Sunday, June 21, 2015 3:06:13 AM
So, we made it to >$1.00. If you've been holding since jbem777 did his original DD, you've made over 200% on your investment. Which is fantastic!
However, a lot has changed since then in terms of the new warrant structure, amount of shares that institutional investors hold, and of course, market cap.
So, here's the question: At $1.04, is TPIV still undervalued? (The short answer is "Yup", but let's find out why.)
The two most important numbers to note are:
Total Shares: 37,638,810
Total Shares after all warrants are exercised: 120,765,602
These numbers are important because like any good investor knows - these numbers affect our market cap. And the value of TPIV's market cap and the market cap of their competitors is what we'll be using to evaluate what we anticipate TPIV's share price to be in the coming months.
With 37,638,810 shares at a price of $1.04 cents (Closing as of 6/18/2015), TPIV has a market cap of 39.25M.
That's nothing. That's a pathetically small market cap.
ONTY has a market cap of 400 million, and is just as far along as TPIV, if not a little bit behind them in terms of pipeline.
http://www.oncothyreon.com/product_pipeline/pipeline.html
GALE has a market cap of 300 million, and is even farther in the FDA than TPIV, albeit they have an inferior product. They also have two commercial products that generate revenue.
http://galenabiopharma.com/pipeline/
But, wait. TPIV has a ton of warrants that need to be exercised. If there were no restrictions on when the warrants could be exercised, and all the warrants were converted to shares tomorrow, then TPIV would have a market cap of (120,765,602 shares x $1.04) = 125.59M
ONTY = 400M
GALE = 300M
TPIV(If all the warrants are exercised and the share price stays the same) 125.59M
Cool, so it's already pretty undervalued, right? However, let's consider a couple of things:
TapImmune is a debt-free company, with very strong data on a product that is going to leave GALE's treatment for triple-negative breast cancer in the dust, assuming both drugs get approved. (Study shows TapImmune's product as having 5x the effectiveness of Galena's, despite Galena's being in Phase 3. They're making the original IPhone over there, while TapImmune is already working on creating the IPhone 5)
ONTY has some cool stuff going on, but TPIV is about to be much farther along in the process than they are, and I'd argue that TPIV has the more robust pipeline.
So, at the VERY MINIMUM, TPIV should have a market cap of 200 million, and it could very well have a market cap up to 400 million like ONTY if the data keeps looking good.
Now that we know that TPIV is still very undervalued, we have to consider that the exercise of warrants play a big part in just how undervalued it is. So, let's look at these warrants.
I'm going to start out by saying that I feel misled by TapImmune's press release and the SC 13D/A's that they filed. They led me (and likely many people) to believe that only Kenneth Dart was the recipient of a lowered bar for entry on the warrants as well as double the B&C warrants. It turns out that ALL institutional investors who participated in the January offering were the recipient of lowered warrant bars and extra warrants.
However, on the other side of the coin, it's our fault for not doing the math.
The Press Release:
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SEATTLE, June 2, 2015 /PRNewswire/ – TapImmune, Inc. (TPIV), a clinical stage cancer immunotherapy company, and its institutional investors have reached an agreement whereby the institutional investors will have the option to exercise their short term warrants to provide the Company up to $4.93M in near term funding, pending closing conditions and an effective S-1 registration statement
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What they meant by "4.93M in near-term funding" was the complete exercising of the B-1 warrants.
14,640,000 Series B warrants + 10,000,000 Series B-1 warrants = 24,600,000 warrants
24,600,000 warrants at an exercise price of .20 cents = $4.93M
It turns out that TapImmune had no idea that Kenneth Dart would exercise the C-1 warrants and give them an extra $2.5M in funding. That was a BIG added bonus for them.
On the other hand, the doubling of the B&C warrants for all institutional investors means that's a total of 24,600,000 warrants that were added to the pool, which means when all the warrants are exercised, there will be an extra dilution of 15% to total share count that we didn't have before.
But, more a bit later on why that's likely just fine.
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What I really want you to take away from looking at the warrant structure is about the Series A warrants.
Series A warrants (12,320,000 of them) can't be exercised until November 28th. That's a long time away, and a lot can change until then. Let's completely strike them from our valuation for now. TPIV max market cap at current share price drops to 112.78M.
ONTY = 400M
GALE: 300M
TPIV: 112.78M if all warrants were exercised and this share price held until November 28th.
So, here we go... And this is where it gets important.
Like I said earlier, at the VERY MINIMUM, TPIV should have a market cap of 200 million, and it could very well have a market cap up to 400 million like ONTY if the data keeps looking good.
So, let's assume that all of the warrants (aside from the A-1's) get exercised on the next trading day (Which, isn't going to happen. But, humor me.) Our market cap would then be 112.78M.
In order to get to a minimum of 200M market cap (which is what this company deserves at the very very least), that's going to be a share price of $1.77.
A market cap of 300M, which is still a completely fair evaluation given the strength of the data, that's going to be $2.66 per share.
A market cap of 400M, which is a stretch, but again… ONTY has that high of a market cap, and they're at the same stage as TPIV… means a price of $3.54.
After reading that, if you're a conservative investor, I know what you're thinking: Wow, shit. I'm just going to set my limit at a few pennies below $1.77 and walk off into the sunset with my profits.
You would be very, very wrong to do that if you're holding long. If none of the warrants get exercised, then even a price of $3.54 would be a pathetic 66.7M market cap.
There's a reason why the Black-Scholes model for warrants exists. It's because people aren't going to exercise their warrants in predictable ways.
Hell, look at Kenneth Dart. No one predicted that he was going to exercise his C-1's. Not even TapImmune. They counted on the B-1 warrants to be exercised, and nothing else. They just got 2.5 million dollars that they didn't anticipate on having.
So, that brings us to the final question? Where is a good place to sell, assuming that nothing that we aren't already anticipating comes out between now and November 28th?
It sure as hell isn't $1.77. You're selling yourself very short by doing that, and if you sell there, I'll gladly pick up your shares.
It's probably not as high as $3.54 either, unless things stay as precisely as smooth at they're going now. (And things are going very smooth right now.)
If things start to get choppy, and there is less-than-perfect news, but still progress, then between $2-3 is a good target.
If things are going well, then look for the stock to blow a $2.50 barrier out of the water. When we enter Phase 2, look for the stock to trade between $2.50-4 dollars until more news comes out.
Most importantly, watch the warrants. Take note when they're exercised. By no means is warrant exercise a bad thing. TapImmune NEEDS money to operate or they will go bankrupt and their progress won't mean anything.
They also need money in order to get uplisted to the Nasdaq. You have to show a minimum shareholder equity in order to do that.
Warrants are the lifeblood of the company's financial state. So, respect them. It's not a negative thing when they get exercised, so there is no reason for the stock price to go down, unless the company is overvalued when they're exercised.
For example... if TPIV is trading at 500M market cap, and all of a sudden, 10 million warrants are exercised. Then, the share price will go down.
But, otherwise, look for the share price to increase when companies start exercising their B-1's. They need this money for Phase 2 in order to continue progressing further into the pipeline. These warrant exercises are a positive event.
That's my spiel. Hopefully you learned something!
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