Lind - Thoughts and Scenarios This could be shorter but I just don't have time.
I agree with OttawaPeter's comments in whole. Read his post carefully. It has always been my understanding that
what OttawaPeter posted is true. Financing before Rathjen was possible, maybe even already on the table.
The question remains, what will Lind do if this acquisition fails?
Lind likely invested in the first place because of the technology. The failure of Bioasis was otherwise all too evident. They must have had some concerns about Bioasis management. Several years ago I loaned a company $50,000. I and a couple of others did that because we weren't prepared to do an equity financing. We thought the company was going to fail. Instead, loaning the money meant that if the company defaulted on our loans, which it did, then we would receive enough shares for debt that we would receive enough shares to get control of the company. The company did default, we voted out the BoD and management and we took control of it. It was a very successful deal for us.
My point is that Lind may be seeing the same thing, that management has failed despite having a great technology. Maybe the Lind play was for the technology. If it was, then if either Midatech or Bioasis shareholders turn down this deal, then Lind gets xB3 and EGF for $3 million or so. It could be a big win for them and it could be what their objective was from the start. These are very smart market players.
I do worry about things that went on in the last year to 18 months. The short on Midatech is a problem for me. Shorts are destructive. How much damage did the shorts do to Midatech? More importantly, when you see a company shorting another company and then later benefiting from the shorted company's troubles, you have to ask whether the short was more of a strategic plan than a trade.
I've posted all along about the possibilities relating to what Bioasis did or did not do, who knew what, was this a setup - all legal, nothing personal, just business.
But there has never been any way to avoid the truth that Bioasis has been poorly managed. The market knows it and has plainly expressed it with the share price since 2013, with only brief spikes since then. And yet everybody sees Denali, which had a market cap of $8 billion and more at one time, and still has an market cap of $4 billion. The success and value of Denali, in the same business as Bioasis but probably with an inferior technology, are scathing indictments of Bioasis management and their failures over these many years. There can be no doubt that Lind, Midatech, LT and The Placee all know this.
The value of transporting drugs across the BBB is obvious. Bioasis has never reported a failure or a concern with xB3. It has succeeded in preclinical studies with Texas Tech, MedImmune, Scarpa, NRC, and several others. It's been derisked just short of the last studies needed for IND submissions. Bioasis is ripe for the plucking.
That could mean that Lind wants it. Lind could capture xB3 and then create or fund a private company, or sell xB3 for the purpose of getting work underway, anything, xB3-001, for instance, through preclinical work, IND approval and a Phase 1b/2. Two years? Maybe? They could come out of it with a NASDAQ IPO and could be another Denali worth instant billions, all for a few tens of millions.
And they could do that because Rathjen and the BoD pretty much gave it to them. To get the loan, what guidance did Bioasis give to Lind and what did Lind think of it? Lind could have privately thought that Bioasis was dreaming in Technicolor but went with the deal because they might, or almost certainly would, be able to capture the Bioasis assets upon Bioasis failure.
And that means to me that Lind has really good investment reasons for forcing the default and claiming the assets. Why did Lind reject a payment extension for the period ending January 31, 2023? Why did they only agree to December 31, 2022? That answer doesn't look good. On February 3, a payment is already due.
Looking at Lind, they do both equity financings and convertible debt financings. The latter is often the best kind of deal to do with a risky company. Equity investors have no claim on assets. Lenders do. Lenders with convertible debt can protect their downside if the assets are strong, and they can benefit by converting the debt to equity if the borrower is successful.
Looking at the acquisition, it seems evident that Lind did not want all equity in payment by Biodexa. Midatech/Biodexa must pay the Bridge and Holiday loans, and 50% of the remaining Bioasis loan upon the deal closing. The remaining 50% of the outstanding original loan will be paid in equity. The way that Lind has restructured its loans with Bioasis and Midatech suggest that Lind had no faith that Bioasis would/could succeed and something less than full faith that Biodexa would succeed.
But, we should consider what might prevent Lind from foreclosing immediately. Well, it's not great for their reputation and optics as an investment fund if it appears that they are essentially engaging in hostile acquisitions of their clients' assets. If Lind is too aggressive and quickly forecloses, would that scare future business away from Lind? Would Lind begin to look like loan sharks, looking for exploitive deals? Lind has to live in their marketplace.
Lind could give a new Bioasis management and BoD a little bit of time to get the payments caught up. But that's not really good enough for Bioasis. Bioasis needs an equity investment that would pay the debt off and provide at least a year of operating room. Could Bioasis raise $8 million to $10 million with less than 50% dilution. Would the market push the share price up to 10¢ or more if the deal fails? I doubt it, not without help from Lind. A new Bioasis management would need to convince Lind to give Bioasis a couple of months to get to fix things. But Bioasis is in a mess. It could be difficult. But with help from Lind, Bioasis might get its share price up to 10¢ or so.
For $8 million at 10¢, Bioasis would need to issue 80 million shares and, likely, 80 million cheap warrants. And that would leave only $5 million after the debt was paid off. Bioasis shareholders would end up with a quarter to a third ownership of Bioasis with a financing like that, if it could be done. A rollback of 1 for10 may make it more possible.
Bioasis may be able to close a deal or two in that first year. A strong and very capable CEO would be required. Bioasis could sell off a high value property like xB3-001 for $5 to $10 million up front and modest milestones, enough to buy time and get an IND submission in for something else of value. I believe that an EGF trial that does not involve xB3 would not be of much value to a Bioasis in survival mode. I think that Bioasis needs to prove xB3 and getting IND status for at least one xB3 drug may be an important first move for share price appreciation. I don't think that EGF can do that.
If shareholders showed a willingness to do a significant rollback to 10 million shares or less, and then stomach a dilutive financing that would get some money into the company, then maybe Lind would agree to some terms. But Rathjen and the BoD must go. I don't think that shareholders' opinions about this are as important as the investment and biotech industries' opinions. I can't imagine any industry players having faith in any management that presided over the 15-year destruction of a company that should be competing with Denali.
But no matter what, it comes down to Lind. Are they itching to foreclose or would they play ball? That's a big question. What face at the head of Bioasis would almost immediately be required to give Lind the confidence to allow Bioasis to survive?
Tough, tough questions...
jd