On December 18th ValiRx (VAL) shot up to 7p as it received approval from the drug regulator, the MHRA, for a dose-ranging study. Following that news, I wrote " The news is indeed good for ValiRx but a 25% rise for a dose ranging study in early clinical development seems a little excessive. The market cap is now £44 million. The company now needs phase II studies with a reasonable number of patients after a good dose ranging result to attract big name pharmaceutical interest to pay for the expensive phase III clinical trials.I will be keeping an eye on this company."
Yesterday, surprise, surprise, the company announced a deeply discounted placing to raise funds for this dose-ranging study. It raised £1.0 million of gross proceeds through the issue of 23,529,412 new ordinary shares at a price of 4.25 pence per share.
"The Company has agreed to grant placees a total of 11,764,706 warrants to subscribe for shares at an exercise price of 8 pence at a ratio of one warrant per two Placing Shares issued. The warrants may be exercised at any time in the period expiring on the first anniversary of the date of Admission of the Placing Shares.
The Company has agreed to grant Beaufort a warrant to subscribe for 1,882,353 shares at an exercise price of 4.25 pence per share. The warrants may be exercised at any time in the period expiring on the third anniversary of the date of Admission of the Placing Shares."
Interesting that the additional warrants will be issued at 8p. The warrants for Beaufort amount to a fee of £80,000. With 373,839,860 shares in issue, the company is now valued at £17.3 million.
All eyes now on VAL201 study results after this placing which has battered small investors who bought in after the initial trial results earlier in December. At least there is an incentive for VAL to try and drive the price over 8p to attempt to convert the 11,764,706 warrants.
That's the issue with small cap pharmaceuticals. Studies are expensive and high risk which means plenty of dilutive fund raising activities before any positive results. Bad news for small investors who can't take part in discounted placings.