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...at what price would short positions and long positions decide to exercise?
I think I can talk with some authority on the warrant strategy. I own a fair number.
Not going to short against the warrants => stupid and uses too much capital unless one uses a swap facility and, even then, not worth the trouble. I’ve never shorted against them though some holders have. I’ve purchased a good number of warrants from weaker holders over the past 6 months. There’s, maybe 5M - 10M left, and may clean those up soon.
Not planning on exercising near term => stupid unless one thinks odds of failure are > 90%...and I don’t.
Stock needs to be $0.50 - $1.00 before I think about exercising.
Agreed. I'd keep one's enthusiasm in check with respect to the ASM
or good intel
Creative license
They’re trying to tell you they’re close to data lock. Is it (data lock) the announcement we are all waiting for? No. But is it the announcement of the announcement we are all waiting for? Yes
block went to multiple investors, who were cut back, (at least one of the block buyers) bought aftermarket and (at least one...) have and will fund NW on an as needed basis but would prefer minimal dilution since (at least some...) already have significant equity exposure.
"there's a market for bio IPO's. Why did INNT choose this path to go public"
They planned to go public in an underwritten IPO, but the opportunity for a reverse merger fell into their lap and it appeared to be the faster route.
I've been a professional investor for 24 years. I expected it to perform well (that's why I have pretty decent exposure in INNT). But, the catalyst for the performance I'm still unsure about. A few ideas:
1. The company's technology has merit to strategics (e.g. other pharma companies). I haven't asked management if there are any current strategic discussions because, if there are, I don't want to know. One reason I still invest professionally after 24 years - I don't trade on inside information.
2. I also know some friends of mine that were trying to buy the stock in the $5 - $10 range. They told me it was really hard to do...not much stock around to buy. So, simply put, holders of the stock are pretty happy and want to see the Larazotide clinical trial play out.
3. Larazotide holds promise in nonalcoholic steatohepatitis (NASH). This is a large market indication with no good options presently. This would add significantly to the "fair" market value of the company.
Those are possible fundamental explanations...but it also may just be the 'shit happens'.
Yes, you're correct. About 25 m shares o/s.
Given the phase 3 celiac drug candidate, valuation of $250m - $750 m seems about right in my view. I've known this company for 1.5 years. Invested when it was a private company and have meaningful exposure currently. The technology is valuable and it wouldn't surprise me if they also get, at some point, strategic interest.
Innovate is a publicly traded clinical stage biotechnology company focused on developing novel medicines for autoimmune and inflammatory diseases with unmet needs. Its pipeline includes drug candidates for celiac disease, NASH, Crohn's, and ulcerative colitis. Innovate is led by a strong management team (some of whom I've know for years) with extensive drug development experience and a history of bringing novel therapeutics to market. All global rights to the products, which are backed by more than 150 patents worldwide, are owned by the company.
The Cognate transaction is an unambiguous positive.
Just speaking personally, the conflicts posed by the NW – Cognate affiliation kept me investing for years. My first investment was 2008, then a little in 2010, then nothing until late 2016. The conflict made it very hard for a professional investor to consider; impossible to reasonably analyze.
Now we can focus on the trial. LP has placed her bet solely on NW now. A clear signal to me that NW management thinks they’ve got a winner. She may even up her exposure.
I think NW has a shot at approval, notwithstanding AVII's excellent analysis. The skinny control arm is a significant risk, though safety and unmet need factors are positives. Given the risk / reward…worth a bet of a few million.
or...the pref can convert to common and then vote to raise the authorized ceiling.
This my seem impossible since there is not enough room presently for this to happen, but, if one is creative, it is possible I think.
But, it's a mistake to worry about the pref at this point. They invested and are taking the risk along side all others. More important is hitting milestones and commercialization.
To your point on NDAs:
Quote:
"extra information disclosed in NDA doesn't have to be disclosed in the 8-k announcing the sale"
This is true. But, the person/entity that entered the NDA is restricted from buying/selling until it is.
