This is not the first time that Bioniche has contemplated selling key assets. Bioniche sold its sterile injectibles manufacturing subsidiary (“Bioniche Pharma”) to a private equity firm, realizing about $21 million. The proceeds from the sale were then used to pay down debt and fund research into Econiche and Urocidin. The private equity firm which bought Bioniche Pharma expanded the business and then sold it for some $550 million just four years later. The proceeds Bioniche received are now all gone and yet neither of the drugs the sale proceeds were supposed to fund has generated a dollar of sales revenue for the company. Bioniche’s management is about to do the same thing with animal health, the only revenue-generating business the company has left. The current board and management team have no credibility when it comes to making strategic decisions.
- Bioniche Board Executes a Distressed Financing – The Management and board of Bioniche have once again entered into an expensive, value eroding, short term financing, further evidence they will do anything to entrench themselves, regardless of the cost to shareholders.
On June 5, 2013, Bioniche announced an agreement with Paladin Labs Inc. (“Paladin”) to restructure the $20 million Capital Royalty Partners II L.P. (“Capital Royalty”) debt facility that Paladin had just acquired:
- Paladin agreed to advance $5 million to Bioniche on closing, with a potential further $3 million contingent on Bioniche raising more financing. This only represents approximately three and a half months of non-contingent financing at Bioniche’s previously disclosed average monthly burn rate for fiscal 2013 of $1.4 million per month;
- In return for this marginal benefit, the transaction will increase the debt level on an already over-indebted company; on very expensive terms. The face interest rate is 13.25% p.a. plus a 2% royalty payable to Capital Royalty on all product sales;
- Paladin will be issued 2,000,000 warrants to acquire common shares of Bioniche at various prices, and Bioniche has an obligation to repay the entire loan to Paladin, with a 5% premium, upon the sale of the Animal Health business;
- The entire loan is repayable in approximately one year. It is difficult to estimate the true cost of this short term financing due to the convoluted structure, but under any scenario Bioniche has increased the cost. This is further evidence that management and the board have run out of ideas.
- Bioniche Board Gave Away Territorial Rights to Urocidin™ Bioniche also granted Paladin the Canadian, South African and Mexican commercialization rights to Urocidin for no additional consideration other than future uncertain milestone payments, while Bioniche retained the obligation to fund the ongoing development and manufacturing costs for this drug, which has not yet been approved for sale in any jurisdiction.
- Bioniche’s Board Has No Credibility When it Comes to Oversight As a reward for years of dismal performance and destruction of shareholder value, during the year ended June 30, 2011 Bioniche agreed to sponsor an unfunded defined benefit pension plan for its CEO. That liability stood at over $1.8 million at June 30, 2012