Prana Biotechnology Secures Additional Funds
Prana Biotechnology Limited (PBT) yesterday announced that they’d secured additional financing. The question is whether that’s good or bad news. I think it’s both, but before I prattle on here are the facts.
- Prana was running out of funds. As I said in August the life force is draining out of Prana. With a ‘current limping along doing nothing’ burn rate of $1.5M a quarter and $4.3M in cash as of June, Prana had to get some cash in the door.
- This placement was $6M for 30M shares at 20 cents with a bonus 10M four year options at a 30 cent strike. The shares will be listed as ADRs and the buyer has price protection between $0.17 and $0.19, i.e. if PBT closes under 19 cents then the buyer will get extra shares, but the amount is capped at 17 cents or an additional 3 million shares (1.5M for each cent).
The good news is Prana are now in a position to continue limping along for longer and have thus taken desperation off the table. It’s also a positive sign that an existing shareholder was prepared to pony up $6M. No-one does that without some level of re-assurance from management.
The bad news is that despite a successful completion of the 2A PBT2 study almost 18 months ago Prana have still not secured a partner. Perhaps the whole desperation angle was wishful thinking on my behalf. These funds raised from an existing shareholder, suggests that Prana is not even close to a deal, or at least a deal that is worth anything. Can you imagine the furore if Prana subsequently announced a meaningful partnership for the development of the PBT2 shortly after a shareholder bought shares at 20 cents?
I do wonder about the current motivation of the buyer. It will be interesting to see if PBT comes under any price pressure. After all an additional 3M shares does present more than a little motivation. Hey just because I’m paranoid doesn’t mean people aren’t out to get me!
While $6M may sound like a fair chunk of change and is enough to keep Prana limping along for an extra year, it’s not enough to do anything meaningful with in the world of drug development. So with no partner on the horizon and not enough cash for a worthwhile development program, patient shareholders may have to wait a little while longer for that long expected deal.
All of this of course begs the question as to whether Prana management are up to the job of securing a deal. By all accounts the PBT2 trial was a reasonable success. A successful Alzheimer’s drug has massive blockbuster potential. Large pharma and biotech and desperate to expand their pipelines and yet Prana management can’t close a deal.
Beside trying investors patience this delay in securing a deal leads to dilution, dilution, dilution. This deal alone represents a further 15% dilution. So any deal secured now is worth less to long suffering shareholders.
Perhaps I’m a tad harsh on management, so lets finish on a positive note. Chairman and CEO Geoffrey Kempler appears skilled at raising funds. The current $6M comes on top of the $7M in May 2008 which was priced at 40 cents a share. In total 25% dilution since completing the 2A trial, or 31% if a deal is announced and those 10M 30 cent options come into play. But you know what, if management secure a good deal for PBT2 I won’t mind all the dilution and if they don’t then it really doesn’t matter anyway.
Disclosure: As always this is the rambling of a lunatic. Who in this case owns shares directly and indirectly in Prana. You’d be crazier than I to base any decision on anything written on this blog, as it is for entertainment purposes only. On top of which I’ve hurt my neck so I’ve lost my sunny disposition.
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