Crede dilution scare

First, the warrants:
I used the same B-S value that Crede could potentially use in the exchange of warrant for shares, and that Fall1980 also used to calculate the effective price of the common: B-S value= 2.42/warrant.

You and I both agree that the exchange rate below 3.83 is not 1:1 but 1:n, where n= B-S/ close 2 days before the exchange, with a closing floor of 2.00.
Thus, n=2.42/close, but no more what 2.42/2.00=1.21 share per warrant.

My initial disagreement with Fall1980 was that he calculated a price for the warrants to find an effective price for the common (thus, Crede paid 30 M cash for 10,563 common at 2.11 + 3,169 warrants at 2.42), then only focused on the 2.11 effective price of the common, forgetting the 2.42 warrants costs in the rest of his discussion on Crede’s PPS.


Second, the Crede dilution scare:
-- Starting Sep 24, 2013, if SP>3.83 then warrant exercised at 1:1; new shares=3.17 M; Crede tot shares= 13.73 M.
-- Starting Mar 23, 2014 (6 months from Sep 24, 2013 deal date), if SP <= 3.83, warrants converted for free:
If SP=3.83 then n=0.63 common/warrant; new shares=2.01 M; Crede tot shares=12.57 M;
If SP=2.00 then n=1.21 common/warrant; new shares=3.84 M; Crede tot shares=14.40 M;
If SP=0.00 then n=1.21 common/warrant; new shares=3.84 M; Crede tot shares=14.40 M.

Thus, whatever the SP at the time of exercise or exchange, Crede tot shares from the offering will be between 12.57 and 14.40 M.

On Sep 23, 2013 (pre-offering), there were 122.31 M common outstanding, assuming no exercise of outstanding options (4.92 M at 2.36 average), no exercise of outstanding warrants (1.37 M at 2.38 average), and no issuance of 27.67 M common upon conversion of PM’s Series B Convertible Preferred Stock.
Thus, on Sep 24 (post-offering) there were 132.87 M common outstanding, including Crede’s 10.56 M.

Using the basic 132.87 M common outstanding, Crede total share is between 9.3 and 10.5% as converted.
For example, if SP=2.00: 14.40 M total Crede / (132.87 M+ 3.84 M new Crede from exchange) = 10.5%
Using the fully diluted 166.83 M common, Crede total share is between 7.4 and 8.4% as converted.

My second disagreement with Fall1980 is about his “That is, NAVB could be looking at as much as about an additional 10% dilution if Crede exchanges at or below 2.00.”
Although he used a conditional tense, from the posts I have seen, many read it as a done deal.
-- This sounds like a big deal, as it gives the impression Navidea could be forced to sell shares in order to allow Crede to convert the most warrants.
I do not see in the prospectus the possibility for Crede to force the company to emit share so as to allow them exchange warrants. In fact it is the contrary, as shown by the number of shares including warrants that Crede used in its initial 13G: 13.48 M total to be at 9.9% sharp.
-- This also sounds like Crede could sell to stay below 9.9% post conversion.
I see no sense in Crede selling shares now, as they would immediately register a loss, and could only possibly profit from the exchange after Mar 23, 2014. Also, recall they have 3 years (until Sep 2016) to complete it.

Anyway, even to allow a worse-case Crede's maximal exchange, the company has enough flexibility in its existing fully diluted cap table not to require any new dilution.

Thank you for requesting the clarification.
I hope that by showing the calculations this would help all in the community.

Larson is correct ! I meant Fall1980 and sts66 with the flawed reasoning.

Stupid typo !!!!!!
My apologies to Larson, he is doing his best as CFO.

Larson reasoning is completely flawed as he forgets the value he allocates to the warrants in his reasoning!

Crede paid 30 M cash for 10,563 common at 2.84 + 3,169 warrants.
We all agree B-S = 2.423 per warrant, assuming rf fixed.
Thus, effective PPS= [30 - (2.42 x 3,169)] / 10,563 = 2.11

So, Crede paid 30 M cash for 10,563 common at 2.11 + 3,169 warrants at 2.42.
Larson completely forgets the price he allocates to the warrants in his reasoning!
It is true that with 7.7 M cash disappearing, the picture becomes much worse... and the company fodder to shorts...

