The Raise that Stops the Nation

Good morning, Armchair Army,

Welcome to today's edition of The Armchair Analyst, a 5-minute daily update on the ASX life-sciences sector.

I’m back after a couple of days off.

My horse didn’t get up in the Melbourne Cup, though.

… I’m not sure why I always pick the 101:1 outsider.

Backing the favourite would be the sensible thing to do. 

(and it won)

How boring though!

I like roughy.

On the track AND in the markets.

But boy, is it hard work out there right now.

Yesterday, the Reserve Bank of Australia confirmed another rate raise to 4.85%.

The goal is to slow inflation by sucking money out of the system.

It was expected.

Still hurts.

That’s five rate increases this year, and it's been hurting the small-cap markets.

Companies hit the hardest?

Those that need to raise capital.

Surprise, surprise… that’s MOST of the small-cap healthcare market.

Four capital raises in the last week that signal where we are in the “boom/bust” cycle.

The “Washout” stage.

A far cry from the peak FOMO in 2021.

To illustrate this, I’m going to look at the capital raises that happened in the last week…

NUZ, NOX, PIQ and CC5.

But first…

Tetratherix (ASX: TTX) distribution partner Superpower has launched “Superpower Peptides”. (LinkedIn, Armchair Pick, Held)

🪑 The nasal spray product is officially on the Superpower website, and you can sign up for the waitlist right now.

Resonance Health (ASX: RHT) appoints a seasoned executive to lead the TrialsWest east-coast expansion. (RHT, Armchair Pick, held)

🪑 The company was very hush-hush about the executive's name; we’ll find out when they start on December 1st.

(My read is that it probably means they are a “big deal”, and their existing company didn’t want the name getting out there until he or she was officially finished at their previous role)

Two new clinical trial sites to open annually from H2 FY27, growth driven by interest GLP-1 trials.

A good podcast this week by the BioSpace team on why Australia is a great place for early-stage clinical trials:

Neuroscientific Biopharmaceuticals Ltd (ASX: NSB) changes its name to Miro Sciences (ASX: MSX).

🪑 Much better!

Percheron Therapeutics (ASX: PER) receives FDA clearance for its investigator-led clinical trial in acute myeloid leukaemia and myelodysplastic syndrome. (PER, held)

🪑 Milestone ticked. 

This trial is investigator-led, meaning someone else funds most of the cost.

A good way for PER to get early human data without forking out too much capital.

INOVIQ (ASX: IIQ) signs an agreement with Sonic Healthcare USA to validate the EXO-OC™ ovarian cancer test in the US. (IIQ)

🪑  No commercial deal as of yet, but they’ve found a partner to run the validation study.

Radiopharm Theranostics (ASX: RAD) aligns with the FDA on a single pivotal Phase 3 trial for RAD101. (RAD)

🪑  Milestone ticked.

At the current market cap and burn rate, I think Radiopharm will be all in on RAD101.

Island Pharmaceuticals (ASX: ILA) commences pre-trial surgeries for its dose optimisation study in Marburg-infected non-human primates. (ILA)

🪑 Milestone ticked.

Arovella Therapeutics (ASX: ALA) appoints Dr Nicole Van Der Weerden as CEO. (ALA)

🪑 Good luck!

Orthocell (ASX: OCC) reports October US sales of 92 Remplir units, generating AU$279,000 in revenue. (OCC)

🪑  I’ve been watching OCC very closely. Just going back through the quarters, April-June: $300,000 in US sales. June-September: $400,000 in US sales. October: $279,000 (and two more months to go in the quarter).

The big sell-off in the stock over the last six months has been directly linked to disappointment with the pace of the US ramp-up.

This announcement is clearly to address that - “have a look at what we did in October alone”.

It’s a good sign, but I’m going to reserve judgement for now.

The trouble with month-by-month sales reporting is that it sets expectations. If no sales report comes out next month… the market will expect it to be weak.

A catch-22, reporting on one data point like this.

Orthocell (ASX: OCC) announces FDA 510(k) clearance for partner Marine Biomedical's PearlBone, unlocking U.S. market access and enhancing its bone repair portfolio. (OCC)

OncoSil Medical (ASX: OSL) submits a regulatory application for Cyclotek's Macquarie Park facility to increase production of the OncoSil™ device. (OSL)

🪑 Milestone ticked.

