Disclosure: i have about 5k shares of RXII.
The problem with this stock over the past year, as Helpme_hanna and Grabbngo have extensively described over at Yahoo m.b. (and see the email from IR's Tamara to Hanna that Hanna reproduced), is that the big preferred shareholder Tang has been converting one of his class of convertibles (the A-1) into shares and selling them to insure a big gain on his original investment... and there have not (yet, anyway) been enough buyers to counter that over time. Yet for reasons described below, it appears that Tang may be very close to exhausting the selling, which could then be followed by a nice move back up for those who see great promise with this tech, given the expertise of CEO Geert, a veteran biotech inventor formerly with Johnson & Johnson. Moreover, Tang is usually a longterm holder of biotechs, so he'll likely hold onto his other class of convertible shares until RXII has attained a much higher valuation. That's likely why he invested in the first place.
Btw, Geert bought another 10k shares today, at $1.03.
Here are a number of posts from the Yahoo board i archived to my file on RXII (such archiving is part of what i do with every investment, even small ones like RXII):
helpme_hanna 1/16/15: Tamara [at IR] suggests it’s all about Tang. From an email I received when I asked if all is okay:
"As we presented on Monday in San Francisco, everything remains on track and our team remains focused on continuing to deliver against our projected goals to increase shareholder value. Dr. Cauwenbergh, in recent presentations, has been very clear about the drug development process and the status of our current ongoing trials. Phase 2a trials are conducted to establish clinical activity and to explore treatment regimen for Phase 2b studies. This is exactly what we have shown in our recent presentations.
1. We have shown what the wound healing process looks like in normal, hypertrophic and keloid scars
2. We have shown that dosing 2-weeks post scar revision surgery has a greater benefit than dosing immediately = explore treatment regimens
3. We have shown that the RXI-109 treated side of the incision clearly shows the drug is active = clinical activity
As stated on multiple occasions, we have incorporated these learnings into our other and future clinical trials. Drug development is a lengthy process and by explaining the different steps in our recent presentations we have tried to manage expectations. The Company is progressing all of its programs as planned and has shared positive results to date. Unfortunately, the stock has been under extreme selling pressure. Take note that on January 2014, we had 12M shares outstanding. On December 2014 we had 22M shares outstanding. The increase of 10M shares in a matter of 12 months is due to preferred conversions which are updated and stated in all of our quarterly and annual filings. Our filings also state that the preferred shareholder [Tang] still holds a significant amount of preferred shares. The Company has and continues to work diligently to meet and attract new investors to broaden our shareholder base and to initiate, form and develop relationships with various pharmaceutical companies. "
She covered all the bases. In examining the relevant 10Q's and 10K's I figure that Tang has about 14 million common shares underlying his preferreds. As of 9/30/14 there were 17 million left and 7 million had been covered since 1/1/14. That means 3 million were converted between 9/30/14 and 12/31/14. Result: 14 million left.
[P.S.] If I had completely understood and appreciated the convertible preferred situation, I would not have bought the stock. I do think, however, that it is a passing problem. Tang will eventually be out of preferred. In the meantime the company assures us that all is on track clinically. Its efforts to assure other biotechs of that should bear fruit soon. Scientists can understand one another, especially where significant future money is at stake.
Tamara's clear email was reassuring: Big support, like the cavalry, is on the way!
[P.S.] - Tamara's email does explain part of it [the shareprice drop]: People do not like to see an increase of nearly double in shares outstanding w/o any new cash. Secondly, the very fact that Tang is creating a current overhang on the stock price discourages people, especially since many do not know about the Tang situation. Add to the above, shorting because of the Tang situation and doubt being created by a very influential basher/blogger, and the market cap is understandable.
If people understood that Tang's preferred always were and should always have been counted in the fully diluted count, the conversions to common would not bother them. Also, if they really understood and believed Tamara's explanation of the clinical showings they would ignore the likes of Haussecker the basher.
In brief, Tamara says all is well with the company but there will be price pressure until Tang is gone. If big bio understood all that and believed it, the price would be multiples higher.
grabbngo 1/16/15 -- As to when Tang will be done converting, we can't really say for sure. He has mostly been converting the A-1 (the ones that were moved to "permanent shareholder equity", the ones that he would not be able to recover in the event of full dilution). It is understandable that he would do this. I believe immediately after he moved 3000 series A to A-1, he sat on about 5000 A-1. As of the last 10-Q he was down to about 1847. (Keep in mind that each share of preferred is convertible into 2437 shares of common) This represents about 4.5M shares of common. I am hoping that he would be satisfied with converting just those for time being and sit content to hold onto the 5K or so series A [= ~12.3M shares] until such time as the company has established a revenue stream or significant asset appreciation. It is apparent to me that he has to have been using the high-volume news days as opportunities to convert (i.e., the monkey-eyes PR & and the September update, these are the two highest volume days in the history of the company.
helpme_hanna • Jan 17, 2015 12:14 PM Convertible preferred situation, as per grabbngo:
Please correct me if I misrepresent your view grabbngo [he says she’s correct in her synopsis].
1. Only Tang holds convertible preferred. Another party did have some but has apparently sold out.
2. Tang currently has (rough estimate) 11 million common underlying his Series A Preferred and 3.5 million common underlying his Series A-1 Preferred.
