On March 28, 2012, Zalicus, Inc. (ZLCS) announced via an 8k filing that the company's equity distribution agreement with Wedbush Securities Inc. has been completed at the proposed $15 million in aggregate gross proceeds. The equity distribution agreement, put into place on January 10, 2012 (see 8k filing), allowed for the sale of Zalicus common stock, from time to time, at the market price. Through the "ATM" (at-the-market), Zalicus sold a total of 14.058 million shares into the public market.
...Significant Effort Over The Past Two Weeks...
Inside Zalicus' annual 10k filing, dated March 9, 2012, on page 65, management noted that from January 10, 2012 to March 7, 2012, the company had sold only 5.367 million shares for gross proceeds of $5.5 million.
Over the past two weeks, management sold the remaining 8.691 million shares to raise the remaining $8.8 million allowable under the agreement. This explains the significant increase in volume seen in Zalicus common stock over the past few days.
...Low Visibility / Low Fees...
ATMs are sometimes difficult for shareholders to stomach because management is not obligated to provide an update on the status of the offerings, except in quarterly filings. ATMs are like pulling a bandage off slowly instead of ripping it off in one swipe.
However, the fee that Wedbush charged Zalicus for the ATM was only 2.5%. That's a total cost of $375,000 on a $15.0 million raise. A secondary public offering of 14.1 million shares at $1.05 per share to raise $15.0 million would have likely cost Zalicus 6% fees ($900,000) or more, and the stock would have likely dropped below $1.05 per share on the news. So it's a give / take. In the end, we think this ATM was rather successful for the company.
We remind investors that during the first and second quarter 2011, Zalicus completed a similar equity distribution agreement with Wedbush that raised $20 million in gross proceeds ($19.2 million net after fees).
...Solid Cash Position...
Zalicus exited 2011 with $49.7 million in cash and investments. Subtracting out the estimated operating burn for the first quarter 2012 and then adding back in the net $14.6 million from the ATM, and we forecast that Zalicus will holds just over $50 million in cash today.
With the ATM now complete, downward pressure on the stock has been relieved and we believe that investors can begin to focus on upcoming catalysts for the shares that could drive the stock higher. These include:
- Reporting phase 1 data on Z944 in the second quarter 2012.
- Initiating a phase 2 program with Z160 in the third quarter 2012.
- Reporting phase 2b data on SYNERGY during the third quarter 2012.
- Initiating a phase 2 program with Z944 in the fourth quarter 2012.
- Forming additional cHTS or ion channel collaborations during the second half of 2012.
- Sanofi initiating a phase 3 trial on Prednisporin during the second half of 2012.
- Covidien receiving approval for the 32mg Exalgo dose during the second half of 2012.
- Partnering Synavive for phase 3 trials in 2013.
- Moving additional ion channel candidates into the clinic in 2013.