Downgrading Bionovo & Terminating Coverage
Bionovo Delays Year-End & Explores Strategic Options
Menerba® Phase IIIa Commenced
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1.) Bionovo Delays Year-End as they Explore Strategic Options: Bionovo announced today that they are pursuing financial options to fund completion of the pivotal trial but since the outcome of those efforts cannot be assured, they are exploring in parallel, other strategic options. We note the company also made the following statement:
“The Company does not currently have adequate internal liquidity to meet its cash needs in the near term including completion of the ongoing Phase 3 trial for Menerba. If sufficient additional funds are not received in the near term, the Company may not be able to execute its business plan and may need to significantly curtail or cease operations.”
2.) Downgrading Bionovo to Avoid/Sell and Terminating Research Coverage: While we continue to believe that Bionovo’s Menerba® could represent a botanical blockbuster someday, the significant financial uncertainty just announced by the company means we can no longer forecast Menerba® development timelines with any degree of confidence. Therefore, we must withdraw our financial model at this time and downgrade Bionovo to an Avoid/Sell rating due to capital risk and a lack of a reasonable basis for developing a financial model. In addition, we are also terminating coverage as we reallocate our research resources toward other investment opportunities.
3.) Capital Requirements: As stated on management’s last conference call, they anticipate the cost of the Phase IIIa plus supporting expenses to be approximately $50M and the company expects the confirmatory Phase IIIb trial to require another $30M-$50M.
4.) $25M Capital Raise Filed: On February 9, 2012, Bionovo filed to raise $25M of Series B Preferred Stock issued in 4 closings; $4M, $6M, $7.5M and $7.5M. This includes warrants to purchase 75% of the number of shares of common stock the holders of preferred stock would receive upon conversion of the preferred stock at the original conversion price; and up to 240,000,000 shares of common stock issuable from time to time upon exercise of the warrants. However, before the 2nd close, the number of authorized shares of common stock must be at least 1,500,000,000 (requiring shareholder approval).
5.) $5M Capital Raise Completed: On January 3, 2012, Bionovo entered into a $5M securities purchase agreement with Socius CG II, Ltd., a Bermuda-based subsidiary of Socius Capital Group, LLC. Bionovo has the right, in its sole discretion, over a term of 2 years to sell to Socius up to $5M redeemable Series A Preferred Stock of the Company, payable in tranches. The Preferred Stock will accrue a 10% dividend per annum from the date of issuance. In addition, Socius will receive warrants to purchase shares of Common Stock valued at 35% of the Preferred Stock amount. The Preferred Stock is not convertible into shares of common stock. (see Recent Financing Activity)
6.) Phase IIIa Trial in U.S. Commenced: On November 16, 2012, Bionovo began enrollment of the U.S. Phase IIIa human clinical trial of Menerba® (MF101) in postmenopausal women for the treatment of menopausal hot flashes in 50 clinical sites. There will be 5 safety reviews by the Data Safety Monitoring Board during the Phase IIIa trial.
7.) Menopause Market – Large and Underserved: With approximately 80 million women in the U.S. and Europe transitioning through menopause and at least 70% experiencing hot flashes, night sweats and associated insomnia, we estimate the worldwide market at approximately $10 billion. Current hormone replacement therapy (HRT) carries warnings for increased risk of breast cancer, strokes, heart attacks, and blood clots while alternatives to HRT, such as antidepressant drugs, are not FDA approved and can cause significant side-effects as well.
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