Allergy Therapeutics (LON: AGY) (OTC: AGYTF) shares dropped 72% this morning on the release of the delayed results and the lifting of the suspension of the quotation. Given that the suspension had lasted since December we really knew that the results weren't going to be good - bad numbers always take longer than good to tot up. And, to be frank about it, those results are awful.
The announcement: “The operating profit pre-R&D of £0.5m (2022 H1: £12.5m) reflects the decline in revenue caused by the short-term pause in production, together with increased manufacturing, administrative and exceptional costs. Research and development costs increased to £8.5m (2022 H1: £5.0m), mainly due to initiation of the G306 Pollinex Quattro grass study and preparation for the P101 peanut study.”
That's really not good at all. But that's also not the real problem. Allergy needs capital. But there's a certain difficulty as to where that capital might come from. Meaning that it's difficult to see what the enterprise value might be pre-capital injection.
Allergy Therapeutics share price from London Stock Exchange
Here's that capital problem: “On 6 April 2023, the Group entered into a senior secured facility agreement in an aggregate principal amount of £40.75m to refinance the existing £10 million loan notes issued on 28 February 2023, to continue key clinical trials, to finance trading and to provide working capital. The NatWest revolving credit facility has been cancelled to provide security for the new funding. In conjunction with the senior secured facility agreement, the Company also entered into an equity commitment agreement to raise gross proceeds of £40.75m, which will be principally used to repay the amounts owed pursuant to the senior secured facility agreement.”
Err, yes. They also think they will need more capital come September. But note that they've already agreed to try to raise that £40 million. But the current market capitalisation is only some £12 million or so (near 700 million shares at 1,7pence each, around and about). It's not obvious that there is any room to be able to raise £40 million - in equity capital that is - off such a market capitalisation. And the more that is tried then the lower the share price will go increasing the dilution and thus making the problem even worse in a downward spiral.
There are possibilities, a vastly dilutive rights issue. The one strategic investor perhaps. But they'd both lead to very significant dilution of the extant equity. To the point that it's not wholly obvious that there is any value in that extant equity.