Replies to post #778 on InVivo Therapeutics Hldgs Corp (fka NVIVQ)

[rru2s]

Since the warrants have 5 years to be redeemed, one can make the argument that share price in the future will be much higher than present share price. Therefore, consider two options for the owners of units consisting of one share plus one warrant:

1) Continue to hold the warrants as stock price moves upwards well past the threshold for redemption of $2.80. Then when stock price reaches some higher value, arbitrarily for argument's sake let's say about $4, then sell a fraction of their shares sufficient to raise enough cash to redeem all N of their warrants (1.40/4.0) and use the proceeds to redeem all of their warrants, which now would give them a total of N x (4 - 1.4)/4 remaining old shares plus N redemption-issued shares, yielding (8 - 1.4)/4 x N = 1.65N total shares held at a market value of $4, with the net transaction at no additional cost to the holder.

2) Redeem the warrants as soon as price surpasses $2.80 for 20 consecutive days, then sell a fraction of their shares sufficient to raise enough cash to redeem all N of their warrants at the current price, for argument's sake let's say $3.00, which would now give them a total of N x (3 - 1.4)/3 remaining old shares plus N redemption-issued shares, yielding (6 - 1.4)/3 x N = 1.53N total shares held at a market value of $3, with the net transaction at no additional cost to the holder.

Since the 2010 warrants can be redeemed any time over the next 5 years when stock prices are above $2.80, it would make sense to hold out to redeem when stock price is highest, if in fact the holder desires a transaction which does not require them to invest any additional cash to convert. The difference in this case is (1.65 - 1.53) x N = 0.12 x N shares. Since the odds of price appreciation are clearly in favor of NVIV shareholders at this point, it would be prudent to wait.

This kind of scenario is not always the most advantageous strategy for warrant holders. Consider, for example, the hypothetical case where stock price had somehow managed to exceed $2.80 for 20 consecutive days but HUD approval and IDE approval had not yet been granted, and possibly in conjunction with a product that had not showed such clearly unambiguous demonstration of success such as occurred in the Green Monkey trials prior to getting ready for human clinical trials. In such a case a warrant holder might have elected to minimize the risk that share price might never get to $4 in the event that HUD and IDE were never going to be approved, or that clinical trials would fail. However, cashing out early would represent a lost opportunity cost of never being able to have an extra 0.12N shares without further cash investment given the potential outcome of the share price reaching $4.00.

[Fizz1030]

I think people are making a bigger deal out of the warrants than they really are. In the worst case scenario if all of the outstanding warrants were called by InVivo there would be some dilutive effect on the stock price, but it would be minimal. The company issued about 13million warrants (I believe almost 2million of these were already exercised last year per the financials) with an average exercise price around $1.40. If the company called all of them tomorrow they would raise $15.4 million in cash and issue an additional 11 million shares to the warrant holders. So the current market value would increase by the additional cash ($15.4 million) to $200.6 million. The outstanding shares would increase from 66.15 million to 77.15 million. So the new share price after taking into account the dilution that would occur if ALL outstanding warrants were immediately called would be 200.6/77.15 = $2.60. The worst case scenario of dilution from the warrants would yield a 7% drop. I do not think a potential 7% drop will deter new investors from taking positions given the potential for massive stock price appreciation far exceeding 7% in the next few years.

[LifeSciDude]

Re: Post 778

That's just one of many possible options here. It was also interesting to read here that most warrant holders are "financiers" and not necessarily longs. I happen to think if you have enough confidence in the company and the science you know in very short time span where this is headed, there are other good possibilities. You don't have to SELL any shares. Excercize the warrants and then have MORE shares, still at a lower overall dollar cost, AND more undergoing the appreciation multiple for a later sell date.

Some were saying they can sell warrants for up to 5 years? I thought if the company calls them in 50 days you no longer have a choice and they will be executed. Sort of confusing to a plain old long like me with a job and no time to play all kinds of games with day-trading & shorting.