twist in the tail

I Recently reviewed ACL's cash position and what the delay in FDA approval means to it. Have done the calculations under the assumption that we get approval this month.

By the end of the March quarter ACL will have approximately $8.5M in cash, with approval there will be a US$670K milestone payment from Reddy's, so based on parity there will be approximately $9.2M in cash.

Upon approval the company is committed to commencing the phase 3 and phase 2 trials. With the commencement of the trials the monthly cash burn will increase from $500K per month to approximately $1.3M per month. There was $4M spent in the 2nd quarter on preparation for the trials, which explains the rise in the normal monthly cash burn, it is however back to normal.

This means there is sufficient cash until the end of October.

The obvious question to arise from this is when do we receive the first real profit share/cash from Reddy's.

There are initial start up costs for Reddy' and it has always been the understanding that the arrangement has meant that ACL's profit share from the first quarter of sales will be used to cover part of this. As a consequence ACL will receive its first profit share from the June - September quarter of the 2012 Financial year.

ACL is also paid 60 days in arrears, so 60 days from September 30, means the first profit share payment and real cash will be received on November 30.

So by now you would have worked out the twist, there is not enough cash to get us through to the receival of Fonda revenue, it falls agonisingly short.

The reality is cash is going to have to be raised, not much I know, but some nonetheless. This is probably the major reason the share price has not really positively pre-empted approval.

Strategically it will be in the companies best interest to inform the market of this as soon as they announce the commencement of trials, as the market will know they will need it to fund the trials until Fonda receipts, you dont want an overhang depressing the share price.

There may be some options other than a capital raising, debt, convertible notes etc, however a small capital raising is the most likely.

It's a real shame, just another small obstacle that didn't really need to be there FDA!