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Hi All,
It has been a while since my last post due to work and personal commitments. However, I’ll list my take on the latest news below. Apologies for the long read.
The cash raise was unfortunate and disheartening for existing holders, however, I did suggest that the Evgen would need at least a year’s runway due to the disagreement with Stalicla. I believe that management have taken the correct steps in ensuring the company is in a position should the worst come to pass regarding Stalicla and they decide to pull the plug on the deal. However, there are a few interesting points to note regarding the raise and cash position.
The raise was carried out at a premium to the prevailing share price (granted the share price had taken a real battering from the current Stalicla saga), which, in the current climate for biotechs, the bod have done extremely well. Avacta, Sareum, Oxford Biodynamics, Hemogenyx all had to raise at a discount, despite Sar and OBD share prices also taking a hammering before the raise. Several biotechs, including C4X and Redx are looking at delisting from Aim and going private, shafting PI’s in the process. The current environment for pre-revenue biotechs in general is appalling, noted by the struggles and widespread share price declines within the sector. Evgen were very fortunate to get the raised away at 1p/share. It is also not surprising that PI’s did not support the placement, with the share price already below the placement price it would have been non-sensical. However, this lack of interest from PI’s may actually benefit all holders due to significantly less dilution at such a low share price. Also, much of the cash raise is in sticky hands, and with not a lot of buying in this price region, I doubt we will see much of a sell off until the share price is much higher (unless of course some negative news comes out).
I had hoped, like most, that the Stalicla issues would have been resolved preventing the need for a raise. However, given the circumstances I truly believe that the raise was in the best interest of shareholders. We knew cash was tight, with money due to run out towards the end of the year. I’m pleasantly surprised that the bod believe that this raise has resulted in a significant cash runway into 2026. Clearly, cash burn has reduced significantly, I assume largely due to the high costs of the tablet reformulation during the last year haemorrhaging cash. Two years of cash is significant and is puts the company is a far stronger position to weather the current storm biotechs find themselves in. Not many biotechs have a single years’ worth of cash, let alone two years, with possibilities of further extending this should Stalicla pay the $500K and $5m that should, hopefully, be due this year.
Cont.
The largest part of the raise details I do not like is that the company in currently in discussions with a number of additional investors and has asked for the ability to raise another £2m, at a price not less than the 1p placement. At 1p/share, I would not like to see any additional raise and do not see the necessity for one at this time. In my opinion, raising additional capital now would not be in the best interest of shareholders, unless there was a significant justification (possibly the acquisition of another undervalued asset(s)?).
Stalicla have not pulled out of SFX-01 as of yet, and with the cash raise giving Evgen a far stronger bargaining position I no longer foresee this happening. My greatest concern when Evgen released the payment complaint RNS was that Stalilca would play hardball knowing we did not have the cash to see out the year. As a result, by waiting, they would have been able to secure SFX-01 for a steal, either through Evgen going into admin, or offering shareholders a slightly better deal than a potential raise. However, I don’t think this is an option for Stalicla now and I still believe that they aim to progress STP2 into Phase 2 trials. If they had issues with the science, they would have dumped SFX-01 immediately. They had the opportunity to do this earlier in the year, but didn’t.
The bod have subscribed to shares which is good to see, albeit at a lower level than some shareholders would have liked. I would agree that it would have been nice if they had committed to a larger number given their salaries as a real statement of confidence, but it must be noted that employees of the company face larger losses than investors if things do go awry. Not only do they lose their investment, but their job and income stream as well. The bod are also more ridged than us PI’s, they are limited to when they can buy/sell so they are usually locked in for the long haul regardless of the environment.
The acquisition of Chronos Therapeutics is interesting and I am unsure what to make of it. It seems to have been in the works for a long time and if Huw is to be believed, pre-covid they had an offer of circa £12m, which was pulled due to the pandemic. It may be that the completion of the deal has just come at the wrong time, considering the Stalicla saga, and subsequent low share price. Huw had a few shares in Chronos so there could have been a conflict of interest and maybe this was why he couldn’t buy Evg the past few years? Possibly. However, in the grand scheme of things, is seems that Huw didn’t own a large amount of Chronos in any event. He received just over 122K Evg shares, therefore he owned less than 0.2% of Chronos.
Cont.
We have only paid £1m for Chronos thus far, with circa £100k paid in exclusivity fees (to fund the pipeline) and £900k as shares issued at circa 50% above the prevailing share price (1.44p/share). Additionally, these shares are locked for 18 months. Another £1m at start of phase 1, and £1.5m at end of Phase 1 paid in Evg shares or a loan note at Evgen’s preference. There is then 10% of the first three out licensing deals, again, paid in Evg shares or loan notes. All capped at £10m. The deal terms are intriguing and the jury is out if the acquisition will prove its worth to existing shareholders.
