Akili (AKLI) is a “digital medicine company” which basically develops games for treating ADHD. Business hasn’t been good, in fact its been terrible, with a cash burn of roughly $10.5M in Q4 2023 on only $497,000 in net revenues. But as poor as the operating results are the balance sheet is robust, with $75M in cash at year end 2023 and only $21.9M in liabilities, for shareholder equity of $58.5M.
Today they announced a strategic deal with Shionogi & Co where Akili will have $5M in debt forgiven, receive a $10.5M up front payment and up to $4.5M in other possible payments in return for giving up future royalties. So by my math this increases shareholder equity to $74M in one swoop.
More importantly they’ve also announced the old “process to evaluate potential strategic alternatives”, and a 46% layoff along with elimination of almost all product marketing expenditures. So what does a liquidation look like? Here is a rough guess at a “worst case” liquidation scenario.
Current assets: $76.6M
Lease termination benefits: $865k
Liabilities: -$21.9M
Shionogi payment: $10.5M
Shionogi debt forgiveness: $5M
Severance: -$5.6M
Liquidation Costs: -$3M
Remaining Burn (3 Quarters): -$21.6M
Net Cash: $50M
Shares Out: 78,509
Per Share: 52 cents
Best case could be as much as 20 cents per share higher. Today AKLI is trading up 16 cents at 39 cents, so the market loves this deal. Given thats still well below my liquidation range your question should be, am I buying? The answer so far is no.
The key thing that has held me back is the shareholder base. The largest shareholder is Chamath Palihapitiya, yes that Chamath and yes Akili is another one of his SPAC disasters. It appears that Chamath still owns 18% of Akili, and there are no activists with any significant ownership, so Chamath should be exerting an inordinate amount of control over its future. So I don’t expect a liquidation to be in Akili’s future, or even a sale since I can’t perceive any significant value in its IP that has reached only $1.7M in annual revenue run rate after years of effort.
Instead I think it’s likely that Chamath will want to use AKLI as a honey pot for a reverse merger or its cash to buy a new business with. But even if he wanted Akili to liquidate there is the problem of continuing maintenance and development of a product they just licensed to a partner for $15M. So even if he wanted to liquidate he’d have to find a way to spin off the remaining dev team to Shionogi, and that would probably create costs that reduce its liquidation value.
Most things that are cheap are because they have a lot of problems, and this appears to be one. So for now I’m letting this pitch go by and waiting for one with less hair on it.