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.

Read More »

Pin It on Pinterest