While a placement is being negotiated, every person with knowledge of the transaction is effectively restricted. Usually a company will ask the potential investor to sign an NDA or will use other mechanisms that accomplish the same thing. In the case of NWBO, they enter NDAs with potential investors. Summary:
non-public info: transaction existence and details of terms
info made public: press release and 8k
investor can't buy/sell: short duration, a few days/weeks
Long-term / fundamental investors often want more info, if the company is willing to divulge, an NDA may be entered specifying that desired info.
Example:
non-public info: some data on our trial
info made public: in press release and 8k (at some distant time)
investor can't buy/sell: long duration, weeks/months
If one knew if such a (longer term) NDA was entered, one could conclude that (a) investors have a long term perspective, and (b) the data was sufficiently positive for an investment.
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footnote: yes, there are always some investors who don't follow regulations and there can be information leakage. My perspective is how things are done by people that prefer to avoid visits from the FBI and the SEC
Agreed. Investor NDAs covered (a) the existence and terms of the transaction prior to those being released in an 8k (this would include voting arrangements, etc), and (b) a separate NDA covering certain fundamental information about the trial / company.
All investors would have to sign "a". This NDA would prohibit trading until the 8k is released. NDA "b", while optional, would give long term investors comfort that the technology is compelling. The can't sell until the fundamental data is publicly available but why would they? If there is a significant therapeutic benefit, the stock is not going to stop at $0.50
Your estimates are overstated, imo...
Yes, the stock was trading 0.16 - 0.17 when most investors committed to the pref transaction. They will end up with common at 0.17 and an equal amount of two year warrants. Forget the preferred liquidity preference**. As you state, the warrants do have value, and your estimate is 0.05. Being someone who has occasionally bought / sold warrants from / to third party investors, I'll say your estimate is a little high. 0.03 - 0.04 is more like it.
So, net-net, the investors were looking at a stock trading 0.16 - 0.17 and they agreed to invest 0.02 - 0.03 below the market. That's in the range of normal for this company profile.
I agree the dilution sucks, but the investors appear to be long term oriented and have the capacity to investors more (on much better terms) if the fundamentals start playing out as we all (well, most of us) hope.
** The pref exists only because the authorized share amount has to be lifted. The pref must automatically convert once it can be converted to common. And, who would want to invest in (non-tradeable) pref in a company that will either be wildly successful or a zero? In one case the liquidity pref is worth nothing and, in the other, it's not needed.
Clearly this time is different. Before, the stock dropped to the deal price minutes after a financing news release.
0.17 was already known. What is new: the investors in the deal are more patient. If not, we'd already see 0.17.
pls remember NW 10Q indicated a pref deal is coming.
The price will certainly be less than the market price and probably 0.17 (wasn't that the price stated in the Q?).
Heading to 0.36? yes, but first a little jolt down.
Most interesting will be how long it stays down.
No, no one knows including company management, IMO
Shorting against stock or warrants are both going to be uncomfortable in your example.
1. Yes, shorting against (untradable) stock, you'll get a big margin call.
2. Shorting against a warrant will be similar. The warrants are one-off, non Reg-T securities and the investor's prime broker (I'm assuming the investor is an institution) will give no risk credit for the warrant. The margin call will be exactly the same as in #1.
The only way to practically execute the strategy, in compliance with all laws and regs, is to enter a total return swap with a bank (RBC, Deutsche Bank used to be good counterparties) where the bank holds the risk of both the longs and shorts. Once the transaction securities are completely liquid, the bank liquidates everything and pays the spread, less financing and commission to the investor.
It works...but if my theory that investor(s) in this round are fundamental types they'll just hold for $5 p.s.
astute
but I don't think there will be shorting against warrants. It's is possible but not what I would do if, say, I were in the transaction.
Most grand conspiracies aren’t.
Our minds evolved to find patterns, that’s why we see a butterfly in Rorschach image. Sure, conspiracies exist but if there are non-conspiratorial explanations, those are more likely.