Starting Mar 23, 2014 (6 months from Sep 24, 2013 deal date):
-- PPS > 3.83, warrants exercised
Using Larson’s effective PPS:
Average price = 10,563 x 2.11 + 3,169 x 2.42 (purchase warrant) + 3,169 x 3.83 (exercise warrant)= 42.1 M / 13,732 = 3.07/share
This is the exact same result as the one reached without calculating an effective PPS:
Average price = 10,563 x 2.84 + 3,169 x 0 (free warrants) + 3,169 x 3.83 = 42.1 M / 13,732 = 3.07/share

-- PPS <= 3.83, warrants converted for free
New shares= 3,169 * B-S / closing 2 days before, with a 2.00 floor (according to 424b)
B-S x 3,169 is the assumed value of the warrants. The 2 calculations, by Larson and without calculating an effective PPS, are the same.

For example, with PPS = 3.83: average price = 30 M / (10,563 +3,169 x 2.423 / 3.83) = 30 / 12,568 = 2.39/share
Average price goes down to 2.08 as PPS drops to 2.00 (see post 5172).
Average price stays at 2.08 as PPS goes below 2.00. Due to the price floor, there is no additional dilution.

quod erat demonstrandum

All the posts heralding how bad the GE loan and the Crede deals were made me think deeply about them.
You are right: company and PPS would be in a much better position without these 55 M !!!

First, the 25 M GE loan:
25.6 M cash at Jun 30 - 25 M GE + 4.7 M Hercules reimb= 5.3 M proformat cash Jun 30
With a 7.4 M q burn, we would be at -2.1 M cash (yep, minus) at Sep 30...
Bringing GE in had a double aim, having someone other than PM lend to the company and keeping the 35 M LOC dry for 2014, thus putting the company in better position to negotiate LS ROW partnership and giving time to US sales to blossom.

Second, the 30 M Crede financing:
The GE loan covenant, an especially bad one as lenders are falling other each others to give money to the company, to have 6 months of burn (14.8 M at 7.4 M/q) should obviously not have been asked by GE nor accepted by the company.
Having a fund invest 30 M in NAVB at 0% discount and 30% warrant coverage at 135% strike was a bad idea. Just ask the investors in MELA, who are much happier with a 17% discount and 80% coverage at 121% strike.
Bringing Crede in had a double aim, having another big investor in the company and keeping the 35 M LOC dry for 2014, thus putting the company in better position to negotiate LS ROW partnership and giving time to US sales to blossom.
True, there was downside protection for Crede, but as insideupsideoutside and myself showed (post 5172), the possible dilution is minimal.
Further, the downside protection kicks in only after 6 months if the PPS has not increased by 35%. As of mid-Sept, it was reasonable to envision the PPS over 3.83 by mid-Mar 2014 with the upcoming LS EU and US newsflow, even more with the pipeline update.
Too bad, as other have pointed on this board, that shrills from the shorts frightened investors in the pre-Halloween season.

Anyway, I have not difficulty imagining we would be reading the same type of comments had the company tried to survive just on the PM LOC, with the additional ones of decrying the increased dependence on PM and the dwindling cash balance.

Thinking about it, these were not so bad !

I am looking forward to q3-13 cc next week and analyst day Dec 05 for clarification, with q4-13 cc in Feb 2014 and q1-14 cc in Mar being key turning points.

PM is over 30 M
9.19 M CS + 22.69 SerB = 31.88 M CS

IMO, the FMPI transaction was a smart way to gain liquidity for an immaterial portion of their holding (<4%) in exchange for a material one in FMPI (14%).

Being in since 2007, I guess PM's average would be quite low.
Still, after supporting the company for so long, they would be shooting themselves in the foot and killing the goose at the time it is laying its golden egg, which would make no sense.

