Erytech Pharma Jumps 45% On USD Facility Sale – More To Come?

Trade Erytech Pharma Stock Your Capital Is At Risk
Tim Worstall
Updated: 25 Apr 2022

Key points:

Erytech Pharma (NASDAQ: ERYP) ADR stock is up 45% this morning. The main listing for Erytech (EURO: ERYP) shares is Paris, and there the price is up 14% on the trading day or 26%, including premarket.

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The background here is the announcement that Erytech has sold its US facility to Catalent for $44.5 million. Given that the entire market capitalisation before this event was around the $40 million mark, this is of course fairly transformative.

Of course, there’s the usual deal allowing Erytech to buy from that same plant and from Catalent, so this is really the shipping out of an asset in return for an ongoing purchase cost. Not quite but similar in effect to a sale and leaseback.

As to why this was done, Erytech is both a small company and not exactly hugely endowed with cash. This deal raises the cash balance up to $60 million and means that the cash runway now extends into mid-2024. The burn rate allows continued existence until that point that is, without the necessity for further capital raises.

Also Read: The Five Best Pharmaceutical Stocks To Watch In 2022

So, why would Erytech want to do this? Why sell and asset in return for having to pay for the production from it over time? The answer being as we reported on Erytech Pharma stock a few weeks back. They’ve got a live one.

To take that out of slang and into proper language. Erytech is a clinical-stage biopharmaceutical company. The purpose and aim of such is to develop new treatments, such development coming in a series of stages. For Erytech, there’s a basic background technology – inserting the desired treatment into blood cells themselves then inserting those into the patient – and then there’s the development of specific treatments using that background tech.

The last news from Erytech was that it has something that appeared to be working in Phase II trials (these are the ones that show whether there is, or is not, a useful medical effect of the proposed treatment). A certain treatment – asparaginase – for leukemia works until some patients become hypersensitized to it. At which point the treatment has to stop, but there is no other available treatment. Erytech’s idea – put the drug into the blood cells – allows treatment to continue even with hypersensitivity. Or at least so it seems with the results of these Phase II test reports.

Which then gives the value of the sale of the facility and the increase in cash and runway. The $60 million gives them the time to continue the work on this treatment without a capital raise. Assuming that the work continues to pan out then this will be worth much more than the facility. That, at least, is the calculation.
Any trading position is of course a bet on how that treatment is going to pan out through the continuation of the testing phase. But then that’s what biopharma investing is about, the results of the tests.

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