In the case of Woodford, his reputation was being damaged by NW. For a fund manager, that’s worse than losing money. He and his affiliates aren’t picking up shares at these levels. He hopes the stock lifts, but reputation is worth more than profits. The best outcome for his reputation is (a) no new money, (b) the stock lifts.
I’ve heard the short manipulation conspiracy. Maybe. But the extreme stock price decline was also caused by the need for capital and the lack of long term investors. Any time there was demand for the stock, NW completely filled the demand with a new deal. Are they to blame? No, the capital was needed to keep the trial going.
Are things about to change? My guess is yes. Milner1 seems to be sensing this through the tape…others too. There will be another deal down at these levels. But I think the investors will be long-term, fundamental types. That’s why the stock price won’t fall back to 0.17. Stocks move on news (but we already know the 0.17 price) or on buying or selling driving the prices to new levels. If the deal investors hold, the only investors that will move the stock to 0.17 are investors who don’t read 10Qs. The dilution sucks but the possible catalysts upcoming can drive the stock and to $1 p.s.. At some point we will us see unblinded top-line data on Ph3, an FDA decision, and will then see bankruptcy or $5 billion in market cap.
Yes, Dr. Subbiah is excellent. Very patient centric.
Your suspicions are reasonable when you have no better visibility.
That’s why “how it looks” may be almost as important as “how it is.” If I didn’t know the transaction so well, I may feel the same as you. But I do and so I don't.
I remember asking management the question re Navid setting up the Regen. They gave me a plausible explanation but, it was a while ago, and I can’t remember the specifics. Since I knew the purpose of the transaction, I accepted it. It fit with everything else I knew or suspected.
WRT a conflict between this and his job as an analyst covering the company. I think all sell side analysts have conflicts and we all know about them. They get paid for raising capital (indirectly, at least) and there’s always tension between good company relationships and the maintenance of analytical credibility.
Do I think his views were influenced by the possibility of raising capital for NW? Sure, that’s the way it works with sell-side analysts. But, do I think he genuinely believes in the technology? Yes. We’ve had long conversations about the NW technology and I think I can (usually) tell when I’m getting smoked by an analyst.
If you're saying the Woodford relationship was mishandled, I agree! That's what I meant by "[management should] have put more effort into getting Woodford comfortable. That was one of their big mistakes IMO."
I was only commenting on the Phase 5 claim re Navid, not everything. I never liked the affiliated problem that Cognate represented. I thought Phase 5 overstated their case, but the affiliation of NW and Cognate is both a blessing and a curse. I hated the ratchet provision in the NW-Cognate agreement where the price of NW shares held by Cognate was adjusted if NW issued stock below $4.XX. I stopped investing in NW for a while as a result, but that provision is gone now.
As far rebutting...can a public company effectively do that? Sometimes, maybe, but the Phase 5 claims were complicated and a whole lot of non-public info would have to be made public, and even then it would have been challenging to walk investors though. Don't think it would have changed the minds of many, but, if I was NW management, I certainly would have put more effort into getting Woodford comfortable. That was one of their big mistakes IMO.
In general, when I see companies spending much time and energy rebutting negatives, I see it negatively (meaning, confirming my short, if that's how I'm positioned). Less talk (battling shorts) more action (deliver results).
I met Navid in 2008 when I was in London diligencing a different company. He told me to take a look at NW. I did and invested in 2008 and 2009 in debt. I many other NW investments since, some debt, some equity, some debt for equity exchanges. I've purchased stock in the open market...and confess I've occasionally shorted (but always borrowing the stock legitimately first).
One of transactions I participated in was the Regen Med transaction...where Navid was painted negatively in the Phase 5 Report. There was nothing nefarious about the transaction; it was complicated and opaque, so it's possible to think terrible things are going on in the shadows. But, from what I remember (not wanting to go back through all my notes), Toucan had to sell some of their NW holdings and there was some valid, technical reason to place the securities in Regen first. Navid formed Regen, but that doesn't mean much. I've formed companies but the actual person who is listed with the Delaware Sec'ty of State is my attorney's assistant. The individual who forms a company has no reflection on economics.
