The terms of a proposed agreement between this cell therapy company and YOFOTO, a Chinese health and consumer products company, have been revised and will result in a $5.1 million investment.
RepliCel Life Sciences Inc. (RP:TSX.V; REPCF:OTCQB) and YOFOTO (private) have revised the terms of what Echelon Wealth Partners analyst Doug Loe calls a "strategic alliance" between the companies, whereby three of Replicel's cell therapy products would be licensed to YOFOTO and marketed in China.
On May 2, Replicel announced it had a new "binding term sheet" with YOFOTO that "both parties believe represents a stronger deal for both sides and positions them to finalize the transaction in the very near-term." The original proposal was announced in January 2017.
The terms include "an exclusive license to three RepliCel products [in China] in exchange for payment by way of investment, milestones, program funding and sales royalties," according to Replicel. Those products include the company's "tendon regeneration cell therapy (RCT-01) in development, skin rejuvenation cell therapy (RCS-01) in development, and its injection technology in development for dermal applications (RCI-02) (excluding hair-related treatments)."
The changes involve the financial terms of the agreement. In a May 2 research report detailing the alliance, analyst Loe outlined the alterations, which include "[less upfront cash from partner's share-based investment, but with far less dilutive impact on capital structure than previous deal incarnation incurred."
Loe described "a measurably positive share-based investment into RepliCel, with magnitude of investment now lower in absolute terms ($5.1M, was US$6.5M before) but at a far higher per share valuation ($0.95/shr. . .was $0.54/shr before."
According to the company, "The deal structure continues to include milestone payments (of up to CDN$4,750,000), sales royalties, and a commitment by YOFOTO to spend a minimum of CDN$7,000,000 on the RepliCel programs over the next five years in Greater China." It also includes an upfront deposit of $650,000, which remains in escrow until the alliance is finalized.
The changes in terms do not "dramatically revise our core investment thesis on RP or its non-bulbar dermal sheath (NBDS)/dermal sheath cup (DSC) regenerative medicine platform," Loe noted. Echelon has a $2.15 price target on Replicel shares; shares currently trade at $0.37.
Echelon remains "encouraged by all Phase I/II data that RepliCel has generated in recent quarters, including in androgenetic alopecia (hair loss) with RCH-01, in tendon repair (specifically Achilles tendinosis) with RCT-01, and in skin rejuvenation with RCS-01," Loe stated, adding that Replicel's partnership with Shiseido remains in force, and that "updated Phase II data from a 19-patient androgenetic alopecia trial could generate final five-year safety data and two-year efficacy data by FQ318."
"We remain positive about medical prospects for all of RepliCel's hair follicle-derived cell therapies based either on its proprietary NBDS or DSC platforms, and we are clearly positive about new capital accessed in Asia that allows the firm to reinvigorate development activities that have languished for the last few quarters while the firm was more capital-constrained," Loe wrote.