GTC Biotherapeutics (fka GTCB)

[DewDiligence]

Overall assessment of LFB deal (corrected):

[In message #955, I inadvertently double-counted the proceeds from the $2.6M term loan to be obtained from LFB in January, 2007. Thus, GTC’s cash balance after the receipt of the term loan will be $54M plus or minus a couple of million (not $57M +/- as previously stated).]

Overall, I’m neutral on the LFB deal.

Good news:

GTC will have $54M in cash come January, plus or minus a couple of million This figure comes from summing GTC’s prior guidance for cash at year-end (paragraph 3 of #msg-12428542) and LFB’s $25M combined equity purchase and term loan. (This $54M figure excludes any cash that GTC might realize from the exercise of warrants issued in prior financings.)

If one defines cash rich as having more than $50M in cash on the balance sheet, GTC will soon be cash rich for the first time in a very long time. This will remove one of the biggest psychological hurdles for investors and it may allow the share price to gradually move northward.

Bad news:

For giving up 20% of the company on a post-transaction basis, GTC is not getting as much as I would have expected. A transgenically produced rhFVIIa should be able to under-price NVO’s NovoSeven and it may well become a decent-selling product in due course, but we’re talking about a potential product launch circa 2013 (my estimate), and seven years is an eternity in this business.

Moreover, I do not especially like the kind of loose, open-ended collaboration that GTC and LFB inked, which allows each partner to decide “on the fly” the degree to which it will fund the program. GTC has had a less than stellar experience in this kind of collaboration with Fresenius on the albumin program, and I would have preferred if GTC had opted for a tighter, more focused deal with less potential for a future disagreement.