ODI Pharma announced on October 30th that the company has resolved to carry out a rights issue of approximately SEK 4.1m before transaction costs, with an option for an over-allotment of an additional SEK 2.0m. The issue is expected to be approved at an extraordinary general meeting on November 19, 2024.
Existing shareholders have preferential rights to subscribe for one (1) new share for every twelve (12) shares held at a subscription price of SEK 3.22 which is almost the same price as the share was trading at before the announcement, amounting to SEK 3.2, and therefore does not represent a discount. Given full subscription, the total number of shares will increase by 1,268,333 shares, from 15,220,000 shares to 16,488,333 shares, corresponding to a dilution effect of approximately 7.7% for shareholders who choose not to participate in the rights issue. However, shareholders who choose not to participate in the rights issue can partially compensate themselves for the financial dilution effect by selling their subscription rights.
In the case of oversubscription ODI Pharma can also decide to utilize an over-allotment to raise up to approximately additional SEK 2.0m, which would increase the number of shares with an additional 621,118, corresponding to a dilution effect of approximately 3.6%, calculated on the number of shares in the company after the Rights Issue has been fully subscribed. The transaction-related costs are estimated to amount to a maximum of approximately SEK 0.9m, which would amount to 22% of the gross proceeds in the event of full subscription, which is deemed high.
The net proceeds, amounting to SEK 3.2m given full subscription and maximum transaction-related costs, are intended to be used for continued expansion in the Polish market as well as for entry into a new market in 2025.
Analyst Group’s view of the Rights Issue
ODI Pharma’s cash position amounted to SEK 2.6m at the end of June 2024 and in our latest equity research report after the company’s Q4-report in august we deemed it important for ODI Pharma to generate a positive cash flow going forward given the cash position. Given the announcement of the rights issue, we see it as a sign that the company has yet to reach a sustainable positive cash flow. However, given the size of the rights issue, amounting to SEK 4.1m in gross proceeds, which is expected to be enough to finance the operations until positive cash flow, we asses that the expected revenue growth on the polish market and the scalable business model will be improving profitability, thereby projecting that ODI Pharma will be cash flow positive in 2025.
ODI Pharma’s revenue growth is attributable to the polish market where the company has a collaboration agreement with Synoptis Pharma, part of NEUCA, a leading pharmaceutical brand in Poland. Earlier in October, the limit of the import of medical marijuana to Poland increased from the previous 6 tons with an additional 5.3 tons to 11.3 tons as a result of increased demand. The figures can be compared to 2023 with total sales of approximately 2.6 tons, which underscores the rapid growth the market is currently in. We expect ODI Pharma to capitalize on this as a supplying partner to one of the leading pharmaceutical brands in the country, resulting in accelerated growth as well as, given a scalable business model, positive cash flow.
In summary, Analyst Group assesses that the proceeds from the issue will be sufficient until positive cash flow is achieved, which we expect will be driven by continued expansion in the rapidly growing Polish medical cannabis market. Additionally, we view it positively that the issue is carried out without a discount to limit dilution effects, and that it is supported by subscription commitments from major existing shareholders Volker Wiederrich and Niclas Kappelin, covering 49% of the issue equivalent to SEK 2m, which instills confidence.
