CROSSJECT FINANCING ISSUE
With the issuance of bonds, the details of which are given below, the group is securing its short-term financing. We will integrate this new financing in our model. Depending on a number of assumptions (partial or total conversion, interest paid, cash repayments, etc.) our target is price is likely to go down, even if the upside will remain significant in any case.
FACT
The group has announced an issue of 70 amortizable bonds convertible into new stock with a nominal value of €100,000, for an amount of €7m, waiving preferential subscription rights.
ANALYSIS
The initial investment or First Tranche of €7m may be supplemented by a Second Tranche of a maximum amount of €5m on Crossject’s initiative and subject to compliance with certain conditions. In particular, Crossject must have received authorization from the FDA to deliver the first units of ZEPIZURE to the Strategic National Stockpile under the contract between Crossject and BARDA.
For the First tranche, the convertible bonds may be converted into new ordinary stocks at an initial ratio of 19,420.5 stocks per convertible bond, i.e. a conversion price of €5.5 per ordinary stock.
The number of new stocks that may be issued under the convertible bonds (1st tranche) is between 1,359,434 and 7,816,6665. The convertible bonds bear a 7% interest yearly. All in all, the maximum dilution could be c.18% (first tranche) or 27% (tranche 1+2) depending on a number of assumptions on the amortization if the bonds (see below).
This move secures the financing of the group at least partly for FY24 and, as such, is good news. The interest paid also looks acceptable at this stage of the group’s development. That said, the market seemed to be more interested in the dilution with the share price down by c. 15% yesterday. It is also important to keep in mind that this issue comes on top of the current funding by BARDA (for $6.7m invoiced over 2023 out of a maximum overall budget of $32m), for the advanced development of Zeneo Midazolam.
On the negative side, the potential dilution has obviously played a role in the fall in the share price, as did investor regret that the Group did not, or could not, have recourse to secured bank debt. For each tranche, the amortization schedule of the convertible bonds is provided for at the rate of 17 equal payments every 2 months, from the 4th month following the date of issue, payable according to the company’s options: in cash for an amount equal to 102% of the amount due or in new ordinary stocks issued, the value of which is equal to 85% of the market Value of the stocks in a given period of time: in short, the dilution may start taking place as of June this year.
Lastly, the issue is the use of these bonds which the investors tend to dislike with a number of examples where share prices have remained under pressure for a long period of time.
IMPACT
We will factor this new financing into our model. Depending on a number of assumptions (partial or total conversion, interest paid, cash repayments, etc.) our target is price is likely to go down, even if the upside will remain significant in any case.
