Lipum: Raises SEK 39m Through Directed Share Issue
Research Note
2022-09-23
07:30
Redeye leaves a comment following Lipum’s announcement yesterday evening of a directed share issue of approximately SEK 39m.
KS
Kevin Sule
In anticipation of the upcoming phase I study with lead candidate SOL-116, Lipum announced late yesterday that the Board of Directors had resolved on a directed share issue to anchor investor Flerie Invest AB and “certain other existing and new investors with pronounced long-term interests in the Company”. The directed issue comprises 2,601,732 new shares at a subscription price of SEK 14.99. Correspondingly, this will cause a dilution effect of approximately 34% for current shareholders not participating in the offering as the total number of shares will increase from 5,052,492 to 7,654,224.
The subscription price corresponds to the volume-weighted average price (“VWAP”) of the company’s share during the last 10 trading days preceding the Board of Directors’ resolution on the share issue. Accordingly, the offer does not entail any discount compared to the quoted value of the share. Instead, the price entails a 6.3% premium compared to yesterday’s close (14.10). Through the share issue, Lipum raises approximately SEK 39m before the deduction of transaction costs. The proceeds are primarily expected to be used to finance the phase I study and for extended pre-clinical studies of the SOL-116.
Given the stage the company is in and the current market conditions, we judge this capital raise as truly impressive. As we previously explained, the company was in need of some additional cash and we predicted that a capital raise would take place before the end of the year. However, doing so without imposing any rebated subscription prices is a true testament to the management’s executive abilities and the company’s solid ownership base. The continued support from Flerie Invest reiterates its long-term belief in Lipum as Flerie Invests has committed to subscribe for shares corresponding to approximately SEK 25m (64% of share issue) and will become the largest shareholder in Lipum (28.3% of outstanding shares).
Overall, we are pleased Lipum can proceed through upcoming key inflection points according to plan and believe that this proposed capital raise creates long-term value for its shareholders. Following the directed share issue, we slightly adjust some estimates in our valuation model. However, given that the conditions of the share issue were very much in line with our expectations (see our initiation coverage), it does not alter our fair value range.
Lipum - Valuation (New)
Source: Redeye Research
We reiterate our Base Case proposition of SEK 22 per share.
Case
Potential to satisfy market need
Evidence
Establishing a platform to broaden pipeline
Supportive Analysis
Challenge
Unproven target
Challenge
Highly competitive market
Valuation
Long-term value potential
People: 3
We view the company's management and board as competent, and we believe shareholders can be confident in its executive and strategic abilities. Despite being small, the management team is dynamic and experienced. CEO Einar Pontén has “done it before”, having been co-founder and CEO of chromatography company SeQuant AB for more than 10 years, as it was acquired by pharmaceutical giant Merck.
Business: 3
Lipum is a biotech company in research and development stage. Consequently, the company is yet to register any recurring revenue. Instead, the company is highly dependent on capital markets for near-term funding and potential licensing partners for future late-stage development. However, we argue that the future sales potential for SOL-116 is significant as our sales model estimates global annual peak sales of more than USD 600m.
Financials: 1
The company is in need of capital to carry on operations until completion of phase Ia/Ib trials with SOL-116. Accordingly, Lipum has stated that it intends on raising capital later on this year.
Disclosures and disclaimers