Shoring up the cash to drive multiple clinical programs in 2016
Investment Recommendation
ProMetic has announced a $30 million financing from Thomvest, consisting of a $30 million discount note (maturing in July 2022 and bearing interest at 8%) and 11.8 million warrants with a strike price of $4.70. We believe that this is a prudent move, and likely viewed by the company as similar to an equity financing at an 80% premium to the current stock price – as the total proceeds from the warrants would be sufficient to repay the debt. The key risk here, of course, is that the stock fails to exceed the strike price of the warrants; however, given the upcoming milestones this year and our C$4.75 valuation, we view this risk to be minimal.
ProMetic remains one of our Focus List picks, as we anticipate a transformational 2016 for the company. Given the substantial news flow expected over the next few quarters (culminating with the plasminogen Phase III data expected in Q2/Q3), we would continue to be buyers of the stock at these levels.
Investment Highlights
• Cash to drive multiple programs. We project that ProMetic will have pro forma cash and equivalents of $71 million as at the end of Q4 2015. With an estimated $56 million annual cash burn to run multiple clinical programs this year, we believe that this financing provides sufficient cash to fund ProMetic’s burn into Q2 2017.
• ‘4050 leaping into multiple pivotal studies. With the recent addition of cystic fibrosis, ProMetic now has its sights set on at least four placebo-controlled studies for PBI-4050 (and at least three pivotal studies). We believe this multi-pronged strategy lowers development risk and could substantially shorten timelines to commercialization.
• Advancing the late-stage pipeline. ProMetic expects to have several plasma-derived therapies in the clinic by next year in addition to plasminogen and IVIG. These drugs represent major growth drivers for the company, with an expanding pipeline generated from ProMetic's proprietary PPPS manufacturing technology.
Valuation
We value PLI based on a sum-of-the-parts. We value the resin business using a DCF analysis (8.1% WACC and 2.0% terminal growth), plasma-derived therapeutics with an explicit NPV, and the small molecule pipeline with a pNPV. Based on this analysis we are maintaining our target price of C$4.75, which implies an 82.0% annualized return and continues to support our BUY recommendation.