Skimming the Phase 5 report, it seems the claim is that Navid got a kickback in NW securities for writing a favorable report. Not true. Life is usually much more boring. What I know is this:
(1) there was no big kickback. I know because I purchased a fair amount of those securities and I received delivery. If I got them, Navid didn't (at least my securities).
(2) Navid's favorable NW report reflected his true view. He had this view when I met in in London in August/September 2008, way before any supposed kickback.
I think he (Navid) underestimated many of the issues with NW...the related party stuff, the fumbling of the ball wrt Woodford...but, he genuinely loves the technology. And, I think he has a good shot of being right on the that.
I know for a fact that the accusation re Navid in the Phase 5 report was completely off base. I participated in the transaction referenced in the P5 Report. I get that you can't verify what I say, but thought I'd mention it anyway.
I met Navid years ago and he suggested I take a look at NW. As far as I know, he's a very decent guy.
Very good transaction!
I think the Sarepta Duchenne MD approval indicates the FDA is not as rigid as it used to be with respect to approvals for life threatening, few good alternative therapies.
I acknowledge the issues with the trial, but my assessment always results in a probability, not anything definitive.
yes, the data in the paper should be very informative.
I've run a monte carlo simulation and expect media OS (for the entire patient set, treated/untreated) in the mid-twenties and 30% survival in the mid-thirties. Compares v. favorably with other studies. Admittedly, the small never-treated arm is worry, but I think it will be difficult (though not impossible) for the FDA to decline to approve a therapy with such strong OS results. Basically, this trial is going to look like an impressive single arm study. The statistics are not going to be a clear as one would like, but they have a shot at approval, IMO.
...and the preferential rule for insiders covers payments over the prior 1 year.
Flexibility, that's all.
Given the positions most of them are in, they can't practically call it too easily.
Agree. This trial has (at least) two concerns: (1) the dependability and interpretation of the PFS endpoint, and (2) cross-over post progression, which imbalances the control/treatment arms.
PFS endpoints in immunotherapy trials are not as dependable (meaning correlated with OS) as those in more traditional trials, and this is becoming more apparent as the body of completed immunotherapy trials increases. This problem can occur when lymphocytic infiltration results in tumor inflammation (which looks like progression) or (since immune activation is a complex process and often operates with a delay not seen with cytotoxic agents) when new lesions occur prior to the delayed immunotherapy response. See https://academic.oup.com/annonc/article-lookup/doi/10.1093/annonc/mdq048, http://clincancerres.aacrjournals.org/content/15/23/7412.long
So, I don’t think one can be certain of either success of failure with the NW Ph3, but given the market cap, I think it is a screamer. In my investment career, I’ve only had one certainty (see below), but this one is a bit more exciting than most.
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(1) except for one interesting case where the market was pricing a merger ratio that (a) differed from what a company press release indicated and (b) the CFO then confirmed to me that the press release was correct. It was a micro-cap and I bought all I could before over about 30 minutes before the market corrected to the data in the press release.
Good point. I forgot about that release.
Hey Virgilio, I'm up to 4 posts now!
I talk to him frequently.
There has been no change in his willingness to discuss the company’s prospects or confirm my understanding of information that is already public.
I have a long history with NW (since 2008) and therefore know the personalities. They have been (and are becoming even more) optimistic about the prospects of the Ph3 trial. I’d say they’re more optimistic than I am, yet I have millions of shares of exposure. I’m not a zealot with NW (or with any investment). I’ve been long and I’ve been short. Currently I’m long.
In the past, I’ve discouraged NW from responding to skeptics. I invest for a living and whenever I was short stock in a company that spent much time responding to skeptics, I would short more. It was a pretty good indicator. Perhaps, in this case, they should respond. Claiming 100% certainty regarding non-public, blinded data is a pretty dramatic statement and may be an exception to my ‘don’t respond’ rule.
he doesn't though he thinks he does.
I think Adam has made many insightful points over time, but we all can get things wrong. No, the investor is not Woodford, but I think Adam will surprised also. My guess is they will be a fundamental investor who has known the company for many years and thinks now is a good time to add risk.