Thallion financing a potential watershed

Thallion Pharmaceuticals’ recent $8.85-million non-dilutive financing could turn out to be a pivotal event for cash-strapped Canadian healthcare companies facing the grim prospects of raising capital in today’s tough public equity markets.

The deal, completed in July with Premium Brands Income Fund, essentially involved Thallion transferring all of its assets, with the exception of its $130-million of tax-loss carry-forwards, to a “new” Thallion and then selling the “old” Thallion’s  tax assets to Premium.

It was a match made in finance heaven.  Thallion extended its cash runway well into 2011 while Premium put itself in a position to reduce taxes it will be forced to pay when it converts into a corporation by that same year.

While this type of tax transaction isn’t new, the valuation achieved certainly was.  biotuesdays.com had the opportunity to sit down today and chat with Thallion’s CEO Lloyd Segal at BioContact in Quebec City.

“We did our deal for just under 6 cents gross (on the dollar), 5.5 cents net, with everybody – lawyers, bankers, accountants, intermediaries who are in this space – telling us that between 2 and 3 cents net is the best you can do,” Mr. Segal said.  “We even had intermediaries that said, ‘if you’re looking for more than that, we won’t even spend time on the file.’ ”

So, how did the company pull off what many felt was impossible?

According to Mr. Segal, an important factor in the success of the transaction was the relative lack of liabilities that Thallion was carrying on its balance sheet.  “The key for us was finding a counterparty that could understand how we were different from the dozen or so tax assets they could have purchased,” he said.  That’s not to say that Thallion could have done it alone.  “A big part of that was our legal adviser, McCarthy Tétrault.  I think they understand these deals with biotech companies better than any other firm in Canada,” Mr. Segal noted.

Thallion’s common shares trade on the TSX under the symbol ‘TLN’.