The biotech company TRANSTHERA-B (02617.HK), listed under the Hong Kong exchange's Chapter 18A rules, has once again tapped the capital markets.

On May 27, 2024, the company announced it had placed approximately 3.836 million new shares at HK$40.83 each to no fewer than six placees, representing a discount of about 18%, raising net proceeds of roughly HK$152 million.

This marks the third such placement in 2024, following an initial placement in January and a secondary one in April. Including the net IPO proceeds of approximately HK$161 million raised in June 2023, the company has extracted nearly HK$800 million from the market in less than a year since its listing. The three placements alone have raised a combined HK$624 million, far exceeding the IPO amount.

However, a concerning pattern has emerged where a new placement is announced before the funds from the previous one are fully utilized. The placement price has plummeted from above HK$90 to HK$40 through successive discounts, leaving early participating investors generally holding unrealized losses.

Further compounding market worries is the impending expiry of a large lock-up period on June 22, 2024. The company's decision to conduct multiple placements just before this event creates a combined effect of share dilution and anticipated selling pressure.

A Rapid Succession of Fundraising Rounds

The capital strategy of TRANSTHERA-B has been aggressive from the outset. The company listed on June 23, 2023, at an offer price of HK$13.15 per share, raising net proceeds of just HK$161 million. Its market capitalization was below HK$10 billion on its debut.

Due to an extremely low public float of less than 2%, coupled with its inclusion in the Stock Connect program, the share price was propelled to a historic high of HK$679.5 within three months, briefly pushing its market cap above HK$260 billion. Since then, the price has sharply corrected, closing at HK$46.6 on May 19, a decline of over 93% from the peak.

Following this steep decline, the company accelerated its placement activities in 2024. The first placement was completed on January 20, issuing 2.1 million shares at HK$92.85 each (an 18% discount) for net proceeds of HK$190 million.

At that time, approximately HK$113 million from the IPO proceeds remained unused. Merely three months later, a second placement was completed on April 21, issuing 5.085 million shares at HK$57.03 (an 18% discount) for net proceeds of HK$282 million.

Before the second placement was even settled, the company announced the third round on May 19, which was finalized on May 27. This latest round raised HK$152 million, with 90% earmarked for new clinical development of its lead drug candidate Tinengotinib.

A critical question arises: with substantial unused funds from the IPO and the first placement still on hand, why did the company proceed with a second and third round in quick succession?

By the end of 2023, HK$113 million from the IPO was untouched, and the HK$190 million from the first placement remained unused as of late February. The company's accumulated idle cash significantly exceeded its immediate R&D and operational burn rate.

Despite this, management has persistently raised funds at a discount, reiterating that capital is for product development. However, the funding pool for the same pipeline has expanded multiple times beyond initial plans, with vague disclosures on how incremental fundraising aligns with development progress, making it difficult to assess capital efficiency.

Steeply Declining Placement Prices Trap Investors

The placement price has fallen in a straight line: from HK$92.85 to HK$57.03, and then to HK$40.83. Each subsequent round was priced approximately 39% and 28% lower than the previous one.

This trajectory has left participants in each round facing paper losses. Investors in the first round bought at HK$92.85, but by the time the second placement was announced, the share price had fallen to HK$69.55, putting them underwater.

Similarly, second-round investors who bought at HK$57.03 saw the price drop to HK$49.80 by the third placement announcement. Each round of investors who entered at a discount found their cost base breached by a lower placement price just months later.

While fundraising is a necessity for pre-revenue biotech firms, a pattern where each round comes at the expense of previous investors' losses erodes secondary market confidence. Observers note that repeated losses for institutional participants in these placements will further weaken trust in the company's pricing mechanism.

The consistent discount of around 18% for each placement, with a slight widening trend, indicates a shift in pricing power towards buyers. This trend objectively discourages new capital, as the prospect of a cheaper price in the next round diminishes the appeal of the current one.

Product Not Yet Launched, Losses Continue, and Lock-up Expiry Looms

TRANSTHERA-B has reported consecutive annual losses, with a total loss of approximately RMB 834 million from 2021 to 2023. Its lead asset, Tinengotinib for cholangiocarcinoma, had its New Drug Application accepted by China's NMPA in December 2023 and granted priority review, with potential approval expected in 2024.

The company began building its commercial team in 2024 and remains in the preparatory stage. This suggests that for the foreseeable part of 2024, the company is unlikely to generate significant revenue from its own products, and its loss-making financial profile will persist.

A more significant pressure point is the upcoming lock-up expiry. The lock-up period for controlling shareholders, pre-IPO investors, and existing shareholders is set to expire on June 22, 2024. This involves approximately 381.6 million shares, representing a market value of nearly HK$18 billion at the current share price.

With the current free-float H-share proportion being extremely limited, the potential influx of such a large volume of shares poses a severe test for the already fragile market liquidity.

The company's frequent, deeply discounted placements ahead of this expiry create a double pressure: ongoing equity dilution and persistent downward pressure on the share price from the expectation of future selling.

Some early investors have publicly expressed confusion over the company's capital management approach. For a clinical-stage biotech with a focused pipeline and unproven commercial prospects, addressing funding needs should not come at the cost of frequent, price-cutting placements that repeatedly dilute existing shareholders.

Market patience is built on clear return expectations, which TRANSTHERA-B's current fundraising pace is obscuring. After multiple rounds, the market is no longer waiting just for Tinengotinib's approval, but for answers to more fundamental questions: where is the company's money coming from, where is it going, and when will the next placement be the last one. For now, it seems no one can provide a definitive answer.