Tekmira Raises Money

Editor’s Note: A version of this commentary was sent to PropThink Premium subscribers on the morning of Thursday, October 17. On Friday the 18th, TKMR opened the day at $8.64 and has continued to hold above the offering price, a positive sign for the stock.

On Thursday morning, Tekmira Pharmaceuticals (TKMR) priced a secondary offering, announced after the close on Tuesday night, in which the company will sell 3.75M shares of common stock at an offering price of $8.00 for gross proceeds of $30M. Including the underwriter’s over-allotment option, we expect the deal to net proceeds of just over $30 million.

Tekmira closed the Wednesday session at $8.82, thus Thursday’s pricing is a 10% discount to market.

Following this deal (and assuming full exercise of the over-allotment) Tekmira will have 18.74 million shares outstanding (22.13 million fully diluted), and at $8.50 per share, is a $159.3 million company. With a cash balance of approximately $37 million at the end of the third quarter and an additional $31M in the coffers from this raise, Tekmira carries an enterprise value of just $90 million. In our view, this is remarkably cheap considering the company’s expanding pipeline, platform LNP technology, and milestones next year.

We tweeted on Wednesday evening that Tekmira’s offering will be interesting in light of Arrowhead Research’s (ARWR) October, $60 million financing, which priced at the market; the stock rallied 15% the day of the deal’s pricing. Will investors note TKMR’s discount? Absolutely, but we believe there’s more to the story.

Tekmira is a Canadian company that, in the last few years, has done little to raise investor awareness in the U.S. The company was caught in time-consuming litigation with Alnylam (ALNY) until the end of 2012 and simply hadn’t done much investor outreach prior to finalizing its IP contention. Furthermore, the company had 14 million shares outstanding before this financing, relatively illiquid for investors looking to establish a sizable position.

While many will be comparing this raise to Arrowhead’s recent deal, we think the more fair comparison is Arrowhead’s smaller financings late last year (highly discounted due to warrant coverage) and in April of this year, which grossed $36 million. More importantly, the private deal brought in some well-known institutions – RA Capital, Camber, and Sabby. For a number of reasons, which we’ve highlighted in previous coverage, institutional money has yet to step into Tekmira, at least not on a reportable level. This raise could be the beginning of that shift – improving liquidity, more involvement from American investors, and pipeline story that’s rapidly improving. While we remain bullish on the overarching story, particularly at an EV of less than $100 million, forthcoming 13-F or -G filings for the fourth quarter will be telling of who was involved in Tekmira’s latest deal.

Nuances aside, this cash infusion clears any financing overhang from the stock for the next few years: the company isn’t technology constrained or financially constrained.

We’re watching as the stock sets up a new base and will continue to add to our long-term position. Tekmira has few catalysts in the next few months, aside from forthcoming ownership filings, with the next milestone being the start of a Phase I Ebola program followed by TKM-PLK1 data. For the traders, TKMR may be a slow-mover, but for the investor, TKMR is an attractive holding.

In connection with TKMR, PropThink has taken a long position.