Just for the sake of reflexion, assuming they put their initial $13 M (Dec 2007-Dec 2008) in one shoot in Oct 2008 at 0.50 average, and sold everything in 2013 after 5 years:
buy at 0.50, sell at 2.50= 2.00 profit; 4x over 5 years is 32% irr
buy at 0.50, sell at 4.50= 4.00 profit; 8x over 5 years is 51% irr
buy at 0.50, sell at 5.50= 5.00 profit; 10x over 5 years is 58% irr
4x and 32% might seem good enough, but compared to 8x (which requires only 4.50 PPS) they would leave 50 M profit on the table on their 13 M investment.

100 shares equals 1 lot, this means HFT/ algorithmic trading to me.

I seriously doubt Crede would be selling for the simple reason that buying at 2.84 on Sep 24 and selling at 2.00 to 2.40 within 30 days, thus registering an immediate 0.40-0.84 loss/ share would not be good for their q3/q4 ROI (and end-of-year bonuses)...

True, they have the possibility of a warrant exchange bringing their average PPS down to 2.08-2.39 (cf post 5172). Still, recall this would not happen before late Mar 2014, 6 months from issuance.

That means they would be taking a huge risk because they would have to wait 5-6 months before being able to exchange the warrant, with huge uncertainty about the PPS.

This, knowing that positive milestones are expected for the company:
- q4: EU LS recommendation
- Nov-12: q3 results, 1st full q sales
- q4: US LS sNDA filing
- q4/ q1-14: EU LS approval
- Feb-14: q4 results, 2nd q sales, 1st full with pass-thru
- q4/ q1-14: EU LS partnership

Thank you for reminding us.

These cool-headed points should help some control the frustration we all feel with the current SP, that can darken our thoughts and blight our vision.

I, too, like what I see in front of us for the next 12-24 months.

Biotech is a game of patience unless you are here for the quick pennies.

Seems like that by pulling our heads together we got the best of it!!!!

You are correct about the BS, only rf is variable. I miss-read.
Assuming 1.40%, BS is fixed at 2.423.

If I may, the exchange ratio for the warrants is variable depending on the SP (and not fixed):
n = BS / closing bid price 2 days prior to such exchange (but PPS no less than 2.00).

With 10.563 common and 3.169 warrants:
If SP=3.83 then n=0.63 common/warrant; new shares=2.01 M; tot shares= 12.57 and Crede PPS=2.39
If SP=2.10 then n=1.15 common/warrant; new shares=3.66 M; tot shares=14.22 and Crede PPS=2.11
If SP=2.00 then n=1.21 common/warrant; new shares=3.84 M; tot shares=14.40 and Crede PPS=2.08
If SP=1.00 then n=1.21 common/warrant; new shares=3.84 M; tot shares=14.40 and Crede PPS=2.08

So, Crede has a PPS sweet spot between 2.10 and 3.83 in which they would make money despite a stock price lower than their 2.84 PPS initial investment.
Still, this does not change the fact that any exchange is not possible before 6 months from issuance, i.e. Mar 24, 2014 !
I agree there is an hanging risk of warrant exchange if SP <= 3.83 between Mar 2014 and Sep 2016. Still, there is the possibility of a mandatory exercise if PPS is 25% above strike price (i.e. 4.79) for a period of 20 of 30 consecutive days to suppress it.

Anyway, as I said in my last post (5169), if we place ourselves in mid-sept, the time this was negotiated and with PPS in the 2.90s, I can imagine management seeing 3.83 as a very reachable PPS within 6 months, with LS EU and US milestones expected in late 2013, not counting pipeline developments thanks to the new cash.

