Deal or No dealI was never a fan of the Howie Mandel show Deal or No Deal and I am equally unimpressed with the situation TH is in now. I am not going to rehash the repeated failures of management, and instead will focus on the stark reality of the situation TH is in right now.
If management does not have a deal already inked and pending announcement, then current shareholders are all going to get screwed. Here is why:
Cash at Nov 30, 2022 US$ 32M
Second Tranche of Marathon Debt + 20M
Repayment of Converts - 26M
Net Cash before Burn US$ 26M
Great, $26M is lots of cash no? Wrong!
The Marathon debt has a covenant requiring TH to carry a minimum of US$20M of cash and equivalents. If not, the interest on the debt will jump 3% and Marathon has the ability to push the company into default.
This means that unless they somehow reduced cashburn to less than US$3M a quarter they will not meet the minimum liquidity at the end of June. The scary part is, this is the OPTIMISTIC SCENARIO! If cash burn is higher, they could very well dip below the liquidity threshold before they receive the next tranche from Marathon. We already saw in the Annual Information Form that the company has material reporting deficiencies when it comes to debt covenants, so one can only hope leadership is aware of the current predicament.
The company needs cash and has limited options on how to access it. More debt is off the table and an equity raise will be highly dilutive if it is even possible (I have thoughts on that given the reputation and the current environment in the wake of the SVB collapse). The only remaining option is to strike a deal. There could be a play with oncology, but it is unlikely given timing. The SAC isn't meeting until later this month and then the FDA will take its 30 days before the program restarts and a deal could be announced. So unless they are going to offload the program in a firesale, that door is closed. This leaves them with NASH. Management has been firm in their stance that they can proceed with a cash contributing partner and have alluded to the fact they want to sign a deal in 2023. Given that it has been years without a NASH partner, I am skeptical but see this as the likely path forward.
Considering the cashburn, I would hazard a guess that the company will need to address the cash deficiency before the end of Q2 (May). With the AGM scheduled for May 9th, it would be prudent for leadership to have this dealt with before then and they would likely want to include verbiage about it in the Management Information Circular which will go out shortly after the April 4th record date. That means that the next 2-3 weeks is the ideal window of opportunity if Leadership is looking to save their jobs/reputations.
So this brings us back to Howie, Deal or no Deal? With a NASH deal the share price could recover handsomely, without one the company is on the cusp on a death spiral.