Replies to post #955 on GTC Biotherapeutics (fka GTCB)

[aslan2772]

"giving up 20% of the company on a post-transaction basis"

I'm not savvy when it comes to these deals, and I haven't had time to listen to the CC yet. To clarify, how many new shares is GTCB planning on creating to sell to LFB (ie. what will the effective share count for valuation purposes be following the execution of this deal)? It sounds like the first installment will be 5M shares of existing preferred stock (no dilution), but the second installment will be 9.6M shares of newly issued preferred stock, and the third 3.6M shares of newly issued common stock, but the PR didn't spell this out clearly enough for me to understand.

At any rate, it looks like LFB is getting quite a deal since they aren't really giving anything to GTCB (the $25M is an investment, not a fee) aside from sharing the product development costs (and profits). This suggests to me that GTCB felt they needed to entice a partnership. Hopefully, this deal will make GTCB stronger and more secure, which should allow them to negotiate more agressively in future licensing agreements.

[jessellivermore]

Bad News

I am a little bit surprised at your lack of enthusiasm for this latest anouncement-alliance-dilution in light of your statements concerning the previous offering which was entirely money (and not very much). Perhaps I have the wrong idea but I see this partnership as the long witheld acceptence by the plasma protein producers. An acceptence which confers legitimacy on GTCB and on the whole transgenic process.
I have no basis to rebut your guess of 2013 as the market launch date for factorVIIa , but this seems rather gloomy estimate. Particularly since the plan is to use rabbits. FactorVIIa, historically a very lackluster member of the coagulation cascade compaired to its more famous cousins factorVIII and factorX (Christmas Factor), has become important because it can be used to by-pass many of the hereditary coagulopathies. It apparently is useful in some types of Von Willdebrand's (a platelet abnormality which can be corrected by factorVIII) and Glanzmans (?sp) a platelet disorder which the platelets loose their "stickyness". If available it might find widespread use in surgery.
It didnt seem from the anouncement the partnership was going to be limited to factorVIIa anyway. They mention other plasma prots as well as mono nuc abs. There's no reason GTCB should not be working on several projects at the same time. They are not trying discover new therapeutic agents, they are making known ones more readily available. I think this alliance could get them off their behinds.

[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.