Echelon Wealth Partners analyst Douglas Loe says ProMetic Life Sciences (ProMetic Life Sciences Stock Quote, Chart TSX:PLI) is not out of the woods yet but the drug developer’s recent moves towards revising its capital structure could pare down the company’s financial risk on its core clinical assets.
In an update to clients Tuesday, Loe maintained his “Hold” rating and reduced his target price from $0.25 to $0.015.
Laval, Quebec-based ProMetic announced on Monday that it intends on completing a number of transactions to address the company’s outstanding indebtedness, reduce its interest and other payment obligations and raise enough cash to support the next phase of its various research programs.
“These transactions will strengthen our balance sheet, allowing Prometic to bring its first products to market and advance its very promising small-molecule pipeline,” said Professor Simon Best, Chairman and Interim CEO, in a press release. “To remain viable, it is necessary to substantially reduce our debt burden. We have found a way to achieve this while adding new high-quality investors and providing our existing shareholders an opportunity to benefit from our future success.”
To that end, the company plans a private placement share offering for proceeds of $75 million, a debt conversion of approximately $229 million, an adjustment of the per warrant exercise price of certain outstanding common share purchase warrants and a rights offering to ProMetic shareholders which could potentially net another $75 million in proceeds.
Loe sees the measures as giving ProMetic improved the financial flexibility needed to drive forward its core clinical and regulatory-stage programs.
“Since we have long believed that the major impediment to advancing both [Ryplazim and PBI-4050] through value-creating development milestones was capital limitation and not scientific/medical limitation, we believe that the firm has taken the necessary medicine (no pun intended) to position ProMetic to create tangible value for both assets,” says Loe.
“Because the proposed changes to capital structure are so dramatic, so too is the revision to our price target that coincidentally we are revising to $0.015/shr from $0.25/shr through a combination of revising shares outstanding, revising outstanding debt and cash (net pro forma cash is now far more positive than before), and revising the discount rate infused into our NPV valuation and discounted EBITDA/EPS valuation methods,” he says.
Loe estimates that PLI will generate fiscal 2019 revenue and EBITDA of $38.9 million and negative $67.2 million, respectively, and fiscal 2020 revenue and EBITDA of $40.9 million and negative $56.1 million, respectively.
His $0.015 price target corresponds to a projected 12-month return of negative 83.3 per cent at the time of publication.