LUXA - they told us a deal is in the works. I think there's a chance it could be announced Monday.
LUXA announced they are under LOI earlier this week. I think there's a small chance I figured out the target and the timing. Read on for my highly speculative conjecture.
Disclosure: The following is my own highly speculative conjecture based on my personal interpretation of publicly-available information. Additional disclosures at the end of the post.
Lux Health Tech Acquisition Corp (LUXA) is a SPAC that I previously wrote about way back in May 2021 - they are sponsored by a reputable venture capital firm (Lux Capital) which lent it some credibility during the golden-turned-dark age of everyone-gets-a-SPAC, which is what originally drew my attention to it.
Since May 2021, not much happened, until earlier this week.
And now, I have conjectured, from some admittedly vague and questionable clues, that there’s a chance that much more may happen quite soon. Read on for the whomst and whenst.
On Tuesday September 6, LUXA announced that they are under LOI with the aim of completing a business combination in the relatively near future.
My original (and still baseline) expectation is that announcement of a definitive agreement (DA), the real milestone in a SPAC transaction, was not imminent following announcement of the LOI - from my time in private equity-adjacent jobs, most LOIs are typically for 30+ days (and usually extendable) as the acquirer moves from preliminary into detailed confirmatory diligence, transaction structuring and final negotiation. So I figured that announcement of a DA (or, failure to reach a deal) by mid-October was possible and likely by mid-November, and they announced the LOI to get everyone off of their back since the SPAC’s drop dead date was originally at the end of October (and will now be extended).
However, based on some proprietary research (read: me talking myself into making some inferences), I think that there’s a chance of a deal announcement on Monday, September 12th. (Once again - this is all just my own surmising based on a few clues - but humor me for five minutes).
Here are my observations:
Exhibit 1: the LUXA LOI press release. See snippet below, all emphasis added is mine, and references are added for later.
Lux Health Tech Acquisition Corp. (the “Company”) today announced that it has entered into a non-binding letter of intent (“LOI”) for a business combination with a leading life sciences company (1) addressing significant unmet needs in some of the most costly and debilitating segments of healthcare (2) (the “Target”).
The Target has an experienced executive and scientific leadership team that has built an extensive technology platform with multiple programs in development (3), and is backed by leading private and public market investors (4). The Company expects that it can offer the Target its resources, experience and network of relationships to support the Target’s growth and access to public markets, making this an attractive potential business combination for the Company’s stockholders. Under the terms of the LOI, the Company and Target would become a combined entity, with the Target’s existing equityholders rolling 100% of their equity into the combined public company.
The Company expects to announce additional details regarding the proposed business combination when a definitive agreement is executed, which is expected in the second half of 2022 (5).
Exhibit 2: a tweet regarding a biotech conference next week, where the CEO of a cutting-edge life sciences company, Gameto, is moderating a conversation that includes Josh Wolfe, a Lux Capital partner (basically the face of the firm, though he does not seem to be directly involved in LUXA), regarding “investing and company building”. The tweet was retweeted by Lux Capital.
Exhibit 3: the conference’s website shows the referenced panel (to take place Monday, Sept 12th). Note that Josh Wolfe is listed as a speaker in the tweet but not on the website’s schedule - perhaps just some schedule shuffling after Josh was able to move a “how can I help” coffee date, perhaps a late addition for certain … reasons?
Exhibit 4: now lets explore what Gameto is and does. The following screenshots are from the Gameto website.
Exhibit 5: Gameto completed their Series A in early 2022, raising $20 million (there was a previous $3 million raised), and Lux Capital (the fund, not the SPAC) participated as an investor.
So to weave these breadcrumbs together, lets refer back to the LUXA LOI press release and connect some dots…
(1) “leading life sciences company” - check, though to be fair, that’s a pretty broad umbrella and this company is fairly nascent to be called “leading”, though perhaps that refers to their advancement in their niche of using this cell therapy to explore treatments.
(2) “addressing significant unmet needs in some of the most costly and debilitating segments of healthcare” - bingo. On Gameto’s website (screenshots 1 and 2), they describe certain women’s health issues as “neglected” and note that IVF is “invasive and expensive” - from friends who have undergone it, I understand it to typically cost tens of thousands of dollars. And while I do not have a uterus, I understand menopause to be very “debilitating” to many women. [Author’s editorialization: I think this is an interesting and very valuable niche, and one that a slightly-woke-but-practical firm like Lux might try to work on - these are big, real problems that impact women disproportionally, which helps level the playing field of life, in terms of career (IVF) and general wellbeing (menopause and general reproductive issues).]
(3) “extensive technology platform with multiple programs in development” - another match. Gameto describes their work as a “platform” and the third website screenshot above shows their current lines of work on that platform - IVF, the farthest along, plus drug development and menopause, all stemming from the “platform” of using cell engineering to deliver therapeutics.
(4) “backed by leading private and public market investors” - this highlighting is a little tongue in cheek and likely meaningless puffery, but I will say that (from following Josh and Lux on Twitter) they never miss an opportunity to pump themselves up - so perhaps this is a nod to the great caliber of existing investors in Gameto, namely, themselves.
