“Difficulties in employee retention.” “No assurance that we will be able to successfully raise sufficient additional capital.” “We may be forced to delay, reduce or eliminate some or all of our research and development programs.”
This is the future facing Checkmate Pharmaceuticals if the $250 million Regeneron deal does not happen. The company stepped in as a knight in shining armor in April with the deal, the primary interest being the anti-PD-1 med vidutolimod.
In a 10-Q filed Thursday, Checkmate detailed the dire straits facing the company, which was hit hard by the COVID-19 pandemic. The global health crisis forced Checkmate to delay initiation of clinical trials and patient enrollment—a challenge that has continued to this day, according to the document.
Without the merger, “there is substantial doubt regarding our ability to continue,” Checkmate warned. The document also says Checkmate “may have to significantly delay, scale back or discontinue the development and commercialization of vidutolimod or any of our future product candidates.”
That could mean delaying, curtailing or discontinuing altogether one or more of its ongoing clinical trials and research efforts. Development of vidutolimod is expected to take up a lot of resources in the years to come as the therapy moves closer to the market.
The Regeneron deal is slated to close in mid-2022, according to the original April announcement. However, Checkmate cautioned that the timing is uncertain.
The company revised expectations for the completion of a series of clinical trials in December 2021, including one phase 2 study in refractory melanoma, a phase 2/3 in first-line melanoma and a phase 2 in head and neck cancer.
“If the merger does not occur, we will need substantial additional funding to support our continuing operations and pursue our growth strategy,” the company said in the document.
Checkmate had about $60.1 million in cash on hand as of the end of March, which is unlikely to support operations much past a year.
The company has raised $241.7 million to date through venture funding and an August 2020 IPO. Backers included Novo Holdings, Medicxi, Omega Funds, the venture investment fund of the American Cancer Society and more. The company did not bring in any cash from financing activities in the first quarter of this year.
Until Checkmate is able to generate product revenue, operations will be supported with equity offerings, debt financings, collaborations, strategic alliances and marketing, distribution or licensing arrangements.
A negotiating strategy
It's unclear from the document why Checkmate is so worried about the transaction not closing. Regeneron executives reiterated the expected closing timeline for the acquisition—the company's first ever in its 33-year history—during a first-quarter earnings call held earlier this month. Executive Vice President and CFO Robert Landry said the tender offer for the deal had been launched and the close would be locked in around mid-2022. The deal is, of course, contingent on regulatory approvals and other closing conditions.
Regeneron's CEO Leonard Schleifer cited that tender offer as a reason to decline talking more about Checkmate and what Regeneron might do with vidutolimod in response to an analyst question. In his prepared remarks, Schleifer said the therapy "will add a promising new modality to Regeneron’s pipeline of potential approaches for difficult to treat cancers."
In a regulatory filing dated May 2, the back-and-forth between Regeneron and Checkmate during the dealmaking process was revealed. The companies had worked together for a while through a supply agreement that was struck in May 2021 to evaluate vidutolimod with Regeneron's Libtayo.
Discussions continued between parties at both companies, but things kicked into gear after Regeneron got a peak at data Checkmate presented at the Society for Immunotherapy of Cancer meeting at the end of 2021. Checkmate presented 1b results of vidutolimod with Merck & Co.'s Keytruda, associating the therapy with response rates of 20% alone and 23% with Keytruda. Duration of response was recorded as more than 25 months.
Business development conversations followed. Regeneron expressed interest in a buyout, eventually offering $7.50 per share in cash, lower than the $10.50 a share the teams would ultimately agree on. This initial offer was rejected. Regeneron declined to up its price considering Checkmate downright declined the offer without making a counter, with executives indicating the pharma was "unwilling to 'bid against itself,'" according to the document.
Checkmate countered with $12 on March 10 and a request to wrap up the deal by the end of the month.
The companies went back and forth, trying to meet on a final per share price, and all the while Checkmate withheld from making full due diligence information available to Regeneron to consider. By March 18, Checkmate pitched the $10.50 value, so long as Regeneron worked fast.
Chief Business Officer Kleem Chaudhary, Ph.D., urged Regeneron to make up its mind that day, because the company was considering other business opportunities. This was, according to the document, "a negotiation strategy discussed with the transaction committee in light of the Checkmate board’s concern about overall timing."
Regeneron agreed, and the parties entered into exclusivity and confidentiality agreements. The negotiations went back and forth as due diligence and other matters were conducted and finally, "during the night" of April 18, the merger agreement was executed. The deal, representing a 336% premium over Checkmate's closing price of $2.41, was announced the next morning.
Editor's Note: This story was updated to add details from regulatory filings and Regeneron’s earnings call.