While the HEDGE FUND LACKEYS are hard at work on this board pounding the table as to why Joe Q. Sixpack should be buying (when in reality the hedge fund is SHORTING), people remain clueless as to why the short interest keeps climbing and they continue to take the bait of the hedge fund lackeys ("i.e. "buysignalinvestments"). A 5 year old can understand why EXEL cannot and will not move higher for the foreseeable future...in other words, it will remain "dead money":
"This deal is very similar to an equity offering with warrants attached. It's just a pig with a different type of lipstick. Warrants are "sweeteners" in financing deals. In the case of the Exelixis financing, the convertible arm was a "sweetener" in lieu of warrants. Why are they called "sweeteners"? Because an investor can use the common equity portion of the deal to finance a portion or all of the warrants/convertible arm.
In the case of common equity and warrant deals, you'll often see a fund take down, let's say, 5 million shares of XYZ common stock, and, also be apportioned 0.5 warrants for every common share. Oftentimes, a few weeks later, when the 13F filings come out at the end of the quarter, you'll notice that very same fund owns absolutely no shares of the common stock, despite the stock having barely moved. How is this possible? Because the fund likely used the common shares in a short position to pay for the warrants, making the warrant arm of the trade almost risk-free, or reduce the cost of the warrants greatly.
Let's take a closer look at what investors in the Exelixis financing are likely doing: A hedge fund buys Exelixis common stock, in size, at $4.25 per share and has the ability to own more stock at $5.31 per share at some point in the future with the convertible arm. Therefore, any time Exelixis' stock price rises above $4.25 by a reasonable amount, the hedge fund can short the stock and use profits from that short sale to pay for the convertible stock.
For instance, days, weeks or months later, if Exelixis' stock is trading at $5.50 and the hedge fund bought 10 million shares in the financing deal, it could short 10 million shares and "arbitrage" the profits. [Since the hedge fund owns 10 million shares at $4.25, it profits from the cost basis of the short versus its long position received in the deal at $4.25.] The fund then takes those profits and uses them to pay for the convertible arm in full, or reduces the cost basis of the convertible.
Why do this? Easy, it's almost like free money. Furthermore, if an investor thinks Exelixis' cancer drug cabozantinib is going to be a billion-dollar blockbuster drug, then owning the stock at $5.31 -- or lower, cost-basis adjusted -- is a no brainer. And, if investors can get convertible shares for free, it's even better.
When a company raises money through an equity sale with warrant or convertible notes as a sweetener, investors who aren't lucky enough to participate should run away from the stock - fast."
Nothing has changed, folks. Don't be surprised when EXEL fails to stay over that 5.00-5.50 zone. You see, it's a simple law of money making...hedge fund remains in complete control and they will short heavily above 5.00. No risk, great reward :-)
"This deal is very similar to an equity offering with warrants attached. It's just a pig with a different type of lipstick." First, the equity offering and the convert are separate transactions. The participants may have taken positions in both, but it was not required and I don't see any advantage to participating in both. That said, I do agee that as a result of the large debt/equity offering the stock is rangebound. At some point, fundamental prospects will outweigh the technical considerations and EXEL will break out of that range. You say "forseeable future," I don't really know how long it will take, but it could be a while.
Don't confuse this with toxic financing, a situation in which a company pays back debt with market priced stock. In those scenarios, the lender has the incentive to drive down the price per share to end up with a larger percentage of the equity in the company. Still, I am not happy with the size of the financing. The participants have an obvious incentive to lock in profits any time we go over $5.31 and considering the size of the offering, I suspect there are still more than a few sell orders waiting for the stock to climb back into the $5.30's.
Very lucid, well crafted comment. I'd wish others who might disagree would comment without the personal attacks, just a equally lucid and constructed counter-point. I don't see it coming frankly, and again being frank, you are partly to blame as you can't get above it all; finding joy in others misfortune, a terrible character trait. I hope you can get above it (I hope we all can including me).
But here's a question for you. OK I get it, the technical nature of the all this. However, if like me, including others like Enabler here, believe in the science, believe that the coming results from all the on-going tests will be positive, and that a suitor is a reasonable likelihood, what happens to the stock PPS? Isn't that the one variable that will just trump all this technical stuff? If EXEL released a test result tomorrow that said, 'hey we cured cancer', or some big Pharma said ' we're buying EXEL', what then? So many people here bash those holding long term as if they're idiots. I don't get that. Are you saying the tests results will fail, that EXEL is not an attractive target for another company? In other words, most those holding long don't really care about the short term technicals, and why should we? Yet you continue to lambaste them for doing so. What am I missing?
"I'd wish others who might disagree would comment without the personal attacks, just a equally lucid and constructed counter-point. I don't see it coming frankly..." Maybe I'll surprise you.
Why don't you just slap yourself as the messageboard #$%$ You have no clue on all your technical BS. You keeps on hoping like last week when you was expecting markets to tank. Now you are stuck short , you poke your head out trying your slick games again.