In my eyes, the upcoming q3 results (early Nov) and analyst day (Dec 05) will be of tremendous importance.
There should be enough positive news between US and EU to get PPS past the 3.83 mark by late Mar 2014.
Time will tell, as we always say with great foresight

In a way, the deal is simple: $30 M for just below 10% equity position composed of common at no discount + 30% warrant coverage priced at 35% upside, with the possibility to exchange the warrants for free shares as a downside protection if the 35% expected upside is not met within 6 months.
This being said, I needed to take the time to sit quietly and read with a pen in hand the warrant exchange description to make sense of it...
If we place ourselves in mid-sept, time this was negotiated, I can imagine management seeing it as a very reachable PPS with LS EU and US milestones expected in late 2013, not counting pipeline developments thanks to the new cash.

Regarding any Crede selling, let's remember that all discussions we have about the exchange are, well, just discussions until Mar 24, 2014 (the 6 month pole).
I cannot imaging Crede selling at a 16-30% loss (if at 2.00 to 2.40) within days of buying-in (at 2.84) in order to maybe benefit from a great deal on the warrant exchange 6 months later...

I agree with you there is a wee-bit too much darkness around the stock.
Management buying massively would be a good signal... Maybe they are blocked by a black-out period caused by the EU and US sNDA news. Let's hope this is that !

Thank you inoutup.

To expand in my post 5022.
We both agree that the clarity of the Crede deal lacks somewhat behind the one of a LS scan. That has created the uncertainty the shorts thrive on and management could have done a better job explaining it.

We both agree on the free warrant exchange advantage to Crede if SP <= 3.83 between Mar 2014 and Sep 2016.
My calculation for its impact are, using P=2.84; vol=135%, rf=1.40%, t=5 y:
If SP>=3.84 then warrant exercised, tot shares 13.73 M (10.6 common +3.2 from warrants) and Crede PPS=3.07;
If SP=3.83 then BS=2.423; n=0.63 CS/warrant, tot shares 12.57 M and Crede PPS=2.39;
If SP=2.00 then BS=2.540; n=1.27 CS/warrant, tot shares 14.59 M and Crede PPS=2.06;
If SP=1.00 then BS=2.636; n=1.32 CS/warrant, tot shares 14.74 M and Crede PPS=2.04;

We might differ on the size of the effect, but I don't think this is important.
The key question is what does the Crede deal means for Navidea and longs ?

1/ 29 M net cash:
As diddobuyer and others pointed, the GE loan had covenants requiring a cash balance > 6 months of burn.
Breaches of covenants can always be negotiated and Navidea has dry powder with its reset of the 35 M PM loan facility. I believe there was more value to be created by raising new money before needed.

2/ A new deep-pocketed investor:
So far, PM has been the only biggy in NAVB. I see having a new 9.9% holder as a positive.

3/ Deal terms not outrageous for a company under relentless short attacks:
No discount and only 30% warrant coverage is rare for a company besieged.
Further, 'no Short Sales for as long as the warrants are outstanding' is acknowledged in the prospectus.
I agree, if SP <= 3.83 between Mar 2014 and Sep 2016, Crede would receive between 2 and 4 M free shares. As the common outstanding is 132.9 M (Jun 30) this would be a shocking dilution of 1.5 to 3.0%. Ouch, this true is fodder for shorts ! Note I am not counting the 22.7 M common parked as SerB with PM which would decrease the real impact of dilution.
So, Crede is taking some insurance to become a NAVB shareholder... shocking ! And worse, they plan to make money !
I never realized NAVB didn't smell of roses. All the more in view of the last year's price gyrations and all the mud thrown at it.


We are in a short-led situation in which whatever the company or PM (cf FMPI) does is interpreted negatively by some who spread quiet rumors or shrill loudly. This negative-driven loop need to be broken. I optimistically look forward to q3 results and the Dec 05 analyst day.

So far, so long !

Jack is not an insider in the eyes of the SEC, as corporate insider status focuses on officers (usually 'O' in CEO, CFO, ...), directors, and 10% shareholders.

The 3 Executive Officers listed in the Apr 2013 proxy are Paul Wotton (CEO), Robert Apple (CFO), and Kaushik Dave (EVP Product Development).

Still, usually companies have internal policies regarding trading that apply to all employees, not just corporate insiders.
These could specifically bar trading during some period announced internally, and allow it otherwise, while asking for personal judgment depending on what information crosses your desk during an open period.
I don't know if Antares has one and how detailed it is. A question for Jack, I guess.

