In a Jan. 16 research note, Echelon Wealth Partners analyst Douglas Loe reported that RepliCel Life Sciences Inc. (RP:TSX.V; REPCF:OTCQB) formed a partnership with the private firm, China-based Yofoto Health Industry Co. Ltd., "building on [RepliCel's] alliance in Japan already in place with Shiseido."
The Yofoto-RepliCel deal structure includes a "CA$8.06 million (CA$8.06M) equity investment at CA$0.54 that adds about 14.9M new shares to RepliCel's prior shares outstanding of 21.5M, substantially lifting pro forma shares outstanding to 36.5M in the process," explained Loe. Additionally, "the deal does contemplate ways that RepliCel could receive downstream nondilutive milestone-driven capital."
About the transaction, Loe concluded, "The impact that the new Yofoto investment has on RepliCel's capital structure is not just transformational but dramatically so. Still, we endorse the transaction for what we see as a balanced trade-off between the partners that provides RepliCel with sufficient capital to drive forward with its own regenerative cell therapy clinical initiatives in North American and Europe."
Yofoto, focused on the healthcare market since its 2004 launch, develops food, natural, personal care and household products. The company's fiscal year 2013 sales were $428M, according to MLM Worldwide, an international online magazine about direct selling, the Echelon report noted.
Yofoto recently created a cell and gene therapy division headed by chief technology officer, Chung-Fang Chan, and through that segment is developing a relationship with publicly traded China Regenerative Medicine International Ltd. in Hong Kong. Loe relayed that Yofoto has "stated intentions to expand into more scientifically sophisticated markets, including gene-based blood testing and regenerative medicine, and in establishing its own network of wellness clinics in partnered geographies."
Whereas Yofoto could have purchased RepliCel "for only fractionally more capital," it likely didn't do so because its "expertise in regenerative medicine is modest at present," Loe noted. As merely an investor, Yofoto retains RepliCel's "expertise in nonbulbar dermal sheath/dermal sheath cup cell development and its focus on non-Asian markets."
As for how RepliCel's clinical pipeline will now be advanced, Loe wrote, "We await further feedback from partners on how Yofoto expects to drive RCT-01/RCS-01 forward."
Echelon has a Speculative Buy rating and a CA$3.50 per share price target on RepliCel, whose stock is currently trading at around CA$0.60 per share.
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1) Doresa Banning compiled this article for Streetwise Reports LLC and provides services to Streetwise reports as an independent contractor. She or members of her household own securities of the following companies mentioned in the article: None. She or members of her household are paid by the following companies mentioned in this article: None.
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Disclosures from Echelon Wealth Partners, RepliCel Life Sciences Inc., Jan. 16, 2018
Echelon Wealth Partners compensates its Research Analysts from a variety of sources. The Research Department is a cost centre and is funded by the business activities of Echelon Wealth Partners including, Institutional Equity Sales and Trading, Retail Sales and Corporate and Investment Banking.
ANALYST CERTIFICATION: RepliCel: I, Douglas Loe, hereby certify that the views expressed in this report accurately reflect my personal views about the subject securities or issuers. I also certify that I have not, am not, and will not receive, directly or indirectly, compensation in exchange for expressing the specific recommendations or views in this report.
Is this an issuer related or industry related publication? Issuer.
Does the Analyst or any member of the Analyst's household have a financial interest in the securities of the subject issuer? Yes, Common shares and warrants
Does the Analyst or household member serve as a Director or Officer or Advisory Board Member of the issuer? No
Does Echelon Wealth Partners Inc. or the Analyst have any actual material conflicts of interest with the issuer? No
Does Echelon Wealth Partners Inc. and/or one or more entities affiliated with Echelon Wealth Partners Inc. beneficially own common shares (or any other class of common equity securities) of this issuer which constitutes more than 1% of the presently issued and outstanding shares of the issuer? No
During the last 12 months, has Echelon Wealth Partners Inc. provided financial advice to and/or, either on its own or as a syndicate member, participated in a public offering, or private placement of securities of this issuer? Yes
During the last 12 months, has Echelon Wealth Partners Inc. received compensation for having provided investment banking or related services to this Issuer? Yes
Has the Analyst had an onsite visit with the Issuer within the last 12 months? No
Has the Analyst or any Partner, Director or Officer been compensated for travel expenses incurred as a result of an onsite visit with the Issuer within the last 12 months? No
Has the Analyst received any compensation from the subject company in the past 12 months? No
Is Echelon Wealth Partners Inc. a market maker in the issuer’s securities at the date of this report? No