if anyone followed my postings closely here starting late yesterday he could have made a ton of money like I did - so what's going on with PATH ? Why the underwhelming performance today? Some answers for you:
Approval wasn't in fact a big surprise as efficiacy was clearly demonstrated in clinical trials. The company screwed up the last FDA PDUFA date only because of manufacturing issues. So this time around it was quite clear they adressed this issue in the meantime.
Despite the good clinical data the company was required to start as much as three post-marketing trials to address remaining safety concerns. This was clearly unexpected and the company did not mention it in yesterday's approval press release either. Costs for the additional trials are estimated to be "a few million dollars". While post-marketing trials are sometimes required by the FDA in this case based on the strong clinical data NuPathe should have been able to avoid them - also the news was poorly communicated - at least one analyst was clearly puzzled on the call.
In order to stay afloat the company did a brutally dilutive equity financing in October 2012 selling 14 million shares and warrants at $2 - (at this point the stock was trading at $4.34). With the warrants now in the money the diluted share count rises to at least 43 million. On a positive note the company will receive another $28 mln in cash from the exercise of the warrants so at least they will get something in exchange for another 33% dilution. With 28 million new shares bought at $2 there is a sizeable oversupply of in the money shares at this point. The owners of these shares will pocket nice gains even at a price point of $ 2.20 - so I would expect ongoing distribution going forward (with the stock having closed at day lows this prediction isn't that difficult). With trading volume to cool down going forward the oversupply of cheap shares might weigh even more on the share price so this one might see $2.50 before these shares are fully absorbed.
The conference call offered little to no details about the commercialization path going forward with the few insights being decidedly negative. Currently there are no advanced discussions with potential partners at hand, so they are actually starting almost from scratch now. In this context the very late launch date (4th quarter 2013) becomes somewhat more understandable. With management seemingly having no real conception about what kind of partnership they would like to pursue I got the impression that they just tried to survive until approval and now will start to work again finally. Again I was puzzled when the CEO was talking about hiring a sizeable salesforce (up to 90 salespeople) - for exactly these kind of duties small and big pharma companies establish partnerships. Obviously they are already preparing for a worst case scenario with a weak partnership agreement or even a go it alone approach.
Management made quite clear on the call that the company will need much more money to prepare the drug launch. Until I heard of the salesforce hiring plans I was wondering why as they will get another $28 mln from the exercise of warrants pretty soon which would leave the company with cash on hand above $50 mln before any upfront payments from a potential partnership. The company already filed a $100 mln shelf recently so another huge financing round is likely a matter of weeks or even days. If they pull the full amount at a stock price of perhaps $2.50 this would add another 40 million shares (close to 50% dilution again). With then at least 83 million shares outstanding the market cap would be a whopping $200 mln (at just $2.50 a share). With Zecuity peak sales estimated to be around or slightly above $100mln annually even at $2.50 the shares doesn't exactly look like a bargain.
Given the fact that the company did close to nothing so far to prepare for the drug launch even the late launch date looks ambitious at this time (one analyst was asking about this on the call, too). A further delay most likely caused by a weak partnership deal without salesforce sharing or the need to go it alone would kill the stock.
The stock is suffering from multiple pressures which will stay in place for some time going forward. To get the shares back on track the following things need to happen:
Work through the oversupply of 28 mln cheap shares issued at $2.
Avoiding another desastrous financing round like that in October - with the approval as a tailwind the company should have some more negotiation power this time. Investors might already be prepared to cheer a financing round which leaves them only 10-20% in the hole this time (quite understandable as most of them acquired the shares at $2). On the other hand another discounted financing with perhaps as much as 40 mln shares will again create a giant overhang here. If they are really pulling the full shelf registration the share price will most likely stay depressed for years.
Announcing a well negotiated partnership deal with a HUGE upfront payment which helps to avoid further dilution for equityholders - such a deal would be applauded by analysts and investors but I doubt they will be able to negotiate something really big. Given the rather cautious language from management on the call I wouldn't bet on a great deal here but as they are just starting discussions only time will tell here.
So short term the stock still looks like a good bet on the short side as another huge financing round is close at hand. The company can't wait for a partnership agreement which most likely will take months to be completed. If they wait though this would delay the product launch so either way they lose here.
Longer term it's all about negotiating a great partnership deal which helps avoid further equity dilution and might even move forward the product launch. If they fail to announce a good deal or won't be able to secure a deal at all the stock should see new lows before the launch. So keep your fingers crossed that big pharma bites into Zecuity soon and strong.
Good luck to all of you.
Disclosure: I currently don't have a position in PATH but may open a new short position on Monday morning.
So we are to assume that management mislead us or even lied at the Lazard Capital markets conf. on Nov. 13 2012 when directly asked what the share count was fully diluted. There answer 28.7 million.
You are scared shortie,if you made so much money don't waste your time posting negative views.You might want to figure out how your'e going to cover your short position come Tuesday.
You should write it earlier, I didn't sell yet. But I do not understand why fools still bought in before and today. The managements are incompetent, now it's very clear. Who will buy shares again?
You simply wrote too long and offer nothing here. Just correct you the October financing cost base for the institutions participate is 2$ (immediately spent for) + $2 a share and another $2 for another share from preferred for a total of 28 million shares in full exercise with several restrictions in terms of time and FDA approval etc.
So the cost base for those 28 million shares is ($2+$2+$2) / 2 = $3 per share. That means if the share price is lower than $3, those institutions would make no money, and they would prefer to wait until the price at least above $3.
We will have to see sp around $3.5 for some time until these shares are fully exercise or until a partnership deal announced.
