Early last week (on April 9, 2012), Pressure BioSciences, Inc. (OTC:PBIO) entered into a definitive agreement with Ironridge BioPharma Co. to purchase $500,000.00 in shares of Series E Convertible Preferred Stock of the Company.
The Deal:
Each share of the 500 shares of preferred stock is convertible into approximately 980 shares of common stock, which is determined by dividing the stated value of the Series E Preferred Stock of $1,000 by a fixed conversion price of $1.02 per share. The conversion price is not subject to any price anti-dilution protection. Ironridge will receive no warrants. There are few restrictive covenants and no amortization provisions in the transaction. The Preferred Stock will accrue dividends at 10.5% per annum, subject to a credit risk and make-whole adjustment, and is payable in cash or shares of registered common stock at the discretion of PBIO. Under certain conditions and subject to certain limitations, the Company may require Ironridge to convert their preferred stock into common stock.
In connection with the transaction, Ironridge represented that it has never shorted the Company's stock, does not hold any short position in the Company's stock, and will not engage in or effect, directly or indirectly, any short sale for at least one year.
Our takeaways from the transaction:
- The deal immediately boosts PBIO's balance sheet. As of December 31, 2011, PBIO had cash of $223,000, and in February, 2012, PBIO closed on an $800,000 private placement. With current financing, the Company should have cash of about $0.7 million at hand right now.
- This transaction is favorable to PBIO. The conversion price of $1.02 is a premium of 64.5% over the then share price of $0.62 with no warrants and no restrictive provisions. This is unusual since most financing for small cap biotech companies are toxic and diluting to existing shareholders. This validates PBIO's technology and its commercial potential.
- The relationship could be "the beginning of a long and mutually beneficial partnership" as Ironridge said in the press release. The Fund is not in the habit of doing bridge financings. There is a good chance that PBIO might be looking to go back to the Fund for additional funding.
What are the implications to PBIO investors?
The Ironridge deal is absolutely good news for PBIO investors. With a favorable long term partnership, PBIO is well positioned to grow its business in 2012 and beyond.
It should still be in investors' fresh memory that PBIO has been making every effort to roll out its aggressive commercialization initiatives for its Pressure Cycling Technology (PCT)-based products. Within one year, the Company has established 4 co-marketing or distribution agreements worldwide. This is a cost-effective way to significantly increase PBIO's market penetration and increase sales. We expect to see incremental sales results during the first half of 2012 and major impact in 2H2012.
We think PBIO is undervalued at current price of $0.60 and represents a great investment opportunity now. Ironridge is doing the right thing by investing in the Company right now. We have an Outperform rating on PBIO shares.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.