Redx & Jounce Announce Recommended Business Combination

Redx Pharma and Jounce Therapeutics, Inc. recently announce an unanimously recommended Business Combination of the two companies via a proposed all share merger transaction. Redx is a clinical-stage biotechnology company focused on the discovery and development of novel, small molecule, targeted therapeutics for the treatment of cancer and fibrotic diseases and the emerging area of cancer-associated fibrosis. Jounce is a clinical-stage immunotherapy company, dedicated to transforming the treatment of cancer by developing therapies that enable the immune system to attack tumors and provide long-lasting benefits to patients through a biomarker approach. The Business Combination will create a transatlantic organization with proven expertise in both small molecule drugs and biologics, and a clinical pipeline with multiple value inflection points in the near and medium term.

The combined group’s highest priority will be the development of RXC007, a next-generation selective ROCK2 inhibitor, which is currently being assessed in a Phase 2a study in idiopathic pulmonary fibrosis (IPF), with topline data expected in Q1 2024. ROCK2 inhibition is now a commercially validated target with potential in multiple disease areas, following the recent US FDA approval and launch of the first drug with this mechanism of action. In addition to the ongoing clinical development plan in IPF, Redx has also generated supportive preclinical data that highlights the broad potential of next-generation ROCK2 inhibitors across a number of fibrotic indications where there remains a significant unmet need, which supports potential development opportunities in other interstitial lung diseases and cancer-associated fibrosis. Additionally, RXC004 is being developed as a targeted treatment for Wnt-ligand dependent cancers and is progressing through Phase 2 trials, and RXC008, a GI-targeted ROCK inhibitor for fibrostenotic Crohn’s disease, is expected to enter clinical development in H1 2024.

Lisa Anson, Chief Executive Officer, Redx Pharma, said “By combining Redx’s proven track record in small molecule drug discovery and development with Jounce’s expertise in biologics and immunotherapy, we will establish a world-class biotech company with a robust pipeline, aimed at developing therapeutics for cancer and fibrotic disease. RXC007, our next-generation ROCK2 inhibitor, will lead the clinical pipeline, and we will now further investigate opportunities for this asset in cancer-associated fibrosis and other interstitial lung diseases. While the majority of the combined group’s operations, and its headquarters, will be at Alderley Park in the UK, we believe that listing solely on Nasdaq is the most efficient way to enable us to access a deep pool of risk capital and engage with specialist global investors to support our future growth.”

Richard Murray, PhD, Chief Executive Officer and President of Jounce Therapeutics, added “I am very proud of the work we have achieved at Jounce and today’s news is testament to the accomplishments of our team’s efforts. We are pleased that many of our employees will join the combined group and continue to focus on bringing much-needed alternatives to patients. Additionally, we are pleased that Redx will continue to advance certain of our early discovery programs. With a focus on cancer and fibrosis, and a strong scientific basis for discovery and development programs in those areas, we believe that the new company will be well positioned to succeed.”

At the time of the completion of the Business Combination, Jounce is expected to have around $155m of cash and cash equivalents, which net of any tail and closing costs results in at least $130m in cash and cash equivalents available to the combined group. Together with Redx’s expected cash at completion would provide the combined group with cash runway into H2 2025. Based on Redx’s fully diluted market capitalization of £244m ($294m) as at the Last Practicable Date and Jounce’s expected cash and cash equivalents at the time of completion, this implies a market value for the combined group of $425m, before taking into account the value of Jounce’s existing clinical and non-clinical stage programs.

This announcement follows the earlier news that Jounce plans to reduce its workforce by approximately 57%. After completion of the transaction, around 47 Jounce employees will be retained by the combined group at a research and development base in Massachusetts, USA and will bring complementary expertise in biologics and immuno-oncology. Jounce’s clinical programs will not be pursued in-house beyond the currently ongoing studies.

Named Redx Inc., the combined group will be solely listed on Nasdaq in the US under the ticker symbol REDX. Led by current Redx CEO Lisa Anson, Dr Jane Griffiths current Redx Chair will become the non-executive Chair of the combined group; with the Board including representatives from both Redx and Jounce, in line with the relative shareholding percentages. The combined group will be headquartered at Alderley Park, UK, with a drug discovery and clinical development team in Massachusetts, USA.

Under the terms of the Business Combination, Redx Shareholders shall be entitled to receive 0.2105 Jounce Shares in exchange for each Redx Share (the Exchange Ratio). Jounce intends to conduct a reverse stock split of Jounce Shares in conjunction with the Business Combination, with a ratio of one new share for every five outstanding shares of Jounce. A reverse split is a share exchange transaction, without any impact on the amount of the share capital: only the number of outstanding shares is modified. If the Reverse Stock Split is approved by Jounce Shareholders, the Exchange Ratio will be adjusted to 0.0421 Jounce Shares in exchange for each Redx Share.

