CardioVascular BioTherapeutics faces murky future

Analysis

CardioVascular BioTherapeutics (CVBT) revealed an unusual funding route last November - management was loaning the company money to keep it afloat, after cash had run out and options available to raise more were seen as very unfavourable.

It said the bosses' bank accounts should stretch until March, and expressed reluctance to conduct a share sale while the stock was below $1, but stressed a source of funds would be found by then. March has been and gone, no extra cash has been raised, and after a brief flirt with $1.4, the shares are back below $1.

Management cannot fund the company for much longer, and CVBT might be forced to turn to the equity markets, no matter how painful and dilutive to shareholders. However, considering five board members, including the chief executive and vice chairman, own 83% of the stock, which is traded on the lightly-regulated, over-the-counter bulletin board, their reticence is perhaps understandable.

Last year, the depressed share price was blamed on the owner of a convertible loan, Promethean Capital, which was selling down its holding, creating an overhang. The group was hoping when the stake was sold, which completed in November, the stock would rise.

It did briefly, but obviously not enough for CVBT, which has been openly saying for some time it plans to tap the equity markets for some cash.

Other options

Another potential source of funds, a $15m private equity financing from FirmInvest, also remains unclear. Clarity has not been helped by the fact that CVBT has delayed releasing its annual report, due last month, which would have provided some much need transparency about its financial position.

In May 2007 CVBT secured a contract for 15 million shares at $1 each with the Swiss investment house. Because the shares then spent the remainder of the year below $1, only $3.7m has been raised under the agreement.

In an SEC filing in November, the company said the contract had expired, but that discussions are ongoing to extend it. FirmInvest, which is also a shareholder, had already extended the deal a number of times throughout 2007, so could come to the rescue again.

CVBT has said it is also pursuing other routes to raise cash, and is seeking licensing partners for its drug candidates. In a sign that costs are being slashed, last month it terminated a lease over an R&D facility.

Pipeline hope

The company’s pipeline is based on its lead compound, fibroblast growth factor 1, which it believes has potential to regenerate hearts with cardiovascular disease.

Preparation for a phase II trial is underway, and a principle investigator was appointed on April 1. The compound is also in phase I for impaired wound healing seen in diabetes and in patients suffering from peripheral artery disease of the legs.

Without a partner, or a significant cash injection, it looks unlikely the phase II trial will progress much further, and the company has not said if dosing has even started yet. Given its early stage and novelty, the project is high risk, and terms of any deal will not be huge.

CVBT has said it wanted to complete dosing in the phase II trial before tapping the equity markets, a desire that looks ambitious, and the group’s management cannot keep putting their hands in their pockets for much longer.

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