Regarding the Oct 24 CT form, it mentions Exhibit 10.1 of the Aug 10q: Form of Performance Stock Unit Grant, some part of it having been redacted at the time of filing, in particular names of grantees and dates of milestones.

As David Bupp is neither 5% holder, officer, or director, he does not have to report.

The last S4 dates Dec 20, 2011, just before he retired from the board: 2, 750 CS + 129 (in 410k) + 214 (spouse)

Regarding the Ser C, I found mention in the Jan 29, 2013 underwriting agreement with Ladenburg Thalmann (Schedule C page 20) that Bupp had completed in Sep 2012 the transfer to Marksman Investment LLC, where they converted automatically to common on Dec 31, 2012.

So, the count is: 3,093 on hand (Dec 2011) + 3,226 at Markman's (Jan 2013).
6.3/ 132.9= 4.8% of common outstanding at most.

Where did we got the info he has sold shares since Jan 2012 ?

The Black-Scholes calculation is described in the Sep 24 424b5 page S6.
The only unknown variables are the close 2 days prior to the exchange and the 5 year treasury swap rate at the time (1.40% now).
Price (2.84), volatility (135%), and time to maturity (5 years) are fixed.

Recall this does not apply prior to Mar 24, 2014, 6 months after the Sep 24 date of issuance, and in any case if PPS is > 3.83 (also page S6).

NAVB management had to raise money due to the GE loan covenants.
They made the choice to go with Crede instead of tapping the 35 M LOC. This means the 35 M are still available if need be.
If we try to understand why they would do that, we have to think what positives news could come out in the next year to boost the stock. LS' EU recommendation, approval, and partnering, and US uptake and sNDA filing comes to mind. As well some possible plans for the pipeline...

Going with Crede, meant dealing with hard nosed, tough cookies. They need to be in view of all the games played by the shorts and HFT traders with NAVB.
-- On the positive are the amount raised (30 M), the absence of discount to closing price (zilch), and a low warrant coverage (30%).
I have rarely seen these last 2 in biotech raising capital under duress ! (usually 20-30% discount and 50-70% coverage)

-- On the apparently negative is the possible warrant exchange.
I played a wee-bit with the numbers. I found a sweet spot for Crede at PPS of 2.10-3.83. The exchange of warrants for shares would lower Crede's PPS in the 2.07-2.35. Which is interesting for them, and no real dilution for us (2-4 M extra shares out of 133 M outstanding).
But, if the price is below 2.10, the exchange simply reduce their loss.
Compared the real sharks that I have seen, with full ratchet and no interdiction of shorting in the filings, Crede starts to look like a not so bad choice...

GE covenants, Platinum LOC reset, and Crede

GE loan covenant cash balance > 6 months of burn
On Jun 30: cash: 25.6 and cfo: -14.8 over h1 (7.4/ q or 2.45/m)
Estimated pro-forma Sep 30: cash 18.8 > 14.8
Agreed, the burn has only to increase to 2.85/m to put NAVB in breach by Sep 30. And anyway it would be a matter of months...

Although, PM's LOC was reset to 35 M at the time of the GE loan, my gut feeling is that NAVB decided 1/ to keep its dry powder and 2/ to have a second big player alongside PM (first of many we all hope ).

Crede's warrant exchange
Begins only 6 months from issuance, hence not before Mar 24, 2014.
Of note, 2 limitations on exercise:
- Beneficial ownership limitation: common then owned < 9.9%
- Share cap: total number of shares issued in Sep 2013 offering < 19.99%
On Sep 24: 10.6 common + 3.2 warrant = 13.7 = 10.3% of 132.9 common outstanding.

Crede as short
They publicly state 'No shorting or hedging employed' and, more importantly, the 424b5 sates page S7:
'No Short Sales
For as long as the warrants are outstanding, the holder shall not engage in any short sales of our common stock, except certain short sale may be permissible if made one trading day prior to the exercise of such warrant.'