(5) “definitive agreement is executed, which is expected in the second half of 2022” - When the press release came out Tuesday, I thought this was the oddest part. The phrasing is just weird. We’re already in the second half of 2022, it reads as if this press release was drafted in April. Why not “by the end of the year”? Why not “in the fourth quarter of 2022”? Why not “as soon as practicable”? Could just be that I’m overthinking some under-thought phrasing, or could be deliberately vague.
But of course, this is all my speculation based on a few overlapping qualities that likely apply to dozens if not hundreds of potential LUXA targets in the broad biotech/life sciences universe.
The most notable element that I think might disprove the speculation would be the timing. The six-day gap between LOI and hypothetical Monday DA announcement would be very strange to me - if you’re inches away from the finish line as of Sept 6th, don’t put out the LOI press release, just wait to announce the DA, and if you’re still far enough away on Sept 6th that you feel compelled to let people know you’re working on it, then it’s probably very hard to put a bow on a deal in a week - but then again, the press release’s timing verbiage seemed to be strange to begin with.
I’d also be curious to see how the math on enterprise value for this deal adds up - LUXA has about $400 million cash in treasury, and there are often separate funding components (PIPEs) for SPAC transactions, meaning the enterprise value here might approach $1 billion - the terms of the $20m Series A are confidential, but I’d assume at that point Gameto may have been valued at ~$200 million, which is a pretty big jump in less than a year of further operations. But perhaps there have been some breakthroughts? Perhaps I’m not fully anticipating the (hypothetical) deal’s structuring?
Lastly for the negatives, it seems like Gameto might just be a little too early stage for LUXA to go after. Their first treatment (IVF) is still in the pre-clinical trial stage - meaning (I’m not an expert, finger in the air) ~5 years until commercialization - that may be more developmental than ideal for a SPAC to pursue. However, if they believe in the underlying platform technology, then why not help fund this company commercialize its work and potentially become a major player in female health?
So to wrap things up -
I won’t be going to go to bed on Sunday night expecting a deal announcement Monday. There’s certainly a non-zero chance that this could happen - there are quite a few puzzle pieces that fit - but this is a just-for-fun, very, very speculative analysis. Gameto seems to fit as a possible target for LUXA, there is interesting cross-company overlap at a conference on Monday, but we live in a world of many coincidences.
…So how to play it? (in regards to the small chance that a deal is announced Sept 12th or slightly larger chance that a deal is announced sometime over the coming weeks, and assuming the stock pops to some degree on the news of a definitive agreement?)
Common - safest - LUXA closed at $9.99 on Thursday, Sept 8, slightly below its net asset value. You can’t lose (if they don’t do a deal or if they do one you don’t like, you can redeem your shares and get your money back at NAV), but upside will be more limited. (disclosure: I own common)
Warrants - these were obviously more attractive at 10 cents prior to Tuesday’s LOI announcement (disclosure: I own a lot at a 15 cent cost basis), but at 25 cents they still may offer a decent risk reward (even if no transaction is announced Monday and even if Gameto is not the target company). If LUX does any deal that the market is generally enthusiastic about to OK with, the warrants will likely trade above $1 when that occurs. But if the deal under LOI falls through, and if they wind up the SPAC without completing one, the warrants go to 0 (unlike the common, where you get your NAV back). If I didn’t already own so many I’d probably add a small position at 25 cents today, but I’m fully bagged up.
Options - you know I had to mention options. (disclosure: I own far too many for my own good based on prior hopes of a hail mary deal being announced prior to the October drop-dead date - you can only imagine my disappointment when Tuesday’s announcement was an LOI rather than DA).
Sadly, in general, it seems like the setup for options is not great here.
September calls (1 week until expiration) are not worth it when considering the alternative (warrants or October calls)
October calls (~45 days until expiration) are probably not worth it at 10 cents (for the $10 strike price). At 5 cents they might be (20% of the cost of a warrant), but at 10 cents, it probably just makes sense to buy some warrants if you want a similar level of risk.
And if you’re not the type of person who regularly loses money on chasing 10x+ options trades and aren’t OK with that happening here, then even at 5 cents, these options are not for you.
Best of luck to all. Once again, this post is not intended to reflect any high degree of confidence that this deal will be announced Monday - it’s hard to handicap the odds of this happening. It’s certainly less than 50%, likely less than 20%, probably less than 10%… but something above zero.
But hey, I had fun jotting down this speculation, I hope you had fun reading it, and if this actually does happen Monday then I’ll have a nice feather in my cap for calling it.
Stay baggy,
Elmo
Additional disclosures:
1 - Josh follows me on Twitter, presumably back from the days when I was a Tesla hater. I have never spoken to him in real life or in any meaningful online context and have absolutely zero insight into his line of thinking, professional decision making, etc. beyond what he posts on Twitter for all to see.
2 - Once again, this is all my own speculation based on tying together some vague clues within the lens of having fun crafting a “what if” - I want to stress one last time that my level of confidence that the above will come true is very, very low.
3 - I have not reached out to Lux or Gameto regarding my speculation above because I’m a nobody shitposter and it will be fun to let the mystery fester over the weekend.
4 - as always, you should take anything that I write as the opposite of investment advice.