By Brian Marckx, CFA We cover FPMI with an Outperform rating and $2.35/share price target. See below for free access to our full 21-page report on the company.
FluoroPharma's (OTC BB:FPMI) 8-K, filed this morning, provides more details of yesterday's announced financing arrangement which appears well-structured, existing shareholder-friendly, and interest-piquing.
The securities purchase agreement includes the sale of up to $7 million of Series B preferred stock with 133.1% warrant coverage. The preferred shares are convertible to common at $0.80/share. The five-year warrants are exercisable into common at $0.83/share. With FPMI shares trading at about $0.63 when the press release hit the wire, the conversion prices of both the preferreds and warrants were well out of the money (i.e. - non-dilutive).
An initial closing was consummated which included the issuance of 903k preferred shares (inc. 1.2MM warrants) in exchange for $463k (gross) in cash and the conversion outstanding promissory notes. $200k principal of promissory notes was issued in June 2013 which contained a provision that, in the event of a subsequent financing, that they would be exchanged at a premium into the securities sold. This initial closing wipes the balance sheet clean of any debt.
In addition to the preferred being sold at a premium to where the common is currently trading, another somewhat unique (and particularly interest-piquing) aspect of this financing arrangement is that Platinum-Montaur Life Sciences, the lead investor, has pledged to purchase 4.5 million preferred shares ($3.6MM) in exchange for 1.23 million freely-tradeable (i.e. - non-restricted) shares of Navidea Biopharmaceuticals, Inc (NYSE MKT:NAVB). Platinum-Montaur, the healthcare division of Platinum Partners which has over $1 billion under management, is a major financier and investor in NAVB, which is involved in the development of radiopharmaceuticals primarily aimed at oncology applications.
In addition to the initial closing ($723k) and the $3.6MM from Platinum via NAVB shares, FPMI has the option to issue up to an additional $2.7MM of preferred shares at any time until January 15, 2014.
The preferreds accrue dividends at 10% annually. Dividends are payable in additional preferred shares (paid-in-kind) and are payable on the third anniversary following the issuance date or upon conversion into common stock.
As we have noted in our ongoing coverage of FPMI, the company has wisely managed its financial resources with only a moderate cash burn. We expect this financing arrangement, which we believe was also very wisely structured and shareholder friendly, to provide the resources necessary to help expedite the development of CardioPET and BFPET through at least phase II trials. We also think that Platinum's involvement with FPMI is a meaningful vote of confidence - and the exchange of NAVB stock for preferred is also somewhat intriguing.
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We cover FPMI with an Outperform rating and $2.35/share price target. See below for free access to our full 21-page report on the company.