EastGate Biotech Corp (ETBI) recently announced that their investor Genluiching Mining Corporation will invest $5.0 million in tranches starting in May. This represents a major milestone for ETBI because with this first tranche the company should have enough funding to complete an oral insulin mouth rinse trial in the Philippines. Gluskin, CEO of ETBI commented “Most people don’t realize it, but the world has been looking for oral insulin for over 90 years.”
This breakthrough is 90 years in the making. Funding represents only one piece of the puzzle because in order for them to sell the drug and get marketing approval not only will they have to conduct a clinical trial, but they will also have to show the FDA of the Philippines that they can manufacture and distribute it. This is where the strategic agreement with Bupharco on March 16th comes into play because it demonstrates they have the manufacturing and delivery components in place. The only thing left for ETBI to do is execute on their business plan.
Doubling Asset Base Create Immediate Valuation Gap
There are 936 million shares outstanding on ETBI with approximately 340 million in the float. On a fully diluted basis the market cap is $4.68 mill. The replacement value of Omni Surgery and Aging Clinic in Regina Canada is $5.0 million which contains state of the art surgical equipment and has self-sustaining cash flow. The $5.0 million non-dilutive investment will tremendously shore up their balance sheet next month. The current price of ETBI is $.005 and is trading at a slight discount to projected cash and about a 50% discount to its combined $10.0 million in assets. By both metrics the stock is extremely undervalued on an asset basis. In December 2017 the company was raising interim capital at $.01/share. Smart money is buying the stock at a premium.
Future Dilution Risk Eliminated
Last year EastGate entered into a 3(a)(10) exemption with Northbridge financial to get financing. The financing diluted the company approximately 30% yet the stock price fell 95% during the same period. This dilution weighed heavily on investor’s minds but the company reached a definitive settlement with Northbridge Financial on March 23, 2018. The significance of this event was that it took away the tools that Northbridge Financial appeared to be using to artificially depress the stock price. Since the settlement, ETBI has quieted down and trended slightly higher with much less price volatility. The $5.0 million of funding from Genluiching Mining Corporation eliminates the need for them to do any sort of financing in the next year allowing the stock to move on the merits of its drug development.
Additional Licenses in the Works
The company has telegraphed its intentions really well in the shareholder update letter. It mentioned non-dilutive financing 3 times and in almost every press release since has had the same verbiage. With the recent release of the $5.0 million investment investors got to see intentions become reality. The update also laid the groundwork for the 2 MOU’s that have come this year. What investors should also realize is that the company set expectations that these MOU’s would translate into definitive agreements within 90 days. They were ahead of expectations and the trip by William Abajian likely helped to seal the deals. The company has left open the possibility of more to come. Here is an excerpt from the most recent press release by William Abajian.
“The Filipino people have embraced EastGate and are completely on board with our vision to bring a cost-effective therapeutic to market. We appear to have the backing of key influencers excited about accelerating the drug development. I saw first-hand the scope and breadth of the diabetes epidemic throughout the country. This capital infusion represents only a fraction of what we have accomplished. When we expand our footprint globally and start making inroads into developed markets where big pharma dominates, only then will we be taken seriously. When this drug comes to market, we have a real shot to dramatically change the trajectory of this global pandemic through early disease management that delays the onset of costly complications which burden the healthcare system and take a toll on the people’s quality of life.”
Abajian said “this capital infusion represents only a fraction of what we have accomplished.” In one licensing deal they have the entire clinical trials funded and that $5.0 million was just the first tranche. There may be more money behind the current deal but details aren’t clear yet. What is clear is that if $5.0 million represents a fraction then more is coming but from where. The Bupharco Agreement announced last month called for $5.0 million in funding and that agreement could become a definitive agreement at any moment. Investor realization has not set in that the company is closing in on $15.0 million dollar’s worth of net assets and double what they need to fund clinical trial all within the coming month. Investor’s should also heed Abajian’s statement to “expand our footprint globally.” It seems licensing agreements in other regions are in hand.
There is a lot to digest in the last press release and the muted reaction is probably attributable to investor shock at the order of magnitude of the deals. These type of Cinderella stories don’t happen that often in OTC stocks. Investors looking at the ETBI opportunity over the past months have seen how the company has executed ahead of expectations in almost all facets of their operations. The expected book value of the stock over the next 60 days is about to triple with an infusion of close to $10.0 million dollars. Investors need to remember the company will have close to $10.0 million cash in the coming quarter from non-dilutive financing that came from quasi licensing deals. According to management more licensing deals are on the way.
The nagging question on investor’s minds is this real or is this some sort of pump. If history serves as a guide the release of the 2016 financials should quell any fears of a pump as they demonstrated sincere effort to get caught up. The company has indicated on a few occasions they are working on becoming current in their reporting status. If investors have faith in the words of ETBI management they should expect that when the company is current the stock won’t trade at a discount to cash or its assets and will start to factor in the earning potential of oral insulin approval.
If investors feel ETBI management is credible they should be scooping shares valued at a fraction of cash and start factoring in the value of a global license for oral insulin to treat the largest epidemic facing the world.