On February 11, 2021 Kadmon Holdings, Inc. (Nasdaq:KDMN) reported the pricing of $200 million aggregate principal amount of 3.625% convertible senior notes due 2027 (the "Notes") in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (Press release, Kadmon, FEB 11, 2021, View Source [SID1234574948]). This offering was upsized from the previously announced offering of $150 million of aggregate principal amount of Notes and included 100% capped call transactions. Kadmon also granted the initial purchaser of the Notes a 13-day option to purchase up to an additional $40 million aggregate principal amount of the Notes, solely to cover over-allotments. The sale of the Notes is expected to close on February 16, 2021, subject to customary closing conditions.
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The Notes will mature on February 15, 2027, unless earlier converted, redeemed or repurchased and will be convertible, subject to the satisfaction of certain conditions, into cash, shares of Kadmon’s common stock or a combination thereof as elected by Kadmon in its sole discretion. The Notes will be general unsecured obligations of Kadmon and interest will be payable semi-annually in arrears. Kadmon will have the right to redeem the Notes, in whole or in part, and from time to time, on or after February 20, 2024, subject to certain conditions, at a cash redemption price equal to 100% of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.
The initial conversion rate of the Notes will be 143.7815 shares of Kadmon’s common stock per $1,000 principal amount of Notes (equivalent to an initial conversion price of approximately $6.96 per share). The initial conversion price of the Notes represents a premium of approximately 30% over the closing price of Kadmon’s common stock on the Nasdaq Global Select Market on February 10, 2021. The conversion rate and conversion price will be subject to adjustment upon the occurrence of certain events.
If a "fundamental change" (as defined in the indenture governing the Notes) occurs, then subject to certain conditions and limited exceptions, holders may require Kadmon to repurchase their Notes at a cash repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date. In addition, upon certain corporate events that occur prior to the maturity date of the Notes or if Kadmon delivers a redemption notice in respect of some or all of the Notes, Kadmon will, under certain circumstances, increase the conversion rate of the Notes for holders who elect to convert their Notes in connection with such a corporate event or convert their Notes called for redemption during the related redemption period, as the case may be.
In connection with the pricing of the Notes, Kadmon entered into capped call transactions with one or more financial institutions (the "option counterparties"). The cap price of the capped call transactions relating to the Notes will initially be approximately $10.70 per share, which represents a premium of approximately 100% over the last reported sale price of Kadmon’s common stock on the Nasdaq Global Select Market on February 10, 2021, and is subject to certain adjustments under the terms of the capped call transactions.
The capped call transactions cover, subject to customary adjustments, the number of shares of common stock initially underlying the Notes. The capped call transactions are expected to generally reduce the potential dilutive effect on Kadmon’s common stock upon conversion of the Notes or at Kadmon’s election (subject to certain conditions) offset any cash payments Kadmon is required to make in excess of the aggregate principal amount of converted Notes, with such reduction and/or offset subject to a cap.
In connection with establishing their initial hedges of the capped call transactions, the option counterparties or their respective affiliates expect to enter into various derivative transactions with respect to Kadmon’s common stock and/or purchase shares of Kadmon’s common stock concurrently with or shortly after the pricing of the Notes (and, if applicable, the exercise by the initial purchaser of its over-allotment option). This activity could increase (or reduce the size of any decrease in) the market price of Kadmon’s common stock or the Notes at that time. In addition, the option counterparties or their respective affiliates may modify their hedge positions by entering into or unwinding various derivatives with respect to Kadmon’s common stock and/or purchasing or selling Kadmon’s common stock or other securities issued by Kadmon in secondary market transactions following the pricing of the Notes and prior to the maturity of the Notes (and are likely to do so on each exercise date of the capped call transactions, which are expected to occur during the 40 trading day period beginning on the 41st scheduled trading day prior to the maturity date of the Notes, or following any early termination of any portion of the capped call transactions in connection with any repurchase, redemption or early conversion of the Notes). This activity could also cause or avoid an increase or a decrease in the market price of Kadmon’s common stock or the Notes, which could affect a noteholder’s ability to convert the Notes and, to the extent the activity occurs during any observation period related to a conversion of the Notes, it could affect the number of shares and value of the consideration that a noteholder will receive upon conversion of the Notes.
In addition, if any such capped call transaction fails to become effective, whether or not this offering of the Notes is completed, the option counterparties thereto may unwind their hedge positions with respect to Kadmon’s common stock, which could adversely affect the value of Kadmon’s common stock and, if the Notes have been issued, the value of the Notes.
Kadmon estimates that the net proceeds from the offering will be approximately $194 million (or approximately $233 million if the initial purchaser exercises its over-allotment option in full), after deducting the initial purchaser’s discount and estimated offering expenses payable by Kadmon.
Kadmon intends to use a portion of the proceeds to prepare to commercialize belumosudil for chronic graft-versus-host disease in the United States, if approved; for the development of its other clinical-stage product candidates; for the discovery, research and preclinical studies of its other product candidates; and other general corporate purposes. Kadmon intends to use the balance of the net proceeds from the offering to fund the cost of entering into the capped call transactions described above. In addition, if the initial purchaser exercises its over-allotment option, then Kadmon intends to use a portion of the additional net proceeds for general corporate purposes as described above and to fund the cost of entering into the capped call transactions.
Cantor Fitzgerald & Co. is acting as sole book runner for the offering. Mizuho Securities is acting as lead manager and H.C. Wainwright & Co., Oppenheimer & Co. and Raymond James are acting as co-managers for the offering.
This press release does not constitute an offer to sell or the solicitation of an offer to buy any securities of Kadmon. Any offers of the Notes will be made only by means of a private offering memorandum. The offer and sale of the Notes and any shares of Kadmon’s common stock issuable upon conversion of the Notes have not been, and will not be, registered under the Securities Act or the securities laws of any other jurisdiction, and the Notes and such shares may not be offered or sold in the United States absent registration or an applicable exemption from the Securities Act and applicable state laws.