BTW, with all the shares fully issued by the company and exercised by these institutions, at today's price, the market cap for the company would be only around $150 million, which is quite low for a patch ever approved.
The share price will eventually appreciate to around $6. How long would it reach there, nobody knows.
the units were sold for $2 effectively consisting of a powerful newly created Series A preferred share and a warrant to purchase common stock at $2 - conversion of the Series A stock will be for free and has recently been triggered by the FDA approval of Zecuity. So the cost base per share for participants in the recent financing remains at $2.
Diluted share count in December was already above 20,000,000 (taken from SEC filings). Now it's up to 48,000,000 and don't forget the recently filed shelf registration for another $100,000,000. Given managements' comments on the conference call I would expect this to be pulled within weeks or even days as a partnership deal (if any) might be many months away (company just started partnership discussions) and there's no guarantee of an upfront payment to be received at all. In the meantime the company needs to hire new staff and up to 90 salespeople who also need to be trained for some time before product launch. There will be sizeable upfront payments required to the production partner and not to mention the unpleasant surprise of three more trials to further investigate the safety of the patch.
So with the share price still under pressure at which price the company will be able to arrange a financing close to 4x times as big as the last time which already was a complete desaster as common shareholders were diluted by 60%? Will there again be the need to attach warrants despite the pricing is already deeply in the hole?
As the drug is approved now the risk profile has improved so this time they should be able to get a better deal. So I guess they will be able to sell 40,000,000 shares at $2.50 without any warrants attached. But the share count would increase to 88,000,000 for a market cap of around $220 million. As Zecuity peak sales are estimated to be around $100,000,000 the stock doesn't exactly look like a bargain especially as the path to commerzialisation remains completely unclear at this point. If they won't be able to secure a strong partnership deal the drug most likely won't be a success.
So the one and only way for the stock to move back up will be to secure a highly beneficial partnership deal asap which secures a successful drug launch and at best avoids further shareholder dilution.
If they really inflate the share count to around 90,000,000 the stock will be stuck below $3 for years.
You really need to get your facts straight and do some research before posting such a pile of BS. First off, you are wrong about the $2 warrants as an immediate source of dilution. From Sept 25, 2012 date of issue they must wait for 6 months to be exercised. This is a quote from the 10-Q which you should read: "In addition, as discussed in footnote 5d, in connection with the October 2012 Financing, the Company issued warrants to purchase 14,000,000
shares of common stock at an exercise price of $2.00 per share. These warrants have a five year term and become available to exercise six months after issuance." Also in the offering were 14,000 preferred shares, which you fail to realize as you count them as common shares.
Quote from note 5d Oct 10-Q "On September 25, 2012, the Company entered into a Securities Purchase Agreement (the Purchase Agreement) with certain qualified institutional
purchasers and individual investors (each, an Investor and, collectively, the Investors), pursuant to which the Company sold units of the Company’s
securities (the Units) to the Investors for an aggregate purchase price of $28,000 (the October 2012 Financing). The October 2012 Financing closed on
October 23, 2012and resulted in net proceeds to the Company of approximately $26,254. The per Unit purchase price for the Units was $2.00 and each Unit
consisted of one one-thousandth (1/1,000) of a share of the Company’s newly designated Series A Preferred Stock, par value $0.001 per share (the Series A
Preferred Stock), and a warrant to purchase one share of the Company’s common stock, par value $0.001 per share, at an exercise price of $2.00 per share
(the Warrants). Under the Purchase Agreement, the Company issued 14,000,000 Units representing 14,000 shares of Series A Preferred Stock and warrants to
purchase 14,000,000 shares of common stock."
The other thing is from the S-3 of December 2012 Only 1/3 of PUBLIC float will be issued in a twelve month period if the capitalization of PATH is less than $75 million. Public float is about 15 million shares and entire float about 20 million shares. So maybe the equivalent of 6 million new shares could be issued. Note this could be in the form of other forms of securities. Read the December S-3 for more details. The average strike price of 2.9 million options is at $3.60, so I doubt if that was a factor in today's trading.
Worst case scenario immediately is for 1/3 of the amount of float to be issued, which would be equivalent 5-6 million new common shares, hardly a disaster.
Sentiment: Strong Buy
ok, here we go:
it doesn't really matter if there are any restrictions to the newly issed shares and warrants - especially institutional investors have ample ways to pocket their gains without violating securities laws.
in this case the easiest way to hedge gains on my recently acquired but still restricted $2 stocks and warrants would be a short sale of the corresponding amount of shares.
As of today I own one 10,000 restricted units consisting of 10,000 preferred series A shares and 10,000 warrants exercisable at $2. With the drug finally approved but the path to market not quite clear I would like to pocket my gains with the stock trading around $3.50. As I am not able to sell into the market I instead engage in a short sale of 20,000 shares. As a result I pocketed a 30,000 dollar gain (less borrowing costs) quite legally. When the restrictions on my units are finally lifted I will exercise the warrants and convert the preferred into common stock and finally deliver the 20,000 shares to the borrower. End of story.
Next you might want to point out that shares aren't available for short sale or at least difficult to borrow. What might apply to the retail investor doesn't apply to institutionals and even I was able to borrow the stock this morning for a healthy short sale.
Yor may also use a derivative strategy to hedge your gains (e.g. buying puts), so there are really no problems to "legally sell" officially restricted stock here.
As you might have observed the selling pressure is for real and won't stop going forward - this is not caused by the "old" stockholders which likely sit on sizeable losses anyway and won't sell at all here, no matter if the stock trades at $3 or $4.
The pressure is caused by the participants in the recent financing especially Safeguard Scientifics which owns a whopping 18.2% share in PATH. Owned I guess.