A dilutive financing has Canaccord Genuity analyst Neil Maruoka lowering his price target on ProMetic Life Sciences (TSX:PLI).
This morning, ProMetic Life Sciences announced it had landed a line of credit worth (U.S.) $80-million from Structured Alpha LP, an affiliate of Thomvest Asset Management, at an interest rate of 8.5 per cent. In addition, ProMetic said it will grant ThomVest an initial 10 million warrants at an exercise price of C$1.70
“The scale and structure of this facility provides us with significant operational and financial flexibility to continue with our ongoing negotiations to monetize certain corporate assets. Furthermore, the existing strong relationship with Thomvest allows us to leverage our current security package to its full effect,” said CEO Pierre Laurin. “The flexibility provided by this credit facility also means the company can draw only when required which allows our team to focus on closing value-enhancing initiatives and create significant enterprise value for ProMetic and its stakeholders.”
Maruoka says this transaction closes the funding gap for ProMetic, but warns that the warrants are dilutive. And while he says he sees this as a necessity it does change his model on the stock.
“While we view this as dilutive, we believe this financing is necessary to close the funding gap as the company transitions to the commercial sale of Ryplazim,” the analyst says. “With a burn rate approaching $100 million annually, we believe this line of credit should remove a significant financing overhang and provide some flexibility as the company moves to launch its first major drug next year. Although timelines have slipped recently, we continue to see a number of catalysts lined up for ProMetic in coming months, including more data from PBI-4050, the initiation of clinical studies for PBI-4050 in IPF and DKD and, ultimately, the expected FDA approval of Ryplazim. Following this transaction, we have included the dilution from the 54 million warrants, as well as debt from the credit facility and cash received from the exercise of the warrants (which largely offset each other). As a result of these changes, we are lowering our target price to C$4.00 from C$4.25.”
Maruoka thinks ProMetic will generate EBITDA of negative $93.9-million on revenue of $32.5-million in fiscal 2017. He expects those numbers will improve to EBITDA of positive $16.0-million on a topline of $150.4-million the following year.