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| Conducting the TearLab Osmolarity Test--Courtesy of TearLab |
TearLab ($TEAR) has nabbed a $35 million term loan from royalty investor CRG, formerly Capital Royalty. It will use the financing to ramp up sales of its TearLab Osmolarity System, which were at a low point during the last reported quarter, and to potentially reach the breakeven point on its books.
The company, which debuted on Nasdaq in 2004 as OccuLogix with a $101 million IPO, had its valuation peak in the summer of 2013 and has since declined to about $92 million. In 2010, the company changed its name to TearLab. Shares were up 8% in early trading on March 5 with the fundraising news.
The company had said in November that it was looking to avoid fundraising, given its low share price. That explains the nondilutive deal structure it opted for with CRG.
"We expect our cash flow to improve every quarter, so that we can get to a breakeven position before cash is depleted," said TearLab CFO William Dumencu on that call. "Having said that, we also don't want to let it get to a position where it's uncomfortably low or it restricts our ability to invest in areas of opportunity."
He then concluded, "We'll do whatever we can to avoid raising money at our current stock price levels as we believe that they do not appropriately reflect the value that we think is in this company."
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| The TearLab Osmolarity System--Courtesy of TearLab |
TearLab is in a bind because it's had a tough time ramping up sales for its TearLab Osmolarity Test to diagnose dry eye. This is the first assay for the TearLab Osmolarity System, which received a CE mark in 2008 and FDA clearance in 2009. The system uses 50 nanoliters of tear film to diagnose dry eye disease by assessing the level of concentration in human tears.
During the third quarter, TearLab sold only 118 systems. That's a 4% increase sequentially from the second quarter--but also one of the lowest placement the company has seen since its full commercial launch for the system in mid-2012. The Centers for Medicare and Medicaid Services (CMS) reimburses for the test at a 2015 rate of $22.48.
TearLab had $5.2 million in third-quarter revenue, with a net loss of $5.8 million during that period. The company had $20.7 million in cash on Sept. 30.
Under the loan terms, TearLab gets $15 million initially. Up to $20 million in additional funds is available to the company through September 2016, contingent on undisclosed revenue milestones and other borrowing conditions. The loan has a term of 6 years and bears 13% annual interest with interest-only payments in the first four years. The company can opt to compound all the interest and principal payments into the fifth and sixth years.
"We were impressed with CRG's ability to tailor a financing structure without common stock or warrants, providing us with the necessary resources to continue executing our growth strategy under attractive, non-dilutive terms," TearLab CEO Elias Vamvakas said in a statement.
- here is the release