Immediately following completion of the Business Combination, including conversion of the Redx Convertible Loan Notes, Redx Shareholders are expected to own approximately 63% and Jounce shareholders approximately 37% of the share capital of the combined group.

The Business Combination is expected to be implemented by way of a Scheme of Arrangement (Scheme) of Redx under Part 26 of the UK Companies Act, immediately preceded by a merger transaction between RM Special Holdings 3, LLC, an entity controlled by Redmile, and Jounce and its affiliates (the Redmile Merger), which together will result in Jounce owning the entire issued and to be issued ordinary share capital of Redx. Further details of the Redmile Merger and the ability for eligible Redx Shareholders to request that their Redx Shares be transferred to Jounce via a similar merger structure are set out in the Rule 2.7 announcement.

In connection with the Business Combination, a non-transferrable Contingent Value Right (CVR) is expected to be distributed to Jounce Shareholders that held Jounce Shares prior to completion of the Business Combination and holders of Jounce Share Awards immediately prior to completion of the Business Combination comprising vested options, relating to certain existing Jounce clinical and non-clinical stage programs. The CVRs shall entitle the relevant Jounce Shareholders to receive, on a pro rata basis, subject to certain terms and conditions, 80% of the net proceeds resulting from any sale, transfer, disposition, spin-off, or license of certain assets relating to such programs that is consummated within one year following the Business Combination, subject to one six-month extension term in certain limited circumstances, as set forth in the CVR Agreement.

The Boards of both Redx and Jounce have unanimously recommended that shareholders vote in favor of the Business Combination. In connection with the Business Combination, Jounce has received irrevocable undertakings from Redx Shareholders who together own 76.6% of Redx’s share capital as of 22 February 2023 (excluding the Redx shares held by RM3) and RM3 has entered into the Redmile Merger Agreement conditional on the Court sanctioning the Scheme and will receive the same Exchange Ratio. Both Redmile and Sofinnova have agreed to convert all the Redx Convertible Loan Notes held by them respectively as part of the transaction. Redx has also received voting and support agreements in respect of Jounce shares, representing, in aggregate, approximately 21.3% of the issued and outstanding share capital of Jounce. Full details of the undertakings and voting and support agreements are contained in the Rule 2.7 announcement.

It is expected that the Business Combination will complete during the second quarter of 2023, subject to satisfaction or waiver of the Conditions including approval of the Scheme by Redx Shareholders, Jounce Shareholder approvals, and customary regulatory approvals.

Defined terms have the meaning given to them in the Rule 2.7 announcement. Additional details on the Business Combination are available in the Rule 2.7 announcement which is available at www.redxpharma.com/investor-centre/ and in the Investors and Media section of Jounce’s website at www.jouncetx.com.

Redx Pharma (AIM: Redx) is a clinical-stage biotechnology company focused on the discovery and development of novel, small molecule, highly targeted therapeutics for the treatment of cancer and fibrotic disease and the emerging area of cancer-associated fibrosis, aiming initially to progress them to clinical proof of concept before evaluating options for further development and potential value creation. The company’s lead fibrosis product candidate, the selective ROCK2 inhibitor RXC007, is in development for interstitial lung disease and commenced a Phase 2a trial for idiopathic pulmonary fibrosis (IPF) in October 2022. Redx’s lead oncology product candidate, the Porcupine inhibitor RXC004, being developed as a targeted treatment for Wnt-ligand dependent cancers, commenced a Phase 2 programme in November 2021. Redx’s third drug candidate, RXC008, a GI-targeted ROCK inhibitor for the treatment of fibrostenotic Crohn’s disease, is progressing towards a CTA/IND application at the end of 2023.

The company has a strong track record of discovering new drug candidates through its core strengths in medicinal chemistry and translational science, enabling the company to discover and develop differentiated therapeutics against biologically or clinically validated targets. The company’s accomplishments are evidenced not only by its two wholly-owned clinical-stage product candidates and rapidly expanding pipeline, but also by its strategic transactions, including the sale of pirtobrutinib (RXC005, LOXO-305), a non-covalent (reversible) BTK inhibitor now approved by the US FDA for adult patients with mantle cell lymphoma previously treated with a covalent BTK inhibitor, and AZD5055/RXC006, a Porcupine inhibitor targeting fibrotic diseases including IPF, which AstraZeneca is progressing in a Phase 1 clinical study. In addition, Redx has forged collaborations with Jazz Pharmaceuticals, which includes JZP815, a pan-RAF inhibitor developed by Redx which Jazz is now progressing through Phase 1 clinical studies and an early stage oncology research collaboration.

Jounce Therapeutics, Inc. is a clinical-stage immunotherapy company dedicated to transforming the treatment of cancer by developing therapies that enable the immune system to attack tumors and provide long-lasting benefits to patients through a biomarker-driven approach. Jounce currently has multiple development stage programs ongoing while simultaneously advancing additional early-stage assets from its robust discovery engine based on its Translational Science Platform. For more information, visit www.jouncetx.com.