Small-cap biotech company Orthocell Ltd [ASX:OCC] has entered a trading halt today. A request that will give them time to announce a fresh capital raise.
As it stands we are scant for details. We’ll have to wait till Wednesday (4 December) at the latest for those.
However, news of this cash grab does raise some curious questions. Questions that investors and the market will be eagerly awaiting.
Drugs aren’t cheap
First and foremost we have to say we’re not too surprised by this news. Bioteches are notorious for burning through cash at incredible rates.
This is because drug development is extremely costly. Testing has to be rigorous and thorough, resulting in lengthy and detailed clinical trials.
Plus, many of these small bioteches — like OCC — are making negligible or no revenue during trials.
Meaning, there is plenty of cash being spent and not much being made. As such, these companies often rely on fresh capital to maintain operations.
For example, for the September quarter, OCC burnt through just shy of $2 million. A sizeable spend for a company with an $87.5 million market cap.
However, the company does also have a healthy cash balance. Closing the quarter with $9.3 million worth of cash & cash equivalents. Granted, $6 million of this money is locked up in term deposits.
So, if these deposits aren’t set to mature for some time, this may be one reason for the capital raise.
Loading up for launch
Alternatively, this capital raise may suggest a bigger move.
OCC did recently confirm some positive results in early October, after all. Outlining some great data from their CelGro nerve regeneration trial.
Though the report wasn’t final, the fact that 86% of patients reduced or ceased using other drugs, suggests CelGro was promising.
As OCC’s Managing Director, Paul Anderson put it:
‘Seeing one of our patients progress from no strength in his arm, and no movement in his fingers and thumb, to playing wheelchair rugby is extremely encouraging for our researchers and clinical partners.
‘Off the back of these positive interim results, our team is accelerating regulatory applications in the US, EU and Australia to make this treatment accessible to the more than 700,000 people who experience nerve damage annually.’
Therefore, this capital raise may be part of these efforts. Funding that could help with these applications in some way shape or form.
No doubt investors would love to see management commit to a commercialisation bid. That could be the catalyst the stock needs to really take off.
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As for OCC, well we’ll have to wait for the details to come to light later this week.
For Money Morning