Exalenz Bioscience (TASE: EXEN), controlled by Mori Arkin, yesterday raised NIS 15.6 million in an offering on the TASE. The share price for the offering was NIS 11.70, approximately the same as the company's current market price. The company's share has lost 7% of its value since it published its shelf prospectus financials, bringing its market cap down to NIS 302 million.
Arkin, who held 76% of Exalenz's shares before the offering, spent NIS 7.2 million on buying shares in the offering, almost half of the total raised. The company said that it was still planning an offering on Nasdaq, as it had previously reported. Exalenz's cash has however meantime begun to run out, leaving it with only $1.8 million as of the end of the second half, and the company burned $2.6 million in the first half of the year. It therefore preferred to raise money while taking the risk of lowering its share price to going on a road show in the US with no cash in the bank and no alternatives.
Lowered guidance pushed down share price
Exalenz, which develops and markets systems for diagnosing digestive tract diseases using breath tests, posted significant improvement in its business over the past six months and in its share price, following a marketing agreement with US laboratory testing company LabCorp. The guidance provided by the company for its future business development, however, was excessively high, and when the company lowered its guidance a few weeks ago, the share price plunged, possibly also delaying the planned offering. Exalenz lowered its guidance because implementation of its agreement with LabCorp was slower than planned.
The agreement with LabCorp was announced in February 2017. The company's share price has climbed 100% since then, with most of the rises coming after the company predicted dramatic growth in revenue in 2018-2019. Revenue in the first half of 2018 was 65% more than in the corresponding period in 2017.
A few weeks ago, however, the company slightly lowered its guidance for 2018 and 2019, due to "a lower pace of switching from blood tests to breath tests." Exalenz explained that LabCorp had decided to continue supplying its customers with blood tests for detection of H. pylori, instead of switching most of its customers to breath tests within a short time. Beyond the lower guidance, the measure indicates slower-than-expected education of the market by the company and that at least some of LabCorp's customers probably see advantages in the blood test they were used to, even though Exalenz previously said that the test was outmoded and would be easily replaced. In its revised guidance, Exalenz said that it still believed that the breath test would conquer the market within a number of years.
Even according to the lower guidance, Exalenz expects substantial growth based on the LabCorp agreement. The company believes that its sales turnover will reach $13-14 million in 2018 (compared with $17-19 million in the previous guidance). Growth is slated to reach 25-35% in 2019 in excess of Exalenz's 2018 revenue, i.e. revenue is expected to reach $16-19 million, compared with $20-25 million that the company hoped for in its previous guidance.
Exalenz believes that it can achieve a positive cash flow in the fourth quarter of 2019, even taking into account further investment in expensive development projects for additional tests based on its breath tests.
The recent downwardly revised guidance indicates that the contract with LabCorp does not enable Exalenz to predict its revenue accurately. The US capital market does not like downwardly revised guidance, and Exalenz may therefore prefer to stay away from there for now. At the same time, this also means taking a risk that the window of opportunity for medical companies to make offerings, now exceptionally open also for medical device companies, could close.
Published by Globes [online], Israel business news - www.globes-online.com - on September 6, 2018
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