3. Tang has been converting/selling only from the Series A-1 Preferred.
If the above is correct, and if Tang wants to dispose of only his Series A-1 Preferred--at least at the current time and at these low prices--we are near the end of the Tang nightmare.
helpme_hanna • Jan 17, 2015 6:50 PM Another thought on Tang
Tang gave Rxi $9 million originally. He has taken out about $21 million in his conversion and sell operation so far. That's a lot. He might be content to just hold now. He has about 14.5 million shares left, 3.5 million Series A-1 and 11 million Series A. Suppose sells the rest of the Series A-1 only. That would bring him another $5 million plus. After selling all his Series A-1 he would have 11 million shares left--and he would have taken out $26 million on a $9 million investment. Furthermore, he gets a 7% annual dividend on his Series A.
Why wouldn't he let it rest awhile? He has made a lot of money and is getting a big dividend. Every dollar that Rxi stock rises would be worth $11 million to Tang. It would be in his interest to let Rxi go up and sell much later, at a higher price. If it doesn't go up, he is still way in the black.
Maybe Tang will now try to make some really big money with his convertible preferreds. That's what I would do if I were Tang.
P.S. -- If Tang thinks selling all the remaining convertible preferreds at all time lows is the best thing for him to do, he will do it. If he thinks he can do better later, he will do that. Incidentally, these guys do not rape and pillage in the sense that they are sadists who want to hurt people They simply do whatever they think will benefit them most even if it also happens to hurt others.
P.S. Tang has a history of being a long term holder, generally speaking
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grabbngo • Jan 16, 2015 9:55 AM Tang's Sword Is Double-Edged... And he has swung the sharpened edge of it very furiously this past year, creating the bloodletting that has occurred here. [It is] his right, as per the agreement fashioned with the company, but I think it might be time for the shareholders to put a referendum on the ballad for the upcoming meeting to have the preferred shares retired. He has converted into 8.7M shares of common this year. That represents almost 50% of the current float. You cannot have that kind of dilution and not suffer the declines that we have. You could make a valid argument that there haven't been any buyers to pick the price back up after his selling, and conjecture as to why that might be, and what it means about the fundamentals, but we have suffered massive dilution that has not put a single penny on the balance sheet. By my estimation he has made about $29M in just the first 3 quarters alone (taking the midpoint of absolute intraday high/low for each quarter and how many shares were converted each quarter). That is about a 300% return on his original investment of $9.5M (I've included RTW's inconsequential piece for simplicity). A 300% return in just 9 mos! And that doesn't include what was converted and sold last year ('13) and the last quarter of '14. That should be enough to satisfy him that he realized enough return for the risk he took.
grabbngo • Jan 17, 2015 11:25 AM [replying to a poster:] yes, Advanced did sell shares last year, and yes still holds a large position, which is common shares. (FYI, the "other half" of Advanced, Alexey's wife Anastasia and CEO prior to Geert also holds an equally large position of common, which is a separate holding outside of Advanced holding). There were only two holders of preferred shares. Tang, 9000 shrs ($9M invested) and RTW, 500 shrs ($500K invested). Per RTW's sec filing last year, he apparently has sold out.
As of the 3rd qtr. there were 1847 shrs of series A-1 preferred outstanding (4.5M common) and 21.1M common outstanding. If Tamara unwitting "tipped-off" that the yearly 10K will show an outstanding share count of roughly 22M, then that would mean that about an additional 1M common was converted in the 3rd qtr. (about 410 shrs of preferred). That would leave about another 1400 shares of preferred (A-1) unconverted as of the end of the year (about 3.5M common).
As of the 3rd qtr, Tang held 5022 shares of series A preferred. He has not been converting these (or at least very, very little). My hope is that once he is done converting the A-1, he will be content to be a "long-term investor" and hold the series A for a while before converting those.
thprahl • Thanks Grabbngo. You are right - my bad - there is no other player than Tang. RTW sold out. Tang can take this into the dust, but he can also take RXII to a much higher level. Some time ago Tamara told us that a part of the strategy to attract institutional investors is to make sure that shares are divided on several hands. One/Two dominant player(s) with 50%+ / majority of shares) is not attractive for new institutional investors. I think that Tang is selling out in understanding with RXII - with the purpuse of making RXII more attractive for institutionals. (And I would like Geert to make much larger insiderbuys soon to confirm that my theory is right)
I dont see how Tang can benefit from a low shareprice. But I do see how he can benefit from a high. Then I think that Tang holds a big portion of his Series A to benefit in the years to come according to the Progress RXII is actually making. A current marketvalue of 26 mio is hugely undervalued. Count in those unconverted shares and the marketvalue with current pps may be around 40 mio USD. Still much too low. I have the scenario of another RNA-i player Tekimira (TKMR) in mind in development in pps for RXII - and I hope we are very near the bottom
helpme_hanna • 1/18/15
Dilution and future shares are pretty much known: 21m outstanding now. 14m Tang. 5m insider options. 6m LPC and Hapten. 8m additional operating expenses 'til 2018.= 54m shares. If you think this company has the ability to support 54 million shares at a reasonable per share price, [further] dilution won't bother you. Incidentally, the above dilution will not all occur in the very near term. With a higher fairly near term share price, some of it will not occur at all.
$500 mill. mkt. cap / 54 mill. shs. = $9.26 per share. $250 mill. mkt. cap / 54 mill. shs. = $4.63 per share. If you don't think any biotech would value this right now or within a year at $250 million, sell.
Given the prices big pharma has been paying for what looks to me to be a lot less potentially lucrative acquisitions, I think $500 million within a year is quite doable. I also think RXI-109 will be very well confirmed by Q4 or earlier. Indeed, I think its verification is well along with what we have so far.