Nexsen Limited (ASX: NXN) secures ISO 13485 certification for its StrepSure® diagnostics product. (NXN)

🪑 Milestone ticked.

Anteris Technologies (ASX: AVR) reports favourable 30-day outcomes for its medium-sized DurAVR THV in 22 patients. (AVR)

🪑 Not a stock I’ve looked at closely.

Neuren Pharmaceuticals (ASX: NEU) receives FDA Orphan Drug Designation for NNZ-2591 to treat neonatal hypoxic-ischemic encephalopathy. (NEU)

Regeneron lands US$270M in renewed US government supply pact for approved Ebola med Inmazeb. (FiercePharma)

🪑 That’s US$270 million for an Ebola treatment that hasn’t proven effective against the current strain of the virus going wild in the DRC. 

My take is that it sets a benchmark price for stockpiling contracts IF Island Pharmaceuticals (ASX: ILA) drug works in the live Ebola outbreak.

EBOS still being shopped to private equity suitors amid share slump and executive departures. (The Australian)

🪑 EBOS for sale! Get your EBOS! Discount EBOS! Two for one! Must go! Must Go! 

Teva ends Phase 2 trial for Multiple System Atrophy (MSA) early after the DSMB indicated “a low probability of the study meeting the primary efficacy endpoint”. (FierceBiotech)

🪑 This changes the competitive landscape for ASX-listed Alterity (ASX: ATH). 

Lundbeck has one other MSA trial (a Phase 3) due to readout in Q3 next year.

If that one fails, ATH could potentially have the whole market to itself (provided its drug works).

The company is on the cusp of a Phase 3; it just needs the funding.

This news today may put it in a better negotiating position with other big pharma companies.

Stock up ~20% today.

4D Medical (ASX: 4DX) has had some big price swings over the last few days, and in a price query flagged an “increase in short positions”. (4DX)

🪑 There is some really good commentary on what happened in the AFR.

Essentially, the ‘borrow’ for the shorts dried up around the AGM, when lenders pulled back their stock to vote.

Once the vote was done, the borrow returned to the market, and the shorts took over.

Really interesting trade.

Proteomics (ASX: PIQ) launches a Share Purchase Plan to raise up to A$5M at 10 cents. (PIQ)

Neurizon Therapeutics (ASX: NUZ) secures $4.3 million from institutional investors at 6.8 cents and announces a $2 million SPP. (NUZ, held)

🪑 I participated.

Noxopharm Limited (ASX: NOX) announces a $1.5M placement at 4.2 cents and a $1M SPP. (NOX)

Clever Culture Systems (ASX: CC5) secures $2.6M funding. $1.0 million placement at 16 cents and $1.6 million loan facility. (CC5)

Four raises.

Four companies.

Different businesses, facing the same problem.

Money is expensive, but they all NEED capital to run.

Here's how each one went about it…

Market Cap: ~$15 million

Amount Raised: $1.5 million at 4.2 cents (19% discount) | SPP of $1 million

The Extras: Free 1:1 option, exercisable at the raise price, with a piggyback. Also, $3.78 million in notes convert at 4.2 cents.

How did it trade?

Went into a trading halt, then a suspension.

Came back on Monday and traded at 4.8 cents… trading under the raise price now.

Armchair Take:

This was what I like to call a kitchen sink raise.

Discount PLUS option PLUS piggyback.

What made this so difficult was converting the convertible notes as well, which added to the raise's dilution.

So, NOX gets its balance sheet cleansed (which makes the next raise easier) and enough capital to get it through to the next milestone.

… human efficacy data on its topical lupus treatment.

For what it’s worth, I like the team behind NOX and its technology.

But this was a tough raise.

Market Cap: ~$52 million

Amount Raised: $4.3 million at 6.8 cents | SPP of $2 million

The Extras: Free 1:1 option at 12 cents.

How did it trade?

Down ~24% on day one, closing at 6.5 cents. Below the raise price.

Armchair Take:

This was an interesting raise, because the company was technically “fully funded” through to its topline Phase II/III result for ALS halfway through next year.

