*KLX Energy Services Holdings, Quintana Energy Services (KLXE, QES)
This week, KLX Energy Services (KLXE) and Quintana Energy Services (QES) announced that they would be merging.
QES shareholders will receive 0.4833 shares of KLXE for every share of QES that they own. The transaction is expected to close in the second half of 2020.
There is an opportunity to short QES pre-merger at $0.72 and buy “QES post merger” by buying KLXE. For every 1 QES share sold short, you should buy 0.4833 shares of KLXE. Effectively, you are simultaneously buying QES at $0.54 and selling it at $0.72. This works out to a 33% return (not included interest cost to borrow) if the merger closes.
The transaction makes a lot of sense for a couple of reasons. It will enable both companies to achieve better 11
scale and cut costs as duplicative functions will be consolidated (executive team, marketing, sales, corporate headquarters).
It will enable KLXE to de-lever. Because QES has minimal debt, KLXE’s net debt to ‘19 EBITDA will decline from 1.6x to 1.3x. After factoring $40MM of cost cuts, it will decline further to 0.9x.
Richard Howe, CFA, The Stock Spin-off Investing Newsletter, stockspinoffinvesting.com, 617-750-7454, May 7, 2020
*Precigen, Inc. (PGEN)
The FDA has cleared the IND application to initiate a Phase I/II trial for PRGN-2009, a first-in-class, off-the-shelf (OTS) investigational immunotherapy utilizing the AdenoVerse platform designed to activate the immune system to recognize and target human papillomarivus (HPV+) solid tumors. HPV+ cancers represent a significant health burden in indications such as head and neck, cervical, vaginal and anal cancer and are in need of new treatment options as current options are limited to radiation and chemotherapy.
HPVs are a significant and underserved market opportunity. Globally, high-risk HPVs cause nearly 5% of all cancers, with about 570,000 women and 60,000 men diagnosed with HPV-related cancers each year. Nearly 44,000 HPV-associated cancers occur in the United States each year. Of these, approximately 25,000 occur in women and 19,000 occur in men. HPV is considered responsible for more than 90% of anal and cervical cancers, about 70% of vaginal and vulvar cancers, and more than 60% of penile cancers. Recent studies indicate that about 70% of cancers of the oropharynx (top of throat) also may be related to HPV.
Importantly, the start of this trial positions PGEN for a significant catalyst when the company/NCI releases the first data late this year.
PGEN is a BUY under 12 with a TARGET PRICE of 24.
John McCamant, The Medical Technology Stock Letter, bioinvest.com, May 3, 2020