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Coherus BioSciences to Acquire Surface Oncology, Inc. (SURF) in a Strategic Merger Agreement

Surface Oncology, Inc. (SURF) witnessed a significant surge in its pre-market trading on Friday, with a remarkable change percentage of 35%. The reason behind this surge is the recent announcement of a strategic merger agreement between Coherus BioSciences, Inc. (CHRS) and Surface Oncology. This merger agreement, signed on June 16, 2023, will result in Coherus acquiring Surface Oncology, a clinical-stage immuno-oncology (I-O) company specializing in developing next-generation immunotherapies that target the tumor microenvironment.

Strengthening the I-O Pipeline

The acquisition of Surface Oncology by Coherus BioSciences will bring two differentiated clinical-stage assets into Coherus’ already impressive I-O pipeline. The first asset is SRF388, a novel IL-27-targeted antibody currently undergoing Phase 2 clinical trials in lung cancer and liver cancer. The second asset is SFR114, a CCR8-targeted antibody currently in a Phase 1/2 study as a monotherapy in patients with advanced solid tumors. By integrating these assets, Coherus aims to bolster its position in the rapidly evolving field of immuno-oncology, where innovative treatments hold immense promise for patients and investors alike.

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Financial Terms of the Merger

The merger agreement has been unanimously approved by the boards of directors of both companies and is expected to be completed in the third quarter of 2023. Under the terms of the agreement, Coherus will acquire all outstanding shares of Surface Oncology by issuing shares of its common stock at a price of $5.2831 per share. The total value of the transaction will be the sum of $40 million plus Surface’s net cash at closing, estimated to be between $20 and $25 million.

In addition to the share acquisition, Surface shareholders will receive contingent value rights (CVRs) for 70% of the milestone and royalty-based value of existing programs with Novartis AG and GSK plc. Furthermore, CVRs for 25% of upfront payments made pursuant to potential ex-US licensing agreements for SRF114 and 50% of upfront payments made pursuant to potential ex-US licensing agreements for SRF388 will also be provided. These CVRs will be payable for ten years following the closing of the transaction, subject to certain deductions as outlined in the contingent value rights agreement.

Strategic Advisory and Conditions

Truist Securities is serving as the financial advisor, while Arnold & Porter Kaye Scholer LLP and Latham & Watkins LLP are acting as legal advisors to Coherus in this transaction. On the other hand, Wedbush Securities Inc. is acting as the exclusive strategic financial advisor, and Goodwin Procter LLP is serving as the legal advisor to Surface Oncology.

The completion of the transaction is contingent upon Surface shareholder approval, the availability of at least $19.6 million of Surface cash net, and the fulfillment of other customary conditions. Alongside the merger announcement, Surface Oncology is implementing a workforce reduction of approximately 50% of its employees, aligning its operations with the upcoming transition.

Analyzing SURF Stock Performance

Surface Oncology’s stock price has experienced fluctuations over various timeframes. In the past day, the stock witnessed a price increase of 1.37. However, over the past five days, the price decreased by 6.2. On a positive note, the stock demonstrated a substantial one-month price change of 20.31. The three-month and six-month price changes were 2.99 and 5.71, respectively. Yet, investors should note that the stock has faced challenges over the longer term, with a one-year price change of -47.89, a three-year change of -83.18, and a five-year change of -95.48.

In conclusion, the merger between Coherus BioSciences and Surface Oncology marks a significant strategic move in the field of immuno-oncology. With the addition of Surface Oncology’s clinical-stage assets, Coherus aims to strengthen its I-O pipeline and capitalize on the promising potential of next-generation immunotherapies. The completion of the merger, subject to customary conditions, is expected in the third quarter of 2023. Investors should closely monitor the developments surrounding this transaction and consider its potential impact on both companies’ future growth prospects.