Trius (TSRX) recently completed an equity offering (January 19) in which it reportedly sold off 6.3 million shares at $4.75, raising approximately $34.1 million. Based on some analysts' projections, the company's cash position at the end of first quarter 2013 will be $84 million, which equates to roughly two years of cash burn. Trius anticipates using the net proceeds from the offering for general corporate purposes, including clinical trial, preclinical and other research and development expenses, capital expenditures, working capital and general and administrative expenses. The company has a positive history in terms of managing cash, albeit they have a progressive burn rate for the first three quarters of about $12 million, a good part associated with clinical trial proceedings.
The company has avoided a weak cash position (less than one year of cash operations on hand). Shares are currently floating in the $5.00 range, recovering from a fair decline upon the announcement of the public offering.
So why the offering now one may ask?
Phase III top line data for Tedzolid is expected by the end of the first quarter. All indications to date seem positive. Without an unexpected delay from the FDA, all paths to a successful NDA in mid-2014 seem likely. The company's market cap is about $200 million, seemingly undervalued for the potential they represent. A partnering deal is imminent with good top line results.
So why now and not after Phase III topline results? For starters, the offering brings a strong balance sheet to the company. Cash on hand is always important. Not just to set at ease management but as to what it says to outsiders. Entering into deals for commercialization, marketing, licensing etc. is best done from a cash position of strength, not weakness. Many deals include upfront payments of $50 million and up; and of late, also have the partnering firm investing into further development to extend the drug or therapy's reach. This again strengthens the founding company's position. In the case of Trius, a deal could push their cash position up significantly, again strengthening their position for additional deals.
The premise behind the offering now is this - to have a drama and risk free environment surrounding the company and the commercialization process of Tedzolid when the opportunity arrives. One acknowledgement of risk is that if by chance new Phase III data is not positive, raising funds now is smarter and trying to do so after negative news is out. There is no indication of anything negative at this time and since the trial is blinded, management has no information that effect.
Recent offerings and financing agreements by the company include raising over $52 million in first quarter 2012, and an August 2012 committed equity financing facility from Terrapin Opportunity Fund for $25 million of which has been used minimally (approximately $9 million drawdowns) and a bit of a mixed bag for the company in terms of its perception and use.
The old adage "timing is everything" is very relevant here and explains the offering at this time. It was good timing on multiple fronts, as referenced above, for Trius to execute now. Management has shown in the past that it has good reasons for the pathways it has taken the company towards. Remembering that Trius is about strong science, good IP and the company's mission is to commercialize that science may also help one understand the current decisions.