Assessing the Potential Price Floor for BriaCell Therapeutics: A Dilution and Return on Equity Analysis

Summary

• On December 11, 2024, BriaCell Therapeutics Corp. announced a public offering of 7.4 million common shares and warrants, priced at $0.75 per share and warrant. Each warrant has an exercise price of $0.9375 and is exercisable for five years. The net proceeds will be allocated towards working capital, general corporate purposes, and advancing business objectives.

• Following the offering announcement, BriaCell’s stock price dropped approximately 37.1%, from a closing price of C$1.59 on December 11 to C$1.00 on December 12, reflecting a significant market capitalization decline.

• An analysis of the dilution effects and the return on equity proceeds from the offering suggests a potential price floor of C$0.88 per share, with an anticipated minimum 13.27% upside from the current price of C$0.78.

Catalyst

On December 11, 2024, BriaCell Therapeutics Corp. (TSX: BCT) announced the pricing of an underwritten public offering of 7,400,000 common shares and warrants to purchase an additional 7,400,000 common shares at a combined public offering price of $0.75 per share and associated warrant [1]. Each warrant carries an exercise price of $0.9375 per share, is immediately exercisable upon issuance, and remains exercisable for a period of five years from the date of issuance [1]. The Company disclosed that it intends to allocate the net proceeds from the offering towards working capital requirements, general corporate purposes, and the advancement of its business objectives [1]. The offering was subsequently reported as closed on December 13, 2024 [2].

On December 11, 2024, the closing price of BriaCell’s common shares on the TSX was C$1.59. Following the disclosure of the offering, the stock opened at C$1.00 on December 12, 2024, reflecting an approximate 37.10% decline in market capitalization.

Analytical Framework

Our independent analysis assesses the potential local price floor for the company’s common shares through a reference price-based per-share impact analysis. This evaluation considers the dilution effects and the potential return on equity proceeds generated from the offering, all in relation to a reference price. The reference price is based on the assumption that the closing price prior to the disclosure of our interest incorporates all publicly and privately available material and non-material information. For this analysis, the reference price is established as C$1.59, representing the closing price of the common shares on December 11, 2024.

Our analysis begins with a calculation of the potential dilutive impact arising from the specifics of the proposed offering. Subsequently, we conduct a return-on-equity proceeds analysis, employing assumptions designed to reflect extreme levels of conservatism. This approach introduces a margin of safety by assuming that the Company’s equity proceeds from the issuance proceeds will generate no incremental value for shareholders. The resulting data is then utilized to formulate our potential price floor analysis.

Dilution Analysis

The offering introduces two significant dilutive components to the Company’s shareholders, both of which are critical to understanding the impact of this catalyst on the share price. First, the Company issued 7.4 million common shares. Based on the outstanding share count of 36,183,160 as of our reference date, this represents a dilution impact of approximately 17%.

However, this is not the sole factor contributing to potential dilution. The Company is also issuing an equal number of warrants as part of the offering. Accounting for these warrants is essential, particularly given their terms, which include a longer duration to maturity. This increases the probability and likelihood that these warrants will be exercised, thereby exerting further downward pressure on the share price.

Assuming full exercise of the additional 7.4 million warrants, our analysis estimates the total dilutive impact to be approximately 29.03%, calculated as follows:

Return on Equity Proceeds Analysis

Based on the offer price and exercise price for the stock issuance and warrants, we estimate the total proceeds from the issuance, assuming full exercise, to be approximately $12.5 million. In our analysis, which adopts a conservative margin of safety concerning the utilization of net proceeds, this $12.5 million is treated as providing no incremental benefit to shareholders. Consequently, it is fully deducted from the total value of the stock.

This conservative approach is further supported by the Company’s publicly disclosed intentions for the use of proceeds, which include funding working capital requirements and general corporate purposes—objectives that are likely to deliver minimal direct benefit to shareholders. [2]

Taking into account the adjusted share count, which reflects the dilution from the issuance, this deduction results in a per-share value reduction of $0.24, calculated as follows:

Putting It All Together

Taking into account the dilution and the return on equity proceeds, we estimate a potential price floor for the common shares at C$0.88 per share. Considering that the company’s stock price has not yet recovered from the recent catalyst and has further declined to the current level of C$0.78 per share, we establish a minimum target price of C$0.88. This represents an anticipated upside of 13.27% from the current price as of today.

Sources:

[1] Press Release: BriaCell Therapeutics Announces Pricing of $5.5 Million

[2] Press Release: BriaCell Therapeutics Announces Closing of $5.5 Million