Form 4: Turnstone Biologics Director Disposes Shares in Merger

Turnstone Biologics Director Jerel Davis reports the disposition of common stock holdings through various Versant entities as part of a cash tender offer by XOMA Royalty Corporation.

Summary

• Jerel Davis, a Director and 10% Owner of Turnstone Biologics Corp. (TSBX), reported the disposition of common stock.
• The disposition occurred on August 8, 2025, pursuant to an Agreement and Plan of Merger dated June 26, 2025.
• XOMA Royalty Corporation completed a cash tender offer for all outstanding shares of Turnstone Biologics Corp.
• The consideration for the shares was $0.34 per share in cash, plus one non-transferable contractual contingent value right (CVR) per share.
• A total of 3,381,692 common shares were disposed of indirectly through various Versant entities: Versant Vantage II, L.P. (274,990 shares), Versant Venture Capital V, L.P. (2,726,322 shares), Versant Venture Capital V (Canada) LP (207,486 shares), Versant Ophthalmic Affiliates Fund I, L.P. (90,888 shares), and Versant Affiliates Fund V, L.P. (82,006 shares).

Sentiment

Score: 3

Explanation: The acquisition price of $0.34 per share is very low, suggesting a distressed sale or poor performance. While a CVR offers potential upside, its non-transferability limits liquidity and certainty for shareholders.

Positives

• The tender offer provides liquidity for shareholders, allowing them to exit their investment.
• The inclusion of a non-transferable contractual contingent value right (CVR) offers potential future upside beyond the initial cash payment.

Negatives

• The cash consideration of $0.34 per share is very low, potentially indicating a distressed sale or a valuation significantly below prior expectations.
• The contingent value right (CVR) is non-transferable, limiting its liquidity and making it difficult for shareholders to realize its value before any contingent events occur.

Risks

• The value of the contingent value right (CVR) is uncertain and dependent on future events, which may or may not materialize.
• The non-transferable nature of the CVR means shareholders cannot sell or trade it, limiting their ability to monetize its potential value.
• The low cash price of $0.34 per share suggests significant downside risk realized for prior investors.

Future Outlook

The future outlook for Turnstone Biologics as an independent entity is concluded due to the acquisition. For former shareholders, the future value is tied to the contingent value right (CVR), which is non-transferable and dependent on future events.

Management Comments

• Jerel Davis, as a managing director of the general partners for the Versant entities, may be deemed to share voting and dispositive power over the shares held by these entities, but disclaims beneficial ownership except to the extent of his respective pecuniary interest therein.

Industry Context

This filing reflects a consolidation event within the biotechnology sector, where a company (Turnstone Biologics) is acquired by another entity (XOMA Royalty Corporation) through a tender offer. Such acquisitions are common in the biotech industry, often driven by strategic asset acquisition or market consolidation, especially for companies that may be struggling or have specific valuable assets.

Comparison to Industry Standards

• The cash consideration of $0.34 per share is notably low compared to typical acquisition prices for publicly traded biotech companies, which often involve significant premiums over pre-announcement trading prices. This suggests Turnstone Biologics may have been in a challenging financial position or that its valuation was significantly impaired.
• The inclusion of a non-transferable CVR is a mechanism sometimes used in biotech acquisitions to bridge valuation gaps or provide contingent upside based on future clinical or regulatory milestones. However, the non-transferability is a restrictive term compared to more liquid CVRs or direct milestone payments.

Corporate Governance

Related Party Transactions

• The disposition of shares by Jerel Davis, a Director and 10% Owner, through various Versant entities where he holds indirect beneficial interest, constitutes a related party transaction in the context of insider reporting.

Stakeholder Impact

• Shareholders: Receive cash and a non-transferable CVR for their shares, providing an exit but at a very low cash valuation.
• Employees: May face changes in employment terms, roles, or potential layoffs as a result of the integration into XOMA Royalty Corporation.
• Management: The existing management team's roles and responsibilities are likely to change significantly or be terminated post-acquisition.

Next Steps

• Completion of the merger and the tender offer process.
• Potential future payments to CVR holders based on the achievement of specified contingent events.

Key Dates

Recommendation

The company is being acquired via a cash tender offer at $0.34 per share plus a non-transferable CVR. For existing shareholders, the tender offer provides an exit. There is no further upside from holding common stock beyond the tender offer price and the contingent value of the CVR, making a 'sell' recommendation appropriate for those still holding shares to participate in the tender.

Keywords

Turnstone Biologics, TSBX, XOMA Royalty Corporation, Merger, Tender Offer, Form 4, Insider Transaction, Beneficial Ownership, Contingent Value Right, CVR, Biologics, Biotechnology