Form 4: Sessa Capital Acquires $40 Million in SAB Biotherapeutics Convertible Preferred Stock and Warrants

Sessa Capital (Master), L.P. and its affiliated entities have acquired Series B Convertible Preferred Stock and accompanying warrants in SAB Biotherapeutics, Inc. for approximately $40 million, signaling a significant investment and potential future ownership stake.

Summary

• Sessa Capital (Master), L.P. and its related entities, including Sessa Capital GP, LLC, Sessa Capital IM, L.P., Sessa Capital IM GP, LLC, and John Petry, have acquired Series B Convertible Preferred Stock and warrants in SAB Biotherapeutics, Inc. (SABS).
• The acquisition of 228,500 shares of Series B Convertible Preferred Stock was made for an aggregate purchase price of $39,987,500.
• The Preferred Stock is convertible into 22,850,000 shares of common stock at a conversion price of $1.75 per share, contingent upon stockholder approval.
• The conversion is subject to a beneficial ownership limitation, preventing the reporting persons from owning more than 4.99% of the Issuer's common stock immediately following conversion.
• Accompanying the Preferred Stock, Sessa Capital also acquired 228,500 'Enrollment Warrants' exercisable at $175 per Preferred Stock share and 114,250 'Data Release Warrants' exercisable at $218.75 per Preferred Stock share.
• Both types of warrants are exercisable until July 21, 2030, or 30 trading days after specific Phase II clinical trial milestones (Enrollment Date and Release Date) are met, whichever is earlier.

Sentiment

Score: 7

Explanation: The filing indicates a significant capital investment by a major existing shareholder and director, which is generally a positive signal of confidence in the company's prospects and provides financial runway. However, the contingent nature of the conversion and warrant exercise introduces some uncertainty.

Positives

• The acquisition represents a significant capital infusion of nearly $40 million into SAB Biotherapeutics, which can support its operations and strategic initiatives.
• The investment by Sessa Capital, a 10% owner and entity with director representation, demonstrates continued confidence from a major stakeholder in the company's future.

Negatives

• The conversion of Preferred Stock into common stock is contingent on stockholder approval, introducing a potential hurdle for the full realization of the investment's structure.
• The beneficial ownership limitation of 4.99% restricts the immediate full conversion of the Preferred Stock, potentially limiting the investor's direct influence through common share ownership.

Risks

• Conversion of the Series B Convertible Preferred Stock into common stock is subject to stockholder approval, which may not be obtained.
• The exercisability of the Enrollment Warrants and Data Release Warrants is tied to the achievement of specific Phase II clinical trial milestones (Phase II Enrollment Date and Phase II Release Date), which are inherently uncertain and subject to clinical development risks.
• The beneficial ownership limitation could impact the liquidity or strategic flexibility of the Preferred Stock for the reporting persons.

Future Outlook

The future conversion of the Series B Convertible Preferred Stock into common stock is contingent on stockholder approval at a special meeting. The exercisability of the accompanying warrants is tied to the achievement of specific Phase II clinical trial milestones (Phase II Enrollment Date and Phase II Release Date), indicating future potential for additional capital or ownership changes based on clinical progress.

Management Comments

• John Petry, as manager of Sessa Capital GP, LLC and Sessa Capital IM GP, LLC, signed the filing on behalf of the reporting persons.
• Andrew Moin, an Analyst and Partner with Sessa Capital (Master), L.P., is a member of the board of directors of SAB Biotherapeutics, Inc.

Industry Context

This transaction occurs within the biotechnology sector, where companies often rely on capital raises to fund extensive research and development, particularly clinical trials. The inclusion of warrants tied to Phase II milestones is a common financing structure in biotech, aligning investor returns with clinical progress and de-risking.

Comparison to Industry Standards

• The structure of convertible preferred stock with warrants tied to clinical milestones is a common financing mechanism for early to mid-stage biotechnology companies, similar to deals seen with companies like Moderna (early funding rounds) or BioNTech, where investors often seek upside tied to drug development success.
• The beneficial ownership limitation (4.99%) is a standard provision often included in such agreements to prevent triggering certain regulatory or exchange rules that apply to larger ownership stakes, similar to limitations seen in investments by funds in companies like Gilead Sciences or Amgen.

Corporate Governance

Related Party Transactions

• The acquisition of Series B Convertible Preferred Stock and warrants by Sessa Capital (Master), L.P. and its affiliates constitutes a related party transaction, as these entities are 10% owners and have director representation (John Petry, Andrew Moin) on the Issuer's board.

Stakeholder Impact

• Shareholders: Potential future dilution from the conversion of Preferred Stock into common stock (22,850,000 shares) and the exercise of warrants, but also benefit from the capital infusion and continued investor confidence.
• Company: Receives a significant capital injection of nearly $40 million, bolstering its financial position for ongoing operations and clinical development.
• Investors (Sessa Capital): Gains a substantial stake in the company with potential for significant returns if clinical milestones are met and the common stock appreciates.

Next Steps

• SAB Biotherapeutics, Inc. needs to hold a special meeting of stockholders to obtain approval for the issuance of common stock upon conversion of the Series B Preferred Stock.
• The company will need to notify Sessa Capital of the Phase II Enrollment Date and Phase II Release Date, which will trigger the exercisability period for the respective warrants.

Key Dates

Keywords

SAB Biotherapeutics, Sessa Capital, Convertible Preferred Stock, Warrants, SEC Form 4, Capital Raise, Biotechnology, Clinical Trials, Phase II, Insider Trading, Beneficial Ownership