capital raising is now the key issue

With competition from an authorised generic, and the indication that GSK is going to play hardball, the peak value of ACL's fonda assets falls from around $400-$600mill to around $150-$300mill. A substantial haircut, but still plenty of upside potential given the current share price.

As readers of this thread are well aware, ACL's various HA trials are where absolutely massive upside lies. While I personally rate the chance of a positive result in the colorectal phase III trial at no more than 50%, I recognise that ACL's HyACT assets will be worth $1-2bill if this trial is unambiguously successful (also keep in mind that there is a nice little clinician initiated phase II small cell lung cancer trial that should start generating data early next year). A 50% chance of participating in a 1000%+ capital gain over the next 14-18 months are pretty good odds methinks.

However, as folks on this thread are also well aware, in order to undertake the phase III trial, ACL needs to raise around $20mill. And here, ACL is the victim of very unfortunate timing. My guess is that, because of the recent flight from risk, funds who had earlier signalled an intention to participate in a convertible note issue have now either withdrawn their intention, put it on hold, or asked for new terms that are unpalatable to ACL management.

If true, this leaves ACL is a bit of a pickle (which is not of its own making). No one wants a rights issue or SPP priced at 25c, but time is ticking away on the HyACT patents. A further delay of 6-12months to start the HA-Irinotecan trial would negatively impact the HyACT value proposition in a fairly dramatic way. ACL need to do something creative in order to raise around $20mill ASAP. Absent a creative solution (spinning off oncology into a separate vehicle??), a rights issue at 25c might be the only option left.

I rate ACL a firm hold until the capital raising situation is sorted out. Despite the massive falls over the last few trading days, investors should prepare themselves for more pain as ACL management (which I have full faith in) find away to raise the cash in a manner that maximises long term shareholder interests.

Once ACL has the money in the bank, I rate this stock a strong buy. As mentioned above, if the phase III trials are successful, there is 1000%+ upside. But even if these trials are unsuccessful, and assuming the macro-economic environment doesn't deteriorate to GFC levels again, there is still 300%+ upside over the next 12-18 months on the basis of fonda sales alone.