yep ...... shorting against the warrants is just a trading tool.
Its just like a convertable bond holder protecting his bond price by shorting against the conversion price. Its a hedge and is used as a short term trading profit tool.
I like to short in the BOX, that is short my long position to generate some short term profits when I owen a stock that is clearly overvalued or has made a significant run that you know there will be profit taking by the traders.
if your really looking to just cash out your position than just sell the instrument: stock, warrant, convert bond .....
Got it summer, thanks. I appreciate the free education on sophisticated investment strategies, as well as your thoughts on the trials. I certainly hope for selfish reasons that you decide to maintain or add to your position in OGXI and continue to post on this board.
The upcoming CC should be very interesting and perhaps will shed more light on the answers to my questions about the trials.
Buying a call and shorting is called a synthetic put. It behaves like a put option. So if you keep the warrants but short (as opposed to cashing the warrants prematurely), you get a free put option.
For example, let's follow your cashing-out scenario (in which the holder decided to cash out at $50 because he/she thinks that $50 is a good price and the pps might go lower.
If the holder cashes out by converting the warrants to shares, the holder will pay $20 for the shares and sell the shares at $50. And thus the holder makes a profit of $30 no matter what happens to the pps after.
If the holder shorts while holding the warrants, the holder can cover anytime and then cash out. So no matter what the pps is, the holder makes $30 if the pps does not drop below $20. However, the holder can possibly make more if the pps goes below $20.
So for example, let's assume that the pps drops to $10 at that point the holder covers his/her short position. So the holder makes $40 for the short which is better than $30 he/she would make if he/she cashed out.
And the best part is that he/she still has the warrants.
For example, assume that the pps recovers to $35. That's another $15 even if the holder cashes out prematurely.
However, the holder can (and should) repeat this cycle as much as he/she can and not cash out.
Every time the pps goes significantly above $20, the holder of these warrants will (and should) short the stock which by itself will put a pressure on the pps. And they will cover after it goes below $20.
And then repeat the cycle.
You cant blame these guys. That's the right thing to do.
That's why as you said, there wont be any additional shares for another 5 years unless there is a buyout in which case, the company can liquidate these warrants. However, you cant ignore these because they have not been cashed out.
>Do you know whether if an interim look were planned, the clinicaltrials.gov site would say so?
The info at clinicaltrials site is not final yet. It has not been updated for nearly 2 months. The dosage is not even fixed yet. So they might add an interim analysis.
Also, this is an open label trial. The co might have continuous info about the results and can share (like they did in their P2 trial). Or as JQ pointed out the company can be blinded even though the trial is open label.
>Second, with regard to the P1 bladder trial for 427, given that it's non-randomized, do you think there's any way it could provide meaningful efficacy data? (Obviously not meaningful enough to register the drug, but perhaps meaningful enough to move the pps.)
I dont know. The pps moves for funny reasons. So it might.
>Finally, do you have any sense how long the randomized P2 trial for 427 in prostate is likely to take?
This is a single site trial. It might take a very long time. See how long the http://clinicaltrials.gov/ct2/show/NCT00138918 takes (a trial by the same doctor at the same site for less number of patients for the same type of cancer).
But if you keep the warrants and short the stock, it seems to me you're losing the time value of the warrants anyway. If you hold the warrants until expiration the time value will evaporate, and any increase in the stock price in the interim will be wiped out by the loss in the stock you shorted. I don't see what you'd gain over just exercising the warrants at the earlier date, which would save you the transaction cost of shorting it.
In any case, my point in bringing up the issue of the cashless exercise option was only to show that many people, including me, who initially assumed that the offering would raise an additional $30mm and require the issuance of an additional 1.5mm shares weren't necessarily correct.
Let me ask you a couple of questions relating to the possibility of trial result news sooner than the 2-3 year timeframe you've talked about. In the big P3 prostate trial where the endpoint is survival, the clinicaltrials.gov link you provided doesn't mention the possibility of an interim look. If there were one, as in the case of abiraterone, that could result in an earlier end to the trial (which could be either good or bad, i.e., it might be known at that point that the endpoint would or would not be achieved). I realize that if enrollment takes a year or more, it would still probably be at least 2 years before there would be an interim look. Do you know whether if an interim look were planned, the clinicaltrials.gov site would say so?
Second, with regard to the P1 bladder trial for 427, given that it's non-randomized, do you think there's any way it could provide meaningful efficacy data? (Obviously not meaningful enough to register the drug, but perhaps meaningful enough to move the pps.) The other P1 trial for 427 showed few if any objective responses, though it did show declines in CTCs. But here the drug is being infused directly into the diseased organ so a more concentrated dose is being delivered.
Finally, do you have any sense how long the randomized P2 trial for 427 in prostate is likely to take? Only 72 patients but they all have to be recruited from one medical center. If that trial will finish before the P3 trials for 011 with a positive result, it could move the stock. Successful randomized P2 trials can do that, as in the case of the P2 trial for 011 and Isis' P2 trials for mipomersen.
On p.25 there is an interesting provision relating to the warrants. Holders can either exercise them in the traditional way, i.e., by paying the exercise price ($20) for a share of stock, or they can choose to do a "cashless exercise":
"[H]olders may exercise pursuant to a “cashless exercise” feature. The cashless exercise feature permits a holder to elect to surrender a portion of the shares of common stock subject to the warrant in lieu of paying cash for the exercise price, provided the exercise price is greater than the average of the closing sale prices of the our common stock for the ten consecutive trading days ending on the trading day immediately preceding the date of the exercise notice."
I Googled "warrants cashless exercise" and came up with a few useful links, including this one:
Basically the idea seems to be that the warrant holder pays the company nothing and receives a fraction of a share which equals the value of the warrant on the date of exercise. So for example if on the date of exercise the stock is worth $30, someone opting for a cashless exercise wouldn't pay the exercise price of $20 and receive a full share. Instead they would pay nothing and receive 1/3 of a share because the value of the warrant is $10 (i.e., $30 - $20).
What this means is that OGXI can't assume that if the stock price goes above $20 before the warrants expire it will have to issue another 1.5 million shares at $20 each so that it will raise $30 million. If some or most of the warrant holders choose cashless exercise, it may issue a lot fewer shares -- so there will be less dilution -- but receive a lot less money.
If someone thinks I'm misunderstanding this, please correct me.