Arca Biopharma inks merger deal that brings Oruka Therapeutics public

WESTMINSTER — After nearly two years of searching, drug developer Arca Biopharma Inc. (Nasdaq: ABIO) has found a merger partner.

Oruka Therapeutics Inc., a private dermatology-centered biotechnology firm headquartered in Massachusetts, will absorb Arca in a reverse-merger deal in which the struggling Westminster-based cardiovascular therapies developer will serve as vessel for taking Oruka public. 

The combined company, which will operate under the Oruka Therapeutics banner and trade on the Nasdaq exchange under the ticker symbol “ORKA,” will focus its efforts on Oruka’s existing pipeline of drug candidates for the treatment of chronic skin diseases such as plaque psoriasis and psoriatic arthritis.

Oruka said Wednesday that it has secured commitments for a $275 million private investment to support the merger, as well as pledges from a long line of investors to buy Oruka shares when the deal closes, likely in the third quarter of 2024.

After nearly doubling its year-over-year losses in 2021, Arca Biopharma’s board of directors has established a special committee and hired a consultant tasked with weighing the company’s strategic options for righting the ship.

The company, which told investors in February that it had only enough cash to fund operations through mid-2025, then retained Ladenburg Thalmann & Co. Inc. in May 2022 to “evaluate strategic options, including transactions involving a merger, sale of all or part of the company’s assets, or other alternatives with the goal of maximizing stockholder value,” Arca said at the time. 

Arca’s stock price, which has been on a steady decline since a spike in May 2020, got a shot in the arm Wednesday as investors reacted to the merger announcement, jumping more than 75% in early trading and eclipsing the $3 mark for the first time since 2021. 

“We believe that this combination with Oruka is the best path forward for ARCA stockholders,” Arca board chairman Robert Conway said in a prepared statement. “We believe that the expected cash dividend and Oruka’s promising pipeline provides the potential for significant value creation for ARCA stockholders in the near- and long-term.”

Upon closing of the merger, investors who held shares of Arca Biopharma stock before the deal will own 2.38% of the combined company, with the remainder held by Oruka’s owners. 

Arca, which will kick $5 million of its money into the combined company’s coffers, “expects to pay a dividend to pre-merger ARCA stockholders of approximately $20 million immediately prior to the close of the merger,” the company said. 

Oruka is the third pharmaceutical company to be spun out of Paragon Therapeutics Inc., following Spyre Therapeutics and Apogee Therapeutics. 

The company has two drug candidates that are set to enter clinical trials in 2025, and Oruka leaders expect the new $275 million investment to fund company operations through 2027.

“Our mission at Oruka is to offer people affected with chronic skin diseases the most possible freedom from their condition. We believe that our lead programs, engineered by the world-class team at Paragon, could meaningfully advance the standard of care in psoriasis and related diseases,” Oruka CEO Lawrence Klein said in a prepared statement. “This merger and significant financing is expected to provide resources to build out our operational capabilities and propel our programs into clinical development with focus and efficiency.”

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