IMV Corp/HIMV Corp: Assets Sold

Assets Sold. No Longer Important Underperformer

February 14, 2024

This is a little complicated so bear with us, but we've been tracking the IMV Corp saga all along and have written four times about the twists and turns involved. With this fifth article, we close the file. IMV Corp - a Canadian portfolio company of Horizon Technology Finance (HRZN) - sought court protection both up north and in the USA back in May 2023 after running out of liquidity. A few months later, with no outside buyer stepping up and none of the existing investors willing to chip in more funds, the assets of the business were sold to the secured lenders - which mostly consisted of HRZN. Those assets were held in a new entity called - imaginatively - HIMV Corp.

Our last update was on September 7, 2023. We've subsequently learned that in the IIIQ 2023, HRZN booked a ($11.8mn) realized loss in the period for IMV on its $17.4mn invested - virtually all of which was in debt. In addition, HIMV was set up and initiated with a $6.2mn investment, all in equity - presumably those acquired biotech assets.

Now we hear that Biovaxys Technology Corp has come along and bought out HIMV's assets. Here is an outline of the terms:

Key transaction elements include a USD$750,000 upfront cash payment, various clinical development and regulatory milestone payments, a 15% share in license revenues, and a 6% gross sales royalty on product sales (such future gross sales royalties cancellable and extinguishable upon a one-time payment of USD$25,000,000 in cash) and shares of BioVaxys common stock with a deemed value of US$250,000, calculated at a price per share equal to the volume-weighted average price of the common shares during the 20 trading day period immediately prior to closing and will be subject to a hold period of four months and one day. HIMV will also be entitled to appoint an observer to BioVaxys's Board of Directors.

That's very little in cash received for HIMV and HRZN so it's likely that the newly formed company will see its value written down when IQ 2024 results come out. However, HIMV is not going away given its continuing - albeit much diminished interest - in the original IMV biotech.

We're assuming the total value will drop below $5mn and cease to make IMV/HIMV an Important Underperformer. Unless Biovaxys is highly successful, chances are high that HRZN will ultimately lose almost all the $17.4mn originally invested. We're estimating the realized losses at IMV and HIMV will be in the (75%-100% range), as we've been surmising all along, or just under (4%) of the BDC's equity at par. For HRZN, which boasts an annualized portfolio yield of 17.1%, that's nearly ($3mn) of investment income forgone from this loss of capital. That's about 2.5% of HRZN's total investment income. Of course, virtually all of the damage has already occurred.

In closing, and as we discuss IMV for the last time on these pages, we'll circle back to the complaint we've made multiple times about the reliability of HRZN's quarterly valuations. At the end of 2022, all the debt was valued at par. Even as IMV ran out of cash and weeks before its bankruptcy, the BDC discounted its debt only (3%). Only a few months later we can see this was vastly over-optimistic as the reserve should have been 75-100%. (Even the June 2023 valuation - the last one for IMV - was not accurate).

Our sister publication - BDC Best Ideas - has ceased coverage of HRZN due to the unreliability of its valuations. It's hard to make travel plans when you can't trust your compass. However, we'll continue to track the BDC at the BDC Credit Reporter but are taking what we are told with a great deal of salt.

Through the first nine months of 2023 HRZN has booked ($29mn) of realized losses, more than the past 3 full years (2020-2022 combined). There have been ($24mn) in unrealized losses, for total losses in nine months of ($54mn). The ($29mn) is equal to 6% of the BDC's equity capital at par, or ($0.96) per share. The ($54mn) comes to ($1.75) per share. These are loss levels above any "normal" level. With IMV/HIMV and various other credit challenges still on the books the losses could go even higher.