Arca Biopharma board approves reverse stock split prior to Oruka merger

BOULDER — Arca Biopharma Inc’s. (Nasdaq: ABIO) board of directors late last week approved a 1-for-12 reverse stock split in advance of the drug-discovery’s upcoming merger with Oruka Therapeutics Inc., a private dermatology-centered biotechnology firm headquartered in Massachusetts.

Oruka revealed to regulators in April its plan to absorb Arca in a reverse-merger deal in which the struggling Westminster-based cardiovascular therapies developer will serve as a 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.

The merger, which involves a multi-step process involving several subsidiaries, is more complicated than a standard business combination and “is intended to qualify for federal income tax purposes as a tax-free reorganization,” Arca said in its quarterly report.

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

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. 

“The reverse stock split is expected to reduce the number of ARCA’s outstanding common stock from approximately 14,507,143 shares to approximately 1,208,928 shares. The number of shares of ARCA’s authorized common stock will not be affected by the reverse stock split, but at the Special Meeting, ARCA’s stockholders approved an increase in the number of shares of ARCA’s authorized common stock from 100 million shares to 545 million shares in connection with the anticipated closing of the Merger,” Arca said in a regulatory filing. 

The disclosure added: “No fractional shares will be issued if, as a result of the reverse stock split, a stockholder would otherwise become entitled to a fractional share because the number of shares of ARCA common stock they hold before the reverse stock split is not evenly divisible by the split ratio. Instead, each stockholder will be entitled to receive a cash payment in lieu of such fractional share. The cash payment to be paid will be equal to the fraction of a share to which such stockholder would otherwise be entitled multiplied by the closing price per share as reported by The Nasdaq Stock Market LLC on Sept. 3, 2024.”

In advance of the Oruka deal, Arca is selling off assets related to its drug-discovery technology and intellectual property.

“In connection with the merger, the company will dispose of (or is in the process of disposing of) its legacy technology and intellectual property, including those related to Gencaro (bucindolol hydrochloride) and Recombinant Nematode Anticoagulant Protein c2 (“rNAPc2”),” Arca revealed in its earnings report for the second quarter of fiscal 2024. 

The drug candidate rNAPc2 is “a protein therapeutic in clinical development as a potential treatment for patients with COVID-19,” according to Arca, while Gencaro is a beta blocker.

Arca, which spent the past two years searching for an M&A partner, told regulators in late April that if the Oruka deal fails, Arca may pursue “a dissolution and liquidation.”

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

The company 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.