Last Updated on May 2, 2019 by Chris Stang
If you read our site you may have noticed that we like Galectin Therapeutics (NASDAQ: GALT). Galectin Therapeutics is a biotechnology company advancing GR-MD-02, their lead drug candidate, toward a pivotal NASH Phase 3 trial. I won’t rehash details here, but if you want to brush up on the company’s activities and developments over the last three years, check out our other GALT articles. Another information source is Seeking Alpha contributor Vision and Value, who has written extensive, detailed articles on the NASH space.
If you recently saw the announcement and was confused by the jargon, keep reading. The purpose of this article is to explain the Rights Offering. First, let me define some terms used in the S-3 filing, as they relate specifically to this Rights Offering.
- “Subscription right” – gives the owner the right to purchase one “Unit” in the offering, at the “Initial Price”. Each shareholder will receive one subscription right for each share of GALT they own.
- “Unit” – consists of 0.3 shares of common stock, and one warrant representing 0.075 shares of common stock.
- “Warrant” – gives the holder the right to purchase 0.075 shares of common stock, at the “Exercise Price”. They expire 7 years after the closing of the offering.
- “Initial Price” – is the cost to purchase one unit in the offering. This price has not yet been set by the company.
- “Over-Subscription Right” – when you, as a shareholder, have purchased all of the units allotted to you, but other shareholders have not purchased their full allotment. The unsubscribed “Units” of these other shareholders may be purchased by you, and in so doing you “over-subscribe” to this offering.
- “Pro rata ownership” – each GALT shareholder’s proportion of ownership of the total company.
- “Record Date” – the date when the rights offering opens. This date has not yet been set by the company.
Explanation in Plain English
The company is extending subscription rights to each shareholder; each shareholder receives one subscription right for each GALT share they own. Each subscription right allows the holder to purchase one unit in the offering. The units consist of 0.3 shares of stock, and one warrant representing 0.075 shares of stock. Each unit will cost a certain price, called the Initial Price, not yet set by the company. If a shareholder purchases the complete allotment of units available to them, they will be fully subscribed to this offering, and maintain their pro rata ownership of the company.
If a shareholder would like to purchase units in excess of their allotment (over-subscribe), they may do so, but only if other shareholders elect to not fully subscribe to the offering (it is highly likely that not all shareholders will fully subscribe). The result of over-subscription would be that after the offering is complete, the shareholder would own a larger percentage of the company than before, and also own warrants which can be exercised at some point in the future.
At the close of the offering, if a shareholder has purchased units, the company will deposit the appropriate number of shares and warrants into the shareholder’s brokerage account. The warrants are non-transferable: they cannot be bought or sold. No fractional warrants will be issued (see the example below).
Example with Numbers
I learn best by reading examples, so let me include one here. Say that a shareholder owns 10,000 shares of GALT and they want to fully subscribe to the offering. When the offering opens, they will purchase 10,000 units at the price set by the company. At the close of the offering, the shareholder will receive 3,000 shares (10,000 x 0.30) and 750 warrants (10,000 x 0.075) in their brokerage account.
What if a shareholder owns 8,500 shares and fully subscribed to the offering? They would receive 2,550 shares, and 637 warrants. Remember, no fractional warrants will be issued.
Purpose of the Offering
The company has stated that they plan to use the capital raised by this offering:
“…for general working capital purposes and for a portion of the cost of our NASH-RX Phase 3 clinical trial evaluating the efficacy of our drug candidate GR-MD-02 for the treatment of NASH cirrhosis patients without esophageal varices.”
This is the most creative capital raise I have seen by any company. It affords an opportunity to existing shareholders, and buyers who purchase shares before the Record Date, to avoid dilution of their pro rata share of the company. It provides warrants to purchasers of Units as an incentive to participate.
Please also read Chairman of the Board Richard Uihlein’s Open Letter to Stockholders, available here. Mr. Uihlein has committed to personally subscribe and over-subscribe to the Rights Offering, with an aggregate sum of $20 million.
To maintain your pro rata share of the company, you must fully subscribe to the offering by purchasing the full allotment of Units available to you. If you want to participate in the Rights Offering, follow the instructions provided in the helpful FAQ section of the S-3 filing, beginning on page 9. If you have a question, please leave a comment below, or email us.
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