FSD Pharma Announces Debt Settlement
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Insights
Debt settlements through equity issuances can be a double-edged sword for a company like FSD Pharma. On one hand, it immediately alleviates cash outflows by settling debts without spending cash, potentially preserving the company's liquidity. On the other hand, it dilutes existing shareholders, which can lead to a decrease in share price if the market perceives the debt-to-equity swap negatively or if it believes the shares are being issued at a discount to the market price. The deemed price of $1.17 per Class B Share will be a critical figure to compare against the current market price. If the issuance price is lower than the market price, it could suggest the company is willing to accept a discount to ensure the debt settlement, which might raise concerns about its cash position or creditworthiness.
Moreover, the issuance of restricted share units (RSUs) is a common strategy to align the interests of consultants with those of shareholders, as it provides an incentive for the consultants to contribute to the company's success. However, similar to the issuance of shares for debt settlement, this too can lead to dilution. Investors will need to weigh the potential benefits of having motivated consultants against the cost of dilution. The timing and conditions of the RSU vesting will also be a point of interest, as they determine when the dilution will actually occur and what performance milestones might trigger it.
From a market perspective, the announcement by FSD Pharma could signal several strategic moves. First, the settlement of debt through equity issuance suggests that the company is choosing to manage its capital structure in a way that could be perceived as avoiding cash expenses. This might be an indicator of the company's strategy to conserve cash for other operations or investments, which could be a positive sign if it leads to growth or value-creating activities. However, it is also essential to monitor the market's reception of this news. If the market views this decision as a lack of confidence in the company's future cash flows, it could negatively impact the stock's performance.
Furthermore, the grant of RSUs to consultants indicates an investment in human capital, which could be seen as a commitment to innovation and growth. However, the market will likely scrutinize the terms of these RSUs, seeking to understand the performance criteria and the potential impact on the company's financials. The long-term effects of these grants on employee retention, motivation and performance can be significant, but they are more challenging to quantify and may take time to be reflected in the company's performance.
In transactions involving the issuance of shares for debt settlement, it is crucial to consider the legal implications and regulatory compliance. The company must adhere to securities laws and regulations, including disclosure obligations and fair dealing. The price per share and the terms of the settlement must be justifiable to avoid potential legal challenges from shareholders who might feel their stake is being unfairly diluted. Furthermore, the issuance of RSUs as part of the company's equity incentive plan must comply with the plan's terms and any market or exchange requirements. This includes proper documentation, reporting, and, where applicable, obtaining shareholder approval for amendments to the incentive plan.
It is also important to consider the rights of the creditors accepting shares as settlement. They are transitioning from a creditor role, with a priority claim on assets in the event of insolvency, to shareholders with residual claims. This change in position could affect their approach to the company and should be factored into the analysis of the transaction's impact on the company's financial health and governance structure.
TORONTO, ON / ACCESSWIRE / February 28, 2024 / FSD Pharma Inc. (NASDAQ:HUGE)(CSE:HUGE)(FRA:0K9A) ("FSD Pharma" or the "Company"), a biopharmaceutical company dedicated to building a portfolio of innovative assets and biotech solutions, is pleased to announce that its board of directors has approved the settlement of an aggregate of
The Company also announced that its board of directors has approved a grant of 55,000 restricted share units ("RSUs") to various consultants of the Company pursuant to the Company's equity incentive plan. Each RSU entitles the holder to acquire one Class B Share of the Company upon vesting
About FSD Pharma
FSD Pharma is a biopharmaceutical company dedicated to building a portfolio of innovative assets and biotech solutions for the treatment of challenging neurodegenerative and metabolic disorders and alcohol misuse disorders with drug candidates in different stages of development. Through its wholly-owned subsidiary, Lucid Psycheceuticals Inc. ("Lucid"), FSD is focused on the research and development of its lead compound, Lucid-MS (formerly Lucid-21-302) ("Lucid-MS"). Lucid-MS is a patented new chemical entity shown to prevent and reverse myelin degradation, the underlying mechanism of multiple sclerosis, in preclinical models. FSD Pharma has also licensed unbuzzd™, a proprietary formulation of natural ingredients, vitamins, and minerals to help with liver and brain function for the purposes of quickly relieving individuals from the effects of alcohol consumption for use in the consumer recreational sector, to Celly Nutrition Corp. ("Celly Nu") and is entitled to a royalty on the revenue generated by Celly Nu from sales of products created using the technology rights granted under the licensing agreement. FSD Pharma continues its R&D activities to develop novel formulations for alcohol misuse disorders and continues the development of such treatments for use in the healthcare sector. FSD maintains a portfolio of strategic investments through its wholly-owned subsidiary, FSD Strategic Investments Inc., which represent loans secured by residential or commercial property.
