The following was taken off of the Motley Fool board on AOL
<<My initial reaction to the news of a secondary offering was surprise, followed by negativity. Rather than react emotionally, like today's sellers, I made some calls and asked questions.
To begin, Zonagen announced a secondary offering of two million shares with a 300,000 share overallotment option. Volpe, Brown (formerly Volpe, Welty) is the lead underwriter, with Raymond James as the co-lead. Volpe , Brown is a respected, boutique type firm with a specialization in medical and high tech stocks. They are based in San Francisco and have been in business since 1984. Raymond James is a major regional firm based in St.
Petersburg, FL. Both firms have participated in many successful underwritings. These companies have analysts who cover the biotech arena, and would not agree to underwrite Zonagen without looking at the Phase III data. and in fact have looked at the available data not yet publically released, in order to determine whether or not to get involved with this deal. The fact that they are is a positive indication.
The reason for Zonagen's decision to go forward with this deal is to strengthen their negotiating position with major drug companies and to gain the added flexibility that forty million dollars would bring. Apparently, up front money was not a problem in the negotiations, but the amount of royalties at the back end was. Zonagen wanted a significant participation in the royalty stream once Vasomax went on the market. The drug companies were
apparently using Zona's need for cash to try to reduce its back end revenues. By raising this money now, Zona will no longer have immediate need for cash and their prospective partners will know that, thus making a better deal for Zona more likely. If you think about it, the fact that both sides are so concerned about a back end revenue stream, indicates that all parties believe the drug will get to market and could be a big seller. More
Phase III results should be forthcoming next week and negotiations will resume after this offering is completed.
The road show will probably begin next week, with the offering expected to be priced the week of July 1. This is all preliminary and subject to change, but the intent is to get this deal done quickly. Zonagen's story will be told to institutions here and abroad and much new interest should be generated. As the road show progresses, I would expect to see some positive action in the share price. This could be a major step in this company being
accepted as a major ED player on the Street. Obviously, this came as a surprise and temporarily stopped the momentum created by the Bear Stearns report. However, once digested by investors, this should be viewed as a positive sign that Zona is taking a long term view and safeguarding the interests of long term shareholders. I look forward to further analysis by posters to this board.
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Good luck to all! |
