Originally posted by J.W.Pepper
Yep - basic finance & economics - I would suggest you pop into a bank and have a chat with a loans officer and get them to explain cash, assets, cash-flow versus debt / repayments to you, use a home loan as an example, doesn't get much simpler
Given that the company only has a 2-3 year research contract with Merck and essentially no other recurrent revenues, and they have debt of circa $20m, I fail to see how you conclude that the company is well funded.
Can you explain to me how the debt will be repaid if they continue to burn $2-3m a quarter in operating expenses going forward?
Note that the September Quarterly indicates that they will spend $7-8m in the December 2018 Quarter.
If they only used cash at say $10m a year rate and there were no deals, then they have say 18 months before residual cash is used up.
Please note that this does not include allowance for debt repayment.
I have just looked at the Annual report again, and it appears that the debt has to be repaid via 33 monthly installments.
The history of this facility is very curious - it started as a US$10m loan some years ago. It was originally interest only until August 2015 and then repayable in 30 monthly payments. Each year the loan appears to have been modified and is now US$15m and repayable over 33 months.
A shame about the falling Aussie Dollar as this has increased the amount needed to repay the loan in A$ terms.
If they do need to commence the repayments, then it would simply exacerbate the operational cash drain.
In light of this I am perplexed how they can continue on their current path.
As I have said previously, the only way they can repay it is if they sell assets or pick up another milestone payment or get a large R&D rebate from the ATO (which would simply extend the period before the cash is all gone) - because they do not have sufficient recurrent income.
I would recommend that you take a look at the 2018 Annual Report and have a hard look at the Balance Sheet and the P&L and the Cashflow info.
If you had not noticed, the company lost $26m last financial year - and the September Quarterly states that they will burn $7-8m in the December Quarter 2018.
Furthermore, their net cash position went from circa $20m at June 30 2017 to circa minus $2-3m by 30 June 2018.
There are very few small growth stocks that would survive, let alone be able to raise more equity with that sort of cash management.
I think maybe you need to visit a bank and have a chat with them about debt service capacity and how it limits the banks willingness to lend money.
The funds that Bionomics borrowed was from Silicon Valley Bank from memory.
I have no idea why they would not be ken to get their money back in light of the cash burn rate and the absence of asset sales, licensing deals or milestones.
Perhaps their is an equity conversion clause in the loan docs - but I would not know about that.
If there is, then the conversion could be very dilutive with the shares at current levels.
Please note that I do NOT know if there is a conversion option for the bank.
The interest rate on the loan is currently circa 9% - which means they are paying circa $2m a year in interest on their borrowings.
Very soon they may well be capitalising the interest - which perhaps explains why the loan balance has gone up since 2015.
It will be interesting to see how all this pans out if they do not get some significant kind of cash injection - irrespective of whether its a capital raising, a milestone payment an asset sale or a licensing deal.
Good luck with this because on my numbers investors will be increasingly interested in the net cash position.........
I trust this helps explain my opinion and conclusions.
