business, indicating the cessation of its previous focus on developing prostate cancer therapies.
• A transaction fee of $4,000,000 to Xeno and a $3,700,000 contingent reserve for liabilities and legal expenses will be deducted from ESSA's cash balance prior to determining the final cash payment to shareholders.
• The CVRs are non-transferable, limiting liquidity for shareholders who wish to monetize this contingent right before its payment date.
• The CVR payment is highly speculative, with no assurance that Holders will receive any payments, and it is possible there will be no CVR proceeds.

Risks

• Potential litigation relating to the transaction could be instituted by or against ESSA, Xeno, XOMA Royalty, or their respective directors or officers.
• Disruptions from the transaction could harm ESSA's business, including current plans and operations.
• The ability of ESSA to retain and hire key personnel may be impacted.
• Potential adverse reactions or changes to business relationships could result from the announcement or completion of the transaction.
• Continued availability of capital and financing and rating agency actions are uncertain.
• Legislative, regulatory, and economic developments could affect ESSA's business.
• The accuracy of ESSA's financial projections is a risk factor.
• General business, market, and economic conditions pose risks.
• Certain restrictions during the pendency of the transaction may impact ESSA's ability to pursue certain business opportunities or strategic transactions.
• Unpredictability and severity of catastrophic events, including acts of terrorism, pandemics, outbreaks of war or hostilities, could impact the company.
• Significant transaction costs are associated with the transaction.
• The possibility exists that the transaction may be more expensive to complete than anticipated due to unexpected factors or events.
• Competitive responses to the transaction could arise.
• Risks and uncertainties pertaining to ESSA's business are detailed in its Annual Report on Form 10-K dated December 17, 2024, and will be further discussed in the proxy statement.

Future Outlook

ESSA Pharma is discontinuing its business operations and winding down. The proposed acquisition by XenoTherapeutics, backed by XOMA Royalty, is intended to provide a definitive and expedited cash return to shareholders, along with potential contingent value rights, as an alternative to a prolonged liquidation process. The transaction is expected to close in the second half of 2025, subject to shareholder and court approvals.

Management Comments

• "After conducting a comprehensive review of the opportunities available to ESSA and considering the communications received from our shareholders, the ESSA Board of Directors has unanimously concluded that entering into this agreement with Xeno and XOMA Royalty is in the best interest of the Company and maximizes value for our shareholders as the Company proceeds with its plans to discontinue operations and wind-down its business."
• "This Transaction delivers cash value to shareholders in an expedited timeframe, with less complexity and value risk when compared to a liquidation, and thus delivers more certain value to shareholders."

Industry Context

This announcement signifies ESSA Pharma's exit from the pharmaceutical development sector, specifically its focus on prostate cancer therapies, as it moves to discontinue operations and wind down. The acquisition by XenoTherapeutics, a non-profit focused on xenotransplantation, and the financing by XOMA Royalty, a biotechnology royalty aggregator, highlight a trend where specialized financial entities and non-profits are acquiring assets or entire companies that are winding down or divesting non-core assets, often to extract value from remaining cash or intellectual property, or to facilitate an orderly wind-down for shareholders.

Comparison to Industry Standards

• The document states that the transaction 'maximizes value for our shareholders as the Company proceeds with its plans to discontinue operations and wind-down its business' and 'delivers cash value to shareholders in an expedited timeframe, with less complexity and value risk when compared to a liquidation'. This implies the transaction is considered superior to a standard liquidation process for a company ceasing operations.
• No specific comparable companies, projects, or results are provided within the document to benchmark the estimated $1.91 per share cash payment or the CVR potential against industry-standard acquisition premiums or liquidation values for similar biotechnology companies winding down.

Management Changes

Corporate Governance

Legal Proceedings

• The document mentions 'potential litigation relating to the Transaction that could be instituted by or against ESSA, Xeno, XOMA Royalty or their respective directors or officers'.
• The CVR Agreement defines 'Company Litigation' as any proceeding against or involving the Company and its directors and/or officers that is either included in the Disclosure Letter or existing as of the date of the agreement or arising within 18 months following the Closing Date from facts or circumstances existing as of the Effective Time. The CVR Committee will control the defense of such litigation.

Related Party Transactions

• The Business Combination Agreement is between ESSA Pharma Inc., XenoTherapeutics, Inc., Xeno Acquisition Corp., and XOMA Royalty Corporation (solely for purposes of Section 10.16 thereof, which includes a guarantee of Xeno/Purchaser's obligations).
• Directors and senior officers of ESSA Pharma Inc. (owning approximately 2.23% of outstanding common shares) have entered into voting and support agreements with the Purchaser.

Stakeholder Impact

• **Shareholders**: Expected to receive an estimated $1.91 per common share in cash, plus potential contingent value rights (CVRs) of up to $0.06 per CVR, providing a defined and expedited return on investment as the company winds down.
• **Employees**: The company is discontinuing its business, implying potential job losses or transitions. The agreement mentions honoring employment agreements, termination, severance, change-of-control, and retention obligations, as well as COBRA costs.
• **Customers/Suppliers**: The company is winding down its business, which will cease its previous operations related to prostate cancer therapies, impacting any existing customer or supplier relationships.
• **Creditors**: The transaction includes a reserve for liabilities and legal expenses, and the Purchaser will ensure the Company honors its obligations, which should provide for creditors.

Next Steps

• ESSA will apply to the Supreme Court of British Columbia for an interim order, expected no later than August 5, 2025.
• ESSA will convene a special meeting of securityholders to vote on the transaction, expected on or before September 8, 2025.
• If approved, ESSA will apply for a final order from the Supreme Court of British Columbia.
• An initial cash distribution to shareholders is expected prior to the closing of the transaction, if authorized by court order.
• The transaction is expected to close in the second half of 2025.
• Following the Effective Time, the Purchaser will undertake a voluntary dissolution of ESSA Pharma Inc. pursuant to Section 314 of the BCBCA.
• Common Shares are to be delisted from Nasdaq and deregistered under the US Exchange Act as promptly as practicable following the Effective Time.

Key Dates

Recommendation

Keywords

ESSA Pharma, XenoTherapeutics, XOMA Royalty Corporation, Acquisition, Merger, Business Combination Agreement, Contingent Value Right, CVR, Cash Transaction, Shareholder Value, Corporate Wind-down, SEC Filing, 8-K, Prostate Cancer, Biotechnology, Pharmaceutical