With all these, why would Crede tank the stock, stain their reputation and, more critically, risk trouble with the Justice ?

Let's hope the quarterly by mid-Nov and the Analyst day Dec 05 will give the stock some meat to ignite the PPS growth we have been waiting for.

Otrexup target markets

Bio pete, to expand on TDPeterson123's response:

Compared to IM, insurance companies will look globally:
Yes, per device, it will be more expensive that a vial of MTX... but they won't have to pay an health care professional to give an IM to the patient.
True, that could be a negative as the pro could try to keep that revenue stream, but some DTC could counter that.
Also, it is more convenient for the patient.


Compared to self-SC, the keyword is autoinjector.
See p 26 of the prescribing info:
http://www.otrexup.com/PII-13-001_11Oct13_Final.pdf

Recall that we are talking about people suffering with rheumatoid arthritis who failed 1st line therapy.
They don't all have painless easy use of their fingers at that stage... which makes preparation from multi-dose vials and injections difficult, unlike diabetics.

And for both IM and SC, let's not forget the small matter of drugs shortages...


A key position for Otrexup is between oral MTX and injectable biologics due to the cost of the latter.
For example Enbrel has an average cost of over $2,000/month.
Insurance companies will be happy to pay for patients using Otrexup as it saves them money by keeping the patients longer on MTX by allowing to increase their doses in a more tolerable way.

Maybe I should...

I agree they are not too effective.
For example, q3 results release date is not on the website.

Just doing my own DD... and taking advantage of the opportunities opened by the shorts shaking the panicky.

Still, I can't wait for the pleasure of the upcoming squeeze. Sweeeet !

My guts are going for the run-up.

On the negative, we have 2.5 M underlying shares to these contracts. I have not followed the price of the Jan 14 contracts, but I can easily imagine the writers got a few $M for them. So, they will work to keep that money...

On the positive, if we look at the calendar:
-- early/ mid Nov: q3 results
I can already hear the shrieks of the bears as the sales won't reach a gazillion $. Still, let's not forget the CMS pass-thru code only started on Oct 01.
-- few option contracts maturing on Nov 16.
-- Dec 05: analyst day
Hopefully, we would have LS EU recommendation for approval by then.
Expecting to see if general sentinel node to be included in LS label, and in US sNDA.
Expecting news of Ph 3 init for 5001 in Parkinson's.

-- q4: EU LS recommendation (either Oct 21-24, Nov 18-21, or Dec 16-19)
-- q4: US LS sNDA filing
-- q4/ q1-14: EU LS approval
-- q4/ q1-14: EU LS partnership

With the fresh cash from Crede, I am staying optimist.

FMPI selling makes no sense:
CFO don't sell shares for IOUs at $2.88 to convert the IOUs for cash at lower price and book a $0.50-60 loss per share within a month.
There was a cash part in the offering that I would think sufficient to complement the existing cash to wait for the NAVB shares to gain value.

This was a smart way for Montaur to gain liquidity for some NAVB without selling any on the market, and exchange an immaterial portion of their shares for a 14% position in FMPI:
NAVB: 1.2 M out of 33.4 M Montaur (10.7 CS + 22.7 SerB)= 3.7%
FMPI: 4.5 M out of 32.0 M outstanding (24.4 CS + 2.2 SerA + 5.4 Ser B)= 14.0%


Crede taking a 9.9% position in NAVB is a positive news as it adds another deep-pocket institutional to Montaur.


We are seeing hedge funds having fun and making money thru a double take: shorting and selling calls that happens to expire out of the money thanks to the shorting...

Regarding LS EU approval, the Committee for Medicinal Products for Human Use (CHMP)'s next meeting is Oct 21-24.
Ideally for us, it would recommend LS approval, with formal approval coming late Dec.
If not, the next meetings are held Nov 18-21 and Dec 16-19.

I think the Oct 18 date came in prior posts as 10 months post Dec 18, 2012 filing date.