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OGEN: Raises Net Proceeds of $12.3 Million in Underwritten Public Offering

07/20/2018
By David Bautz, PhD

NYSE:OGEN

READ THE FULL OGEN RESEARCH REPORT

Oragenics, Inc. (NYSE:OGEN) is a biopharmaceutical company developing a new treatment for oral mucositis and novel antibiotic therapies for infectious diseases. The company’s lead development product, AG013, is an oral rinse solution containing genetically modified bacteria that secrete human Trefoil Factor 1 (hTFF1) that is designed to help protect and regenerate damaged epithelial cells of the mouth. AG013 is currently being studied in a Phase 2 clinical trial with results expected in mid-2019. The company is also developing a novel class of antibiotic compounds known as lantibiotics. The lead lantibiotic compound, OG716, is being developed for the treatment of Clostridium difficile infection, which is responsible for 500,000 infections and 29,000 deaths per year. We anticipate an IND being filed for OG716 in 2Q19.

Financial Update

On July 17, 2018, Oragenics, Inc. (NYSE:OGEN) announced the closing of an underwritten public offering that resulted in net proceeds to the company of $12.3 million. This included the full exercise of the underwriter’s over-allotment option to buy additional shares and warrants. The offering included 2.636 million Class A units priced at $1.00 per Unit and 9.364 Class B Units priced at $1.00 per unit. Each Class A unit consisted of one share of common stock and one warrant to purchase one share of common stock with an exercise price of $1.00 per share with a seven-year expiration date. Each Class B unit consisted of one share of series D preferred stock and one warrant to purchase one share of common stock with an exercise price of $1.00 per share with a seven-year expiration date. The series D preferred shares are each convertible into one share of common stock and don’t contain any variable pricing features or any price-based anti-dilutive features.

In total the company issued 4.436 million shares of common stock (2.636 million in the offering plus 1.8 million to the underwriters), 9.364 million shares of series D preferred stock (each share convertible into one share of common stock), and warrants to purchase 13.8 million shares of common stock (12 million warrants in the offering plus 1.8 million warrants to the underwriters).

Importantly, this financing removes a large overhang on the stock and provides necessary funding for the ongoing Phase 2 trial of AG013 (for which we anticipate data in mid-2019) as well as filing the IND for OG716 (which we anticipate in the 2Q19) and potentially the initiation of Phase 1 trials.

We estimate that the company currently has approximately 11.1 million shares of stock outstanding (6.1 million following the April financing plus 5.0 million following the July financing as some shareholders chose to convert their shares of series D preferred stock into shares of common stock prior to the closing of the public offering). In addition, there are 12 million shares of Series A Preferred stock outstanding (which are convertible into 1.2 million shares of common stock), 6.6 million shares of Series B Preferred stock outstanding (which are convertible into 1.32 million shares of common stock), and 8.76 million shares of series D preferred stock outstanding (which are convertible into 8.76 million shares of common stock). Lastly, there are approximately 16.9 million warrants outstanding. We calculate the current fully diluted share count to be 39.5 million.

Valuation

We value Oragenics using a probability adjusted discounted cash flow model that takes into account future revenues from AG013 and OG716. For modeling purposes, we anticipate AG013 entering a Phase 3 trial in early 2020, an NDA filing in 2021, and approval in 2022 in the U.S. and Europe, with approval one year later in Japan. For OG716, we forecast for clinical trials to start in 2019, an NDA filing in 2022, and approval in 2023.

There are approximately 700,000 newly diagnosed cancer patients in the U.S. that could potentially develop OM, with another 1.3 million in the E.U. and 20,000 in Japan. Patients who develop OM currently have few treatment options available to them outside of palliative care. We believe that a successful treatment that both prevented the incidence of OM and also decreased the incidence of severe OM in those that develop it would be very appealing to oncologists. An effective OM therapy could also decrease rates of hospitalizations for patients suffering severe OM and limit the need to decrease or stop therapy. We use a very conservative 5% peak market share, an average length of use of 60 days, and a cost of $100/day in the U.S. ($70/day and $75/day for the E.U. and Japan, respectively) to arrive at peak worldwide sales of approximately $350 million. Using a 13% discount rate and a 40% chance of approval leads to a net present value of $199 million.

For OG716, we estimate peak market share of 10% of the approximately 500,000, 200,000, and 100,000 C. difficile infections each year in the U.S., E.U., and Japan, respectively. We estimate the cost of treatment of $3,000, $2,000, and $2,250 for the U.S., E.U., and Japan, respectively. This leads to peak worldwide revenues of approximately $275 million. Using a 13% discount rate and a 25% chance of approval leads to a net present value of $15 million.

Combining the net present values for AG013 and OG716 along with the company’s current cash position, potential cash from warrant exercises, and anticipated operating burn leads to a net present value for the company of $234 million. Dividing by the fully diluted share count of 39.5 million leads to a current value of approximately $6.00 per share.

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