BUT that “fully funded” came through a convertible note facility with Obsidian, which tends to put downward pressure on the share price (as the shares convert and are sold at a discount, creating a downward spiral).

It was clear that management DID NOT want to tap that facility again, and so a capital raise was a necessary alternative.

I actually took a stab at this one.

Mainly because the 1-for-1 option was so attractive.

In my eyes, the results of this Phase II/III clinical trial are an incredibly high-risk, high-reward punt.

If I can “ride the oppies” and get my heads out close to breakeven, that is a win for me.

Easier said than done.

… stock is trading below issue (and I’m sure many others had the same idea).

My full take on NUZ here:

Market Cap: ~$16 million

Amount Raised: SPP of up to $5 million at 10 cents (16.7% discount) | Not underwritten (not raised yet as well)

The Extras: Free 1:1 option at 15 cents, expiring in two years.

How did it trade?

Down ~24% on day one, closing at 9.5 cents.

Below the SPP price.

Armchair Take:

Again, super tricky one.

The company is tapping its existing investor base RATHER than institutional investors for the capital raise.

(which, if you ask any HotCopper retail investors, that’s “the right thing to do”)

This raise is the lowest-priced raise in the company's history, and it comes at a key commercialisation inflection point.

The trouble is that it’s trading below the SPP price right now…

Which puts it in a tricky position for investors.

Why pay 10 cents per share when I can pay 9.5 cents on the market?

This is the challenge with any SPP.

IF it trades below the issue price, THEN the company needs to get the price up from new investors, KNOWING that dilution is coming.

BUT, there is still the option.

Each share issued will also get a 15-cent option.

The question then becomes: is this enough to entice the investors?

I’m not going to do the Black-Scholes calc on what it's actually worth, but that's what investors will need to factor in.

But I think this highlights the challenge of going down the SPP route to raise capital, rather than just using brokers.

Market Cap: ~$35 million

Amount Raised: $1 million placement at 1.6 cents (15.8% discount) | Plus a $1.6 million unsecured loan

The Extras: Free 1:1 option at 3 cents, expiring November 2029. The lender gets options too.

How did it trade?

Came out of the halt on Tuesday and closed at 1.6 cents.

Right back to the raise price.

Armchair Take:

On the surface, this was the least painful raise of the four.

~3% dilution.

CC5 is a revenue-generating business that automates reading culture plates that drug factories use to test their cleanrooms for bacteria and mould.

It has customers (mainly big pharma companies), and it only needs enough capital to reach breakeven before it can (hopefully) start to finance itself.

The $1.6 million loan is essentially a "refinancing" of an existing $1.7 million loan on better terms, and it pushes the repayments out to November 2027.

So this is a "buy time to break even", not a raise to keep spinning the wheels.

… and the pricing reflects that.

So… in the last week we had:

The kitchen sink raise (NOX).

The option sweetener to dodge a convertible note facility (NUZ).

The retail-only SPP that's now underwater (PIQ).

… and a "buy time to break even" (CC5).

Money is expensive right now, and it's only getting more expensive as the RBA continues to raise interest rates.

This means the strategy is clear for small-cap ASX-listed healthcare companies needs to be:

Bring in the money. Preserve what you've got.

… and then work towards something meaningful.

Readout. Launch. Contract. Breakeven.

Because the companies sitting on less than a quarter of cash (I'm looking at you, Friday afternoon 4Cs) don't set the terms.

They take what they’re given.

On the Biotech Investment Clock, we're at 4 o'clock.

Next stop, cash becomes king.

But things can turn quickly.

The market is forward-looking, so even a sniff of a rate-cut cycle could stimulate it.

The trick is to make sure the company has enough cash to weather the washout phase without diluting TOO MUCH…

ALL WHILE building towards the next catalyst.

ALSO WITHOUT running out of money.

… and to let those catalysts drop into a market that will reward it.

Easier said than done.

See you all tomorrow,

The Armchair Analyst.

What is an armchair pick?

An Armchair Pick is an invite-only spot I reserve for my highest-conviction investment ideas.

It's a paid arrangement, but to align myself, I only take my fee in shares - half escrowed for 6 months, half for 12.

It is general commentary only, not personal financial advice or a recommendation to buy, sell, or hold. Always see the disclosure at the top of the article and do your own research.