Ayala Pharmaceuticals Inc (ADXS)

[Gantor50]

For risk management and tax reasons.

The risk specific to Biotech is that you never know when even a Phase I might be so impressive that a buyout offer comes out of left field. Owning the shares is your risk mitigation strategy to cover. If the unexpected happens you don't have to fight for shares to cover, and then your warrants and options allow you to still participate on the upside.

And tax reasons in that at the same time you book massive profits, you can sell some real shares at a loss for the offset.

For example I suspect that the shares Adage sold were the ones they paid $19 and $7.50 for. If Adage shorted at $25 they realized a huge gain, offset by their losses, but were still in the black enough to pay for their remaining shares.

In effect what this strategy effectively allows a hedge fund like Adage to do, with minimal risk to them, is to invest and take a big position in a Biotech, short against the box, run a short attack, and then cash out which leaves you with your remaining investment paid for. Now Adage's 4+M shares left are paid for and they are now rolling forward with house money. They got their original investment back and can funnel that into another company and do the rinse, wash, repeat.