Faron secures sufficient financing until early 2026 with convertible bonds

Translation: Original published in Finnish on 04/04/2025 at 07:29 am EEST

Faron announced that it had entered into a convertible bond arrangement of 35 MEUR with  Heights Capital Management, Inc (HCM). With the arrangement, Faron will repay IPF's loan, get rid of the cash covenants that have caused challenges (although they will be replaced by new, different covenants), have the assets pledged as collateral for the loan released (including intellectual property rights), and extend the sufficiency of its financing to the first quarter of 2026. 

The financing provides the company with the flexibility to advance its research program and partnership negotiations, but we find the timing surprising. We will consider the financing arrangement in our forecasts in connection with our next update.

The funding is now sufficient until the beginning of 2026, but the timing is surprising

The total value of the arrangement, including options, is 35 MEUR, consisting of an immediately executable tranche of 15 MEUR and options for two corresponding tranches of 10 MEUR each. The exercise of options is tied to, e.g., the results of the BEXMAB Phase II readout, as well as the stock's trading volumes and the company's market cap. According to the company, the main purpose of the arrangement is to repay IPF's loans and ensure continued sufficiency of financing.

The bonds are convertible into shares at a price of EUR 2.94 per share (closing price of EUR 2.73 per share on April 2, 2025) before any subsequent revisions. The loans will be repaid evenly over three years, and Faron can decide to repay the loan in cash or by converting the repayment tranche into shares, in which case the conversion price per share may also be lower. The bondholder can also decide on the conversion of the entire loan at any desired time. The first tranche of the loan bears interest at 7.5% and is subscribed at 92.5% of its nominal value, and the terms of the two option tranches are broadly similar to this. Faron plans to repay the loan mainly with shares, which, at the nominal value of the loan and a conversion price of EUR 2.94 per share, would correspond to the issuance of 5.1-11.9 million new shares, depending on the use of the loan options, or a 4.6-10.7% increase in the company's current share capital. The conversion price may also be lower, and the dilution correspondingly higher. 

The financing brings the company more capital and leeway to make potential partnership agreements, as well as enables it to terminate the IPF loan agreement that caused problems last year. We are initially positive about the news of the financing, although the timing of its collection is surprising. In February, Faron secured sufficient funding until September with a directed share issue, so the company was not under immediate pressure to raise funding. The company is expected to release the BEXMAB Phase II efficacy and safety readout soon (in April), and the results will have a material impact on the company's negotiating positions and the price of financing.