On Friday, H.C. Wainwright adjusted its stance on Cyclo Therapeutics (NASDAQ:CYTH) stock, downgrading the firm from Buy to Neutral and lowering the price target to $0.95 from the previous $3.00.
This revision follows the announcement that Rafael Holdings (NYSE:RFL) will acquire Cyclo Therapeutics. The acquisition price of $0.95 per share in Rafael Holdings common stock signifies a 25% discount to Cyclo Therapeutics' closing share price on the day before the announcement.
Rafael Holdings' agreement to purchase Cyclo Therapeutics was made public on August 22, 2024. Rafael Holdings, which is not rated, currently holds a 31.5% stake in Cyclo Therapeutics' common stock as of the end of the second quarter of 2024. This merger is expected to be finalized towards the end of 2024.
The proposed deal includes terms that the cash value of the acquisition will fund Cyclo Therapeutics' operations until the transaction is completed. The downgrade to a Neutral rating reflects the new dynamics introduced by the merger agreement and aligns the price target with the terms of the acquisition.
The market's response to the news will unfold as investors and stakeholders of both Cyclo Therapeutics and Rafael Holdings assess the implications of the merger. The transaction is poised to reshape the financial and operational landscape for Cyclo Therapeutics as it integrates into Rafael Holdings' structure.
In other recent news, Rafael Holdings, Inc. and Cyclo Therapeutics, Inc. have announced a definitive merger agreement. The merger aims to further the development of Trappsol® Cyclo™, a treatment for the rare genetic disorder Niemann-Pick Disease Type C1. Under the agreement, Rafael Holdings will issue shares of its Class B common stock to Cyclo Therapeutics shareholders.
In addition, Cyclo Therapeutics has secured a $2 million convertible promissory note deal with Rafael Holdings. The note, bearing a 5% annual interest rate, is set to mature in 2024. The proceeds from this note are planned to be allocated towards working capital and general corporate purposes.
Cyclo Therapeutics has also made significant strides in its Alzheimer's disease treatment program. The firm secured approval from the European Patent Office for their Alzheimer's disease treatment method, adding value to their patent portfolio. The patent, numbered 3873604B, is set to take effect in 2024.
Ascendiant Capital initiated coverage on Cyclo Therapeutics, assigning a Buy rating based on a net present value analysis. These are recent developments in the company's ongoing efforts to secure funding, gain analyst recognition, and expand its product range.
InvestingPro Insights
Following the recent developments with Cyclo Therapeutics, InvestingPro offers a snapshot of the company's real-time financial data and insights that could be crucial for stakeholders assessing the impact of the acquisition by Rafael Holdings. Cyclo Therapeutics' market cap stands at $26.4 million, and despite a challenging period with a price that has significantly retreated from its 52-week high to now just 43.5% of that peak, the company shows a remarkable gross profit margin of 91.56% over the last twelve months as of Q2 2024. This indicates a strong ability to control cost of goods sold relative to sales.
InvestingPro Tips highlight that Cyclo Therapeutics is expected to see net income growth this year, a positive sign for potential profitability. However, it's important to note that the company has been quickly burning through cash, which may raise concerns about its financial sustainability in the absence of the acquisition. With the stock price having taken a significant hit over various timeframes, from the last week to the last six months, investors may find this a pivotal moment to consider the company's future prospects.
For those looking to delve deeper into Cyclo Therapeutics' financial health, additional insights are available on InvestingPro. There are more than 12 InvestingPro Tips that cover various aspects of the company's financial performance and stock behavior, offering a comprehensive analysis for informed decision making. As stakeholders weigh the implications of the merger, these insights could be invaluable in shaping investment strategies.
It's worth mentioning that Cyclo Therapeutics is trading at a high revenue valuation multiple and operates with a moderate level of debt, which may influence the merger's long-term benefits to Rafael Holdings. The InvestingPro Fair Value is estimated at $1.03, suggesting a potential undervaluation compared to analyst targets of $3.00. As the acquisition approaches, these data points may serve as key considerations for investors.
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