"Reverse Merger" Wave Rises: what's the Logic behind It?

Recently, Nasdaq-listed company Ikena Oncology (hereinafter referred to as Ikena) announced that it has signed a definitive merger agreement with Inmagene Biopharmaceuticals (Inmagene). The main terms of the cooperation are as follows:

The merged company will focus on developing IMG-007, a monoclonal antibody targeting OX40 for the treatment of atopic dermatitis. The merged company plans to operate under the name "ImageneBio" and trade on Nasdaq under the ticker symbol "IMA".

The merger is expected to generate approximately USD 175 million in funds to support the further development of IMG-007, with the transaction expected to be completed by mid-2025.

Upon completion of the merger and financing, the shareholders of Inmagene are expected to own approximately 43.5% of the shares. This means that Inmagene will gain the control right of the Nasdaq-listed company and achieve a US listing through a reverse merger via this transaction.

Unpacking the Secrets behind the Transaction

Inmagene was founded in 2019 and completed a USD 21 million Series B financing and a USD 100 million Series C financing in the following two years. In 2023, Inmagene adopted the popular Newco overseas model of the year, collaborating with a US company, Aditum Bio, to create Celexor Bio. Celexor Bio obtained the exclusive global development, manufacturing, and commercialization rights to IMG-018, a monoclonal antibody targeting IL-17 under Inmagene. Inmagene received an upfront payment and up to USD 287 million in development and sales milestone payments.

The other protagonist of this merger, Ikena, was founded in 2016 and is a biotechnology company focusing on cancer immunotherapy and small molecule inhibitor R&D in the United States. Ikena's journey has not been smooth. Especially in 2024, the termination of its cooperation with Bristol Myers Squibb (BMS) resulted in the loss of potential milestone payments of USD 90 million. Furthermore, BMS was one of Ikena's major investors. When the cooperation agreement was reached, it also involved a USD 15 million stock equity investment from BMS. Therefore, the sudden withdrawal of BMS, a significant supporter of the company, was a significant blow to Ikena, leading to a one-third reduction in its workforce.

In May 2024, Ikena began cutting its pipeline, halting the R&D of a TEAD1-selective Hippo pathway inhibitor for the treatment of pleural mesothelioma, epithelioid hemangioendothelioma, and other diseases, and laid off more than half of its remaining employees. Now, the company only has one pipeline under development. Through various cost-saving measures, Ikena still has over USD 130 million in cash on its balance sheet, an asset that Inmagene values highly.

In addition, this cooperation will bring Inmagene USD 75 million in new financing. The participants in this financing placement are divided into two camps: one is Ikena's existing shareholders, including BVF Partners L.P., and the other is newly introduced investment institutions, such as Deep Track Capital.

Autoimmune Potential Target - OX40

OX40 is a costimulatory receptor primarily found on activated T cells and is a member of the tumor necrosis factor receptor (TNFR) superfamily. By binding to its ligand, OX40L, it activates downstream immune responses, promoting the survival, differentiation, and immune responsiveness of T cells. Research has shown that blocking OX40/OX40L can improve autoantigen-specific T cell responses and reduce immune activity in autoimmune diseases. Therefore, blocking the OX40/OX40L pathway holds promise for the treatment of autoimmune diseases, making OX40 a potential target for the R&D in both autoimmune diseases and antitumor drugs.

IMG-007 is a monoclonal antibody targeting OX40, with broad applications in inflammatory diseases including atopic dermatitis, asthma, and hidradenitis suppurativa. Compared with other OX40-targeting monoclonal antibodies in Phase II clinical stage and later-stage development, IMG-007 has a longer half-life, silent antibody-dependent cellular cytotoxicity (ADCC) function, and is non-T-cell depleting, potentially improving its tolerability.

In a Phase IIa clinical trial for moderate-to-severe atopic dermatitis, patients received three intravenous infusions of 300 mg over 4 weeks. The EASI score showed rapid and significant improvement from baseline in the first week, with 69%, 54%, and 31% of patients achieving EASI-50 (at least a 50% improvement in EASI score from baseline), EASI-75, and EASI-90, respectively, by week 20. IMG-007 has potential differentiating advantages in terms of safety and half-life. A Phase IIb clinical trial of IMG-007 for the treatment of atopic dermatitis is expected to begin in early 2025.

Notably, IMG-007 is currently the only clinical-stage, nondepleting anti-OX40 monoclonal antibody globally, with best-in-class potential. In addition to atopic dermatitis, it also has therapeutic effects on asthma, hidradenitis suppurativa, systemic sclerosis, and other conditions.

Following this merger, Inmagene has gained the control right of the Nasdaq-listed company and a significant amount of funds needed to advance its clinical pipeline, including IMG-007. Ikena has also secured the opportunity for normal operations. This is a promising venture for both parties.

Rise of "Reverse Mergers"

This year, there has been a surge in "reverse mergers" among Chinese pharmaceutical companies. Achieving a backdoor listing through a reverse M&A is faster, less costly, and more certain compared with an IPO. Therefore, amid the tightening IPO landscape, a "reverse merger" for a backdoor listing is a viable path.

This strategy has long been common in the US market. Taking Paragon Therapeutics as an example, its spin-off biotech company, Spyre Therapeutics, which focuses on inflammatory bowel disease, leveraged Aeglea, a company specializing in developing drugs for rare metabolic diseases, as its "shell". In June 2023, Aeglea, trapped in the predicament of its core product's failure, announced the acquisition of Spyre Therapeutics through a stock-for-stock transaction. Upon completion of the transaction, Aeglea's original shareholders received approximately 5.5% of the shares in the combined company. The new company, named Spyre Therapeutics, will be co-led by executives from both Aeglea and Spyre.

In China, there have been previous examples of backdoor listings through M&A, such as the deal between Yiteng and Genor Biopharma. More recently, Cullgen reached a merger agreement with Nasdaq-listed Pulmatrix (stock code: PULM). According to the agreement, the merged company will operate in the name of Cullgen. Pulmatrix's original shareholders will hold approximately 3.6% of the shares in the merged company, while Cullgen's original shareholders will hold 96.4%. Cullgen will have the dominant position in the new company.

By analyzing these reverse acquisition cases, it is found that companies that gain recognition have significant advantages in addressing clinical pain points with their products. At the same time, these companies have prospectively laid out multiple pipelines in their early stages. For pharmaceutical companies, such transactions also represent a better path for investment returns in the current situation.

Reference：

1.https://www.sec.gov/ix?doc=/Archives/edgar/data/1835579/000119312524010227/d459979d8k.htm.

2.https://firstwordpharma.com/story/5819818https://ikenaoncology.com/pipeline/https://ir.ikenaoncology.com/news-releases/news-release-details/ikena-oncology-acquires-pionyr-immunotherapeutics-all-stock.