Claritas Pharmaceuticals Inc V.CLAS.H

RE:A short history of what we know so far in relation to the

[Captainblk]

Seagrind wrote:

upcoming deal. I apologize for the length, but the rabbit hole is deep here.

• On July 26, Kly confirmed they “…that after consultations with major shareholders, the board of directors of the Company has decided not to proceed at this time with the shareholder vote with respect to the authorization of a potential share consolidation”. Summary: share consolidation would have been required to continue to raise program funds if Kly was going to go the distance on their own. The venture only allows private placements at 0.05 cents SP and above unless special circumstance and their float is already too high. This signalled they want a buyout or out licence to continue the program.
• On Aug 19, Kly announced that “Kalytera has recently received unsolicited inquiries from companies interested in the commercial rights to Kalytera’s GVHD products.” and that they “…will pursue a corporate partnering strategy for our GVHD program, primarily because this could be a source of non-dilutive financing for our planned Phase 3 study, as well as a source of potential revenues from up-front license fees, milestone payments and royalties,” Summary: Why are they getting interest? Because it is a life saving drug, phase 2 results were excellent, they have the patents to protect their interest, they were granted Orphan drug designation, the market for this drug is large and the have a recommendation from the FDA to apply for fast tracking the drug. Echelon has evaluated the value of their GVHD program as has given them a 0.30 SP price target (1-year). We know this drug is valuable and has attracted serious interest.
• Aug 21, Kly announced a “…Management-Led Private Placement of Up To $1.5 Million”. Summary: Management put some skin into the game right before an upcoming deal. This equates to confidence and reason to believe the deal is going to raise the share price.
• Nov 22, Kly announced they are “…continuing discussions with potential corporate partners for its GVHD program, as it begins planning and preparation for Phase 3 clinical testing of its CBD product in prevention of acute GVHD” Summary: There is still significant interest in Kly’s program from multiple parties and deals are being discussed.
• Dec 2, Third Quarter Financials. In the MD&A, Kly stated "In November 2019, the Company completed the process of negotiating an agreement to extend the maturity date of the promissory note to December 15, 2019, which maturity date may be further extended to March 15, 2020 in the event that the Company enters into a term sheet providing for the license or disposition of the Company’s GVHD program or the sale or merger of the Company by December 15, 2019". They also stated  “In order to repay the outstanding 2017 Debentures maturing on December 20, 2019, the Company will also need to obtain financing sufficient to allow it do so. The Company believes that, if it is able to enter into a Transaction Term Sheet by December 15, 2019, then it will be reasonably likely that the Company will obtain sufficient financing to allow it to repay the 2017 Debentures. However, while the Company is engaged in efforts to complete the foregoing, there can be no assurance that it will be successful in doing so in a timely manner or at all." Summary: The company was confident if they had a Term Sheet which outlined the details of the deal ready by Dec 15, Talent would have no problem waiting for March, 2020 to have the deal finalized and get paid. As for the debentures statement, i read this as that if they had a term sheet available by Dec 15, Kly was relatively confident they could close a financing deal by Dec 20th. I also read this as Kly thought they would be able to have the deal signed and potentially announced by the 20th so they could get a bridge loan from the partner/acquirer until the deal officially closed in Q1 (I have seen this before and if the deal doesn’t close, Kly would simply have to repay the loan)
• Dec 16, Kly announced they were able to successfully delay the Talent payment until March 15, 2020. Summary: Sounds to me like they had the term sheet done by Dec 15. (note: a term sheet is document which outlines the details of a proposed deal, which then needs to be drafted into an official agreement, which must be signed off by both board of directors before it will be announced publicly as required by law). This was good news.
• Dec 20, Kly announced they are negotiating an extension of the debentures and to appease the debenture holders, they are willing to drop the conversion rate from .13 cents to 0.05cents. They need the holders and the TSXV to sign off on this extension/conversion change or they are in default of this agreement. Kly also stated “ If the requested amendments are not approved, the Company intends to pay all amounts outstanding under the Debentures at the closing of the first to occur of either (1) the Company’s next financing; or (2) a license transaction relating to the Company’s GVHD program, each of which transactions are anticipated to occur prior to March 15, 2020.” Summary: I don’t think Kly was able to finalize the agreement on time with the potential acquirer/partner and therefore could not get access to a bridge loan in time. I can’t see how they could do a private placement to pay the dentures as it would essentially, in my opinion, be insider trading as a significant deal is about to go down. The amount left on the debentures is quite small, however, i still think Kly should have had a backup plan in place to deal with this. Because of this failure to pay on time, Kly gets a bit more dilution then was required before (if the debentures are converted). If the debenture holders or the TSXV does not agree to this arrangement, I believe the money owed will be paid off by the bridge loan (once an agreement is announced), or with money from the closing of the deal. I think the Kly had to give option 1 (“the Company’s next financing”), if the deal doesn’t actually close (VERY unlikely at this point as ALL signs point to a deal closing soon as outlined above).
• Overall, I think we will still hear an announcement of the deal between now and mid-late January as they work out the final details and get the boards approval. I think we are 99% likely to see a deal which takes the SP over 5 cents in the near future (due to the new debenture conversion agreement) and are more likely to see the range of 7-15 cents. The writing is on the wall here (even if it as been quite convoluted) that a deal is coming soon which is exactly what you invest in an up and coming biotech for. I remain extremely bullish, even if we get some short term selling due to a misunderstanding of the latest NR.