We are expanding the portfolio, which may prove a very smart move if Evgen can weather the current storm the biotech industry is facing. Valuations have been hammered across the board, and picking up new, novel compounds while the industry is in turmoil could prove to be a very shrewd move and prove very lucrative for investors. Evgen have been searching for opportunities to expand the pipeline since 2021 and seemly have undergone a long process (over the past 18 months they have evaluated 120 options) to whittle down the list before deciding upon Chronos. The new drugs acquired are in the resurgent neuropsychiatry therapeutic space and complement our existing portfolio.
I seem to be in the minority right now but I think the future is looking far brighter for Evgen after the raise and acquisition, particularly when we compare against the economic backdrop and the current state of the biotech sector in general. The importance of the two years of cash runway cannot be understated and with the market cap at a mere £3.3m, barely higher than cash in bank, I think there is real potential for a re-rate in the near future, particularly if/when we hear the payment from Stalicla is sorted, and then when IND is applied for. The pipeline assets are currently being valued at next to nothing. The past few years have been brutal, but we have cash to weather the rest of the storm. We now need management to focus on speeding up development of our pipeline and out-licencing our novel drugs. I would like to see another deal this year, in addition to a positive outcome to the Stalicla payments.
Good luck all, lets hope we see a positive resolution to the Stalilca deal in the coming weeks.
Thank you for sharing your detailed thoughts, xx, but unless Stal come up with the cash in full and assurances that the prior agreement will also be honoured in the event of further successful progress, then all the other stuff, including Chronos, is simply noise, IMO.
If anything, this recent stuff underpins the theory that this is a fully fledged lifestyle company and nothing more.
The tiny inside buys - when we have not even seen any large inside buys in the past either - and at a 1p price no less - is a joke. Sorry, but I just do not buy it. And nor does the market, by and large, it seems.
If Chronos really was worth many multiples of what they paid for it right now, then why would the directors not have loaded up? It would be an absolute no-brainer to do so, surely?!
Take into consideration their longer term track record here as well, the Juv debacle, a number of other questionable statements made here and there in interviews over the past couple of years (and more)...well, IMO there are far better punts out there right now, let alone investments, which this one cannot in any credible sense be called. GLA nevertheless.
Maybe the Stalicla deal raised some interest from other Bigger Pharma ?
Perhaps Stalicla pulling out would actually enable a bigger better deal to land on the table
Tin foil hat and rose tinted glasses in full effect ;-)
That certainly is a splendid phrase, although I reckon that you would do well to get yourself a tin foil hat here...find someone to swap for your rose tinted glasses if you can....and put that saved money into a stock worthy of investment :)
Gallows joking aside - good luck to you and your fellow longs. If a miracle happens, at least I might be able to take a smaller loss on my rump holding left here.
It’s a fair write up xxxinvestorxxx. It is a fair balanced view you’ve given and I can understand you wanting to be positive and optimistic.
I do agree with LWHL that everything does rest on the Stalicla deal, if that was to fall through then this is worthless and the fact there is some problem is alarming. On a positive note it’s almost 10 weeks since the dispute was issued and Stalicla haven’t pulled the plug but god knows what is going on. I am of the impression that Stalicla have a deal in place costing $160m plus royalties but have realised EVG is worth peanuts and why not try and pick up EVG for next to nothing if the SFX-01 is effective and save an absolute fortune. Maybe that’s why they are not paying the $500k and delaying moving this into phase 2?
I would agree that the Stalicla deal is still extremely important, particularly for the short term, however I do not agree that if the deal was pulled it would be game over. With the cash available from the raise, Evgen would still have time to complete on another deal. However, Stalicla pulling out would put significant pressure on not only the share price, but also management. The lack of any deals subsequent to Stalicla would raise concerns around the likelihood of another one being competed in time before cash runs out.
I do have to agree that it seems like Stalicla wanted SFX-01 on the cheap, a feeling I had when the news first dropped of the dispute, but maybe we're being too cynical and there really is something that Stalicla believe Evgen has missed to receive the payment. And if this was the reason for the slow payment from Stalicla, I would imagine that they will now rethink as the possibility of getting SFX-01 on the cheap has passed for now. With enough cash for circa two years, administration is off the cards for now and I doubt the majority of investors would support a lowball take-over bid. An offer of a least 5p may get support, but if management are confident in their ability to ‘add shareholder value’ over the next few years, than they may not recommend such an offer to shareholders.
I do not, however, agree that losing the Stalicla deal would benefit Evgen, such beliefs, in my opinion, are fanciful at best. The Stalicla deal is only for indications in neurodevelopmental disorders and so does not limit the ability to licence SFX-01 for other indications. Throughout the rest of the year I would like to see the Stalicla issues resolved and another deal completed on for confidence to return.