Cautionary Note Regarding Forward-Looking Information
This press release contains forward-looking statements and forward-looking information (collectively, "forward-looking statements") within the meaning of applicable securities laws. Any statements that are contained in this press release that are not statements of historical fact may be deemed to be forward-looking statements. Forward-looking statements are often identified by terms such as "plans", "expects", "expected", "scheduled", "estimates", "intends", "anticipates", "hopes", "planned" or "believes", or variations of such words and phrases, or states that certain actions, events or results "may", "could", "would", "might", "potentially" or "will" be taken, occur or be achieved. More particularly, and without limitation, this press release contains forward-looking statements contained in this press release include statements concerning the future of FSD Pharma and are based on certain assumptions that FSD Pharma has made in respect thereof as of the date of this press release, including those relating to future sales of Class B Shares under the ATM Offering, the offering price therefor and the use of proceeds thereof. FSD Pharma cannot give any assurance that such forward-looking statements will prove to have been correct.
Since forward-looking statements relate to future events and conditions, by their very nature they require making assumptions and involve inherent risks and uncertainties. The Company cautions that although it believes the expectations and material factors and assumptions reflected in these forward-looking statements are reasonable as of the date hereof, there can be no assurance that these expectations, factors and assumptions will prove to be correct and these risks and uncertainties give rise to the possibility that actual results may differ materially from the expectations set out in the forward-looking statements. These forward-looking statements are not guarantees of future performance and are subject to a number of known and unknown risks and uncertainties including, but not limited to: the timing and ability to satisfy all applicable listing and regulatory requirements of the CSE and Nasdaq; the fact that the drug development efforts of the Company and Lucid are at a very early stage; the fact that preclinical drug development is uncertain, and the drug product candidates of the Company and Lucid may never advance to clinical trials; the fact that results of preclinical studies and early-stage clinical trials may not be predictive of the results of later stage clinical trials; the uncertain outcome, cost, and timing of product development activities, preclinical studies and clinical trials of the Company and Lucid; the uncertain clinical development process, including the risk that clinical trials may not have an effective design or generate positive results; the potential inability to obtain or maintain regulatory approval of the drug product candidates of the Company and Lucid; the introduction of competing drugs that are safer, more effective or less expensive than, or otherwise superior to, the drug product candidates of the Company and Lucid; the initiation, conduct, and completion of preclinical studies and clinical trials may be delayed, adversely affected or impacted by unforeseen issues; the potential inability to obtain adequate financing; the potential inability to obtain or maintain intellectual property protection for the drug product candidates of the Company and Lucid; the inability of the Company to sell under the ATM Offering or upon the terms outlined herein; the prices at which the Company may sell the Class B Shares in the ATM Offering; and other risks. Accordingly, readers should not place undue reliance on the forward-looking statements contained in this press release, which speak only as of the date of this press release.
Further information regarding factors that may cause actual results to differ materially are included in the Company's annual and other reports filed from time to time with the Canadian Securities Administrators on SEDAR+ (www.sedarplus.ca) and with the SEC on EDGAR (www.sec.gov), including the Company's Annual Report on Form 20-F for the fiscal year ended December 31, 2022, the Prospectus and Registration Statement, each under the heading "Risk Factors". This list of risk factors should not be construed as exhaustive. Readers are cautioned that events or circumstances could cause results to differ materially from those predicted, forecasted or projected. The forward-looking statements contained in this document speak only as of the date of this document. FSD Pharma does not undertake any obligation to publicly update or revise any forward-looking statements or information contained herein, except as required by applicable laws. The forward-looking statements contained in this document are expressly qualified by this cautionary statement.
Neither the CSE nor its regulation services provider accept responsibility for the adequacy or accuracy of this release.
Contacts:
FSD Pharma Inc.
Zeeshan Saeed, Founder, CEO and Executive Co-Chairman of the Board, FSD Pharma Inc.
Email: Zsaeed@fsdpharma.com
Telephone: (416) 854-8884
Investor Relations
Email: ir@fsdpharma.com, info@fsdpharma.com
Website: www.fsdpharma.com
SOURCE: FSD Pharma Inc.
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