Jounce, Redx Pharma announce recommended all share merger transaction

Redx Pharma and Jounce Therapeutics announce an unanimously recommended business combination of the two companies via a proposed all share merger transaction. Redx is a clinical-stage biotechnology company focused on the discovery and development of novel, small molecule, targeted therapeutics for the treatment of cancer and fibrotic diseases and the emerging area of cancer-associated fibrosis. The business combination will create a transatlantic organization with proven expertise in both small molecule drugs and biologics, and a clinical pipeline with multiple value inflection points in the near and medium term. The combined group’s highest priority will be the development of RXC007, a next-generation selective ROCK2 inhibitor, which is currently being assessed in a Phase 2a study in idiopathic pulmonary fibrosis, or IPF, with topline data expected in Q1 2024. ROCK2 inhibition is now a commercially validated target with potential in multiple disease areas, following the recent FDA approval and launch of the first drug with this mechanism of action. In addition to the ongoing clinical development plan in IPF, Redx has also generated supportive preclinical data that highlights the broad potential of next-generation ROCK2 inhibitors across a number of fibrotic indications where there remains a significant unmet need, which supports potential development opportunities in other interstitial lung diseases and cancer-associated fibrosis. Additionally, RXC004 is being developed as a targeted treatment for Wnt-ligand dependent cancers and is progressing through Phase 2 trials, and RXC008, a GI-targeted ROCK inhibitor for fibrostenotic Crohn’s disease, is expected to enter clinical development in H1 2024.At the time of the completion of the business combination, Jounce is expected to have around $155M of cash and cash equivalents, which net of any tail and closing costs results in at least $130M in cash and cash equivalents available to the combined group. Together with Redx’s expected cash at completion would provide the combined group with cash runway into H2 2025. Based on Redx’s fully diluted market capitalization of $294M as at the Last Practicable Date and Jounce’s expected cash and cash equivalents at the time of completion, this implies a market value for the combined group of $425M, before taking into account the value of Jounce’s existing clinical and non-clinical stage programs. Under the terms of the business combination, Redx Shareholders shall be entitled to receive 0.2105 Jounce Shares in exchange for each Redx Share. Jounce intends to conduct a reverse stock split of Jounce Shares in conjunction with the business combination, with a ratio of one new share for every five outstanding shares of Jounce. A reverse split is a share exchange transaction, without any impact on the amount of the share capital: only the number of outstanding shares is modified. If the reverse stock split is approved by Jounce Shareholders, the exchange ratio will be adjusted to 0.0421 Jounce Shares in exchange for each Redx Share. Immediately following completion of the business combination, including conversion of the Redx Convertible Loan Notes, Redx Shareholders are expected to own approximately 63% and Jounce shareholders approximately 37% of the share capital of the combined group. The business combination is expected to be implemented by way of a Scheme of Arrangement of Redx under Part 26 of the UK Companies Act, immediately preceded by a merger transaction between RM Special Holdings 3, an entity controlled by Redmile, and Jounce and its affiliates, which together will result in Jounce owning the entire issued and to be issued ordinary share capital of Redx. Further details of the Redmile Merger and the ability for eligible Redx Shareholders to request that their Redx Shares be transferred to Jounce via a similar merger structure are set out in the Rule 2.7 announcement. In connection with the business combination, a non-transferrable Contingent Value Right, or CVR, is expected to be distributed to Jounce Shareholders that held Jounce shares prior to completion of the business combination and holders of Jounce Share Awards immediately prior to completion of the business combination comprising vested options, relating to certain existing Jounce clinical and non-clinical stage programs. The CVRs shall entitle the relevant Jounce Shareholders to receive, on a pro rata basis, subject to certain terms and conditions, 80% of the net proceeds resulting from any sale, transfer, disposition, spin-off, or license of certain assets relating to such programs that is consummated within one year following the business combination, subject to one six-month extension term in certain limited circumstances, as set forth in the CVR agreement. The boards of both Redx and Jounce have unanimously recommended that shareholders vote in favor of the business combination. In connection with the business combination, Jounce has received irrevocable undertakings from Redx Shareholders who together own 76.6% of Redx’s share capital as of 22 February 2023 and RM3 has entered into the Redmile merger agreement conditional on the Court sanctioning the Scheme and will receive the same exchange ratio. Both Redmile and Sofinnova have agreed to convert all the Redx Convertible Loan Notes held by them respectively as part of the transaction. Redx has also received voting and support agreements in respect of Jounce shares, representing, in aggregate, approximately 21.3% of the issued and outstanding share capital of Jounce. Full details of the undertakings and voting and support agreements are contained in the Rule 2.7 announcement. It is expected that the business combination will complete during the second quarter of 2023, subject to satisfaction or waiver of the conditions including approval of the Scheme by Redx Shareholders, Jounce Shareholder approvals, and customary regulatory approvals.