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In February 2013, Affymax (NASDAQ: OTCPK:AFFY) made headlines after a nationwide voluntary recall of the erythropoietic agent OMONTYS (peginesatide) after reports of extreme hypersensitivity reactions to the drug, as well as five deaths that were supposedly linked to the drug. Speculation quickly arose over the cause of these deaths, which could've been caused by human error or problems with a certain batch of the treatment (as only 0.2% of patients receiving OMONTYS experienced serious hypersensitivity) although shares were absolutely decimated by selling and a giant wave of short selling. Despite some rebounding, the stock still stands at YTD losses of 91.7% at the time of writing.

Things worsened for Affymax shareholders when the company announced a month later that it would significantly reduce its workforce, including employees from its commercial and medical affairs field organizations, as well as other officers and employees. The company's talk of limited resources and growing desperation to keep the company afloat led to further speculation that the drug OMONTYS (and hence the company) was dead. Expecting a bankruptcy filing in the near future (or at least a further deterioration in sentiment), more short sellers moved in over time. By May 15th 2013, 18.5 million shares were in short positions, representing ~50% of shares outstanding.

Last Friday, a sudden reversal sent shares of Affymax flying 32.5% higher by the closing bell, although this move is being reversed after Monday's news about the company's NASDAQ delisting, and NASDAQ's commentary about Affymax's existence as a "public shell" without an operating business. Interestingly enough it seems that Affymax has done nothing to challenge the delisting, which will go into effect on June 6th 2013.

Many shareholders seem to believe that OMONTYS is a solid asset that can either be sold for a price higher than the current ~$63 M market capitalization or put back onto the market, although it's worth noting that the company's $57 M in cash and $66.7 M in assets as of March 31st 2013 is offset by liabilities noted on the balance sheet (resulting in a stockholder's deficit of $14.8 M), and more than offset by future operational expenses and impending liabilities. Note that Affymax/Takeda have yet to conclude the investigation for OMONTYS, and that the company will accrue substantial legal expenses due to impending shareholder and OMONTYS-related lawsuits.

After a NASDAQ delisting (plus the commentary) it will probably be very difficult for Affymax to secure debt financing to continue operations, which is why traders shouldn't have much incentive to buy AFFY - unless they believe that the asset could be worth significantly more than the company in the event of bankruptcy/liquidation (which seems to be the most likely outcome for Affymax by far).

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.