Equity research Biosergen: Rights issue to fund the next clinical step

On the evening of Tuesday, 30 January, Biosergen announced a rights issue of approximately SEK 40.5 million, a bridge loan of 7 million and warrants totalling another 68 million. The rights issue is covered to 65 per cent by guarantors. The need for a cash injection was expected, with our estimate being SEK 40 million in March of 2024. We adjust our target price to SEK 1.4 (2.8) to account for dilution.

A rights issue to boost production and bridge the next clinical step

After market close on Tuesday, 30 January, Biosergen announced a rights issue to fund the upcoming, first-in-patient clinical study with BSG005. As was discussed during the company presentation at our investor day, the company was going to need a cash injection to fund the next step in the clinical timeline. This cash injection consists of three parts, a rights issue, a bridge loan and warrants. The structure is as follows:

The rights issue will consist of units. All existing shareholders will receive one unit right per share owned in Biosergen as of the fifth of March 2024. Three basic units grant the right to subscribe to 8 new shares and 8 warrants of series TO3. Assuming full subscrip-tion, the rights issue would correspond to SEK 40.5 million before issuing costs, or SEK 0.3 per share This in turn would entail an increase in the number of shares by 135,162,296 from 50,685,863 to 185,848,159, a dilutionary effect of 72.73%. The last day of trading including the right to receive units will be on the first of March 2024. Unit rights are obtained on the fifth of March with the estimated date for the announcement of the outcome on 25 March.

The subscription price of shares with the support of warrants will correspond to 70% of the volume-weighted average price paid for the company’s shares during the period rang-ing from 4 November to 15 November 2024. The price will however be no less than SEK 0.3 and not more than 0.5. If fully subscribed and exercised the TO3 warrants will provide an additional SEK 68 million before costs, corresponding to an increase in shares of the same amount as before, namely 135,162,296 shares, a dilutionary effect of approximately 42.11%.

The rights issue was, as mentioned earlier, expected with our estimate at SEK 40 million in March. However, we did not account for the addition of warrants. We believe the cash flow from the warrants could help in ramping up production of BSG005, thus possibly alleviating the risk of a production-centred bottleneck. However, as the allocation of possible capital from warrants is still unknown we have not yet included how the money will be spent in our models. This in turn means that, when this becomes clear, there could be upside to our valuation as the money might boost clinical activity.

Lancet meta study reveals larger prevalences than previously thought

In the Lancet: Infectious Diseases, Professor David W Denning published the study Global incidence and mortality of severe fungal disease. In the study, literature searches from 2010 to 2023 were combined with meta-analyses of over 85 papers on both individual and global disease burden. Factors covered include, untreated mortality, percentage treated as well as general prevalences in different geographies. The study highlights that fungal infections are not only more common than what was earlier believed, but also much more severe. We expect to raise our estimates for the TAM for BSG005 as infections for certain fungals were higher than our estimates. The updated information will be included in our next research update following the Q4 2023 report on 29 March.

In summary, we adjust our fair share price to SEK 1.4 (2.8).
Read our latest research update here.

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