The cash used by operations in the second quarter was over 11 millions .... not sure where you got your 4 millions .... Thst makes a huge difference
SPCEO1 wrote: The cancer data was the critical info last week but the financing deal was very important as well, so let's look at little more at that too:
1.) $40 million to be taken down shortly at a rate of just over 11%
2.) $28.5 million of that will be used to repurchase $30 million face amount of the convert, leaving anoter $27 million outstanding.
3.) Interest costs will start off at roughly $367,000 per month ($4.4 million per year) for the new loan but will almost certainly rise as the SOFR rises with the general level of short term interest rates. This will only impact 1 month of Q3. Of course they will still be paying interest on $27 million in convertible debt for the next three quarters too or roughly $1.2 million on that.
4.) So, $11.5 million of extra money from the first tranche added to the say $27 million they probably already have at this point for a total of $38.5 million in cash on hand.
5.) But $27 million is committed for paying off the remainder of the convert (assuming they don't have great data between now and June that causes the world to suddenly fall in love with the stock and push the stock above the convert's $14.80 conversion price). So, after taking that into consideration, cash is just $11.5 million.
6.) Of course, that is where the second tranche of $20 million by June of 2023 comes in. So, adding that back in, we get to $31.5 million less any additional cash burn between now and then. Let's peg that cash burn at $4 million a quarter or roughly $12 million. So, by the time they take down that second tranche, they will have roughly $20 million in cash on the balance sheet. This assume they have not started a phase II trial.
7.) I am going to go ahead and assume an interest rate of 13% on the loan by the time the second tranche is taken down which brings the yearly interest bill to $7.8 million post June 2023 or about $650,000 per month.
8.) TH is incentivized to take the third $15 million tranche by December 2023 in order to extend the period where the loan is interest only to three years and to extend its term from 5 to six years. As long as the company meets the milestones, I have to believe they are drawing this down too. And assuming no huge influx in cash from partners, they will need the money too.
9.) Now, we have to assume TH will be in a phase II trial by June 2023. If somehow TH-1902 flops in phase 1b, then things get ugly pretty quickly. If not, and a phase 2 trial is started, then that means the outlook for the drug is pretty good, and the opportunity for partnerships, and the upfront cash that comes with it, will have expanded very significantly. So, maybe they never draw that third tranche or even the second tranche. Maybe they even pay off the entire Marathon loan at the end of two years before it moves into a principal and interest payment because they are suddenly cash rish? Moreover, if they are in a phase II trial, maybe they have already gotten a BTD from the FDA for TH-1902. It is not hard to see them raising more equity off of a much higher share price at that time and starting to look like a more standard overcashed biotech company. That's a lot of maybes, but you get the idea. Good clinical success begets increased financial flexibility on better terms.
10.) THTX is about to turn the corner into such good clinical success. It if successfully completes that turn, the loan will likely become an afterthought among investors. If they don't, TH's finances will get very strained and they will be deperately looking to raise cash at bad equity and partnership prices while trying to restart their cancer efforts with a new version of TH-1902.