Since my last article on Advaxis (ADXS), where I wrote that the company may have one of the best risk vs. reward profiles in healthcare, shares have traded from as high as $11/share before trading back to current levels of $4.50/share. The sell-off has continued in spite of the company's recent S-1 filing, which seems to indicate that an uplisting to a major exchange such as the NASADAQ, may be just around the corner.
Now I don't intend to rehash points stated in my earlier article or any other articles on Advaxis for that matter, however I want to draw some parallels between Advaxis and Organovo (ONVO) when it was still a Pink Sheet.
Revisiting Organovo's Uplisting
For companies listed on OTC and Pink Sheet exchanges, uplisting to the NASDAQ or NYSE often leads to meaningful appreciation in both liquidity and share price. It's easy to see why, generally companies trading on OTC/Pink sheet exchanges are seen as riskier investments due to laxer standards in listing and less stringent reporting requirements for SEC filings. Organovo faced the same stigma back in May, and was unable to tap in larger, typically institutional pools of liquidity due to its listing on the OTC QX. With the OTC QX listing at the end of the ticker, a significant portion of management focus was directed towards uplisting to a larger exchange. Upon the company's uplisting to the NYSE, note the massive ramp up in liquidity:
Liquidity increased nearly 20 fold, and in suit Organovo was able to benefit from a much fairer valuation.
With uplisting in mind, let's look at the requirements for uplisting, at least to the NASDAQ CM.
Under new NASDAQ CM requirements, in order to uplist, a company must have:
- Shareholders' Equity of at least $5 million.
- Market Value of publicly held shares of at least $15 million.
- Net tangible assets of at least $2 million.
- Operating history of at least 2 years.
- Share Price over $3.00 for at least 5 consecutive trading sessions.
There are other methods of uplisting to the NASDAQ CM, but for the sake of convenience I have chosen the method that makes the most sense for Advaxis. Although Advaxis currently meets all but the first requirement, a raise should serve to substantially improve the operating outlook (reduce financing risk), while simultaneously allowing the company to reach the thresholds for a subsequent uplisting to said exchange.
How can this be done?
How Organovo Uplisted to the NYSE
Although many expected Organovo to uplist to the NASDAQ CM, the company leapfrogged to the NYSE. I don't expect this to be the case for Advaxis, however these are the steps Organovo took to uplist. Similar to Advaxis, Organovo met all requirements save for the shareholders' equity requirement. In a concerted effort to substantially boost shareholders' equity, management meaningfully cleaned up the company's balance sheet, while engaging in aggressive tender offers in order to reduce what was then substantial warrant liabilities. The outcome is obvious, Organovo is now listed on the NYSE.
How I Expect Advaxis to Uplist to NASDAQ
In the recent S-1 filing, language appears to point towards the management's strategy for uplisting in the near future and highlights recent activities taken for the potential uplisting. These include the 1 for 125 reverse stock split that took place on July 12 of this year, which has put Advaxis above the share price threshold.
On July 12, 2013, we effected a 1-for-125 reverse stock split of our outstanding common stock. However, the reverse stock split may not increase our stock price sufficiently and we may not be able to list our common stock and warrants on The NASDAQ Capital Market, in which case this offering may not be completed.
Even if the reverse stock split achieves the requisite increase in the market price of our common stock, we cannot assure you that we will be able to continue to comply with the minimum bid price requirement of The NASDAQ Capital Market.
Based on the filing, it appears that Advaxis is planning to raise roughly $18 million ($20.8 million if the underwriters exercise their overallotment option) through sales of common stock and warrants (I am assuming these will be warrants for half a share of common stock).
Another similarity, Aegis Capital is involved with both companies.
If successfully raised, the proceeds should be more than sufficient to carry Advaxis well into Phase III trial(s) for ADXS-HPV. At the same time, these proceeds will be used to retire additional outstanding liabilities such as the settlement with Vibalogics GmbH, debt that matured in 2011, and outstanding obligations to early investors. As a result, a successful raise should easily put Advaxis well above the $5 million Shareholders' Equity threshold and primed for an imminent uplisting to the NASDAQ or larger exchange. Advaxis has already filed to list its common stock and warrants on the NASDAQ Capital Markets.
Financing Should Allow For Meaningful Appreciation
Before the bears start wagging fingers at the potential raise for $18-20.8 million, I'd like to point out that the raise will most likely result in share price appreciation for Advaxis. The belief that raises are typically positive inflection events for healthcare companies has been one of my main tenets, reiterated multiple times throughout my articles on Seeking Alpha. In my last article, I illustrated how inorganic financing often allows continued growth for companies well into the point where growth can be sustained organically. This can be seen for Inovio (INO), the following is an excerpt from the article:
"In stark contrast to its current valuation of $463 million, Inovio was then valued at roughly $80 million. Despite its valuation, Inovio pulled the trigger on a massive (relatively speaking) financing,
"Inovio Pharmaceuticals, Inc. (NYSE MKT: INO) today announced that it has closed an underwritten offering of 27,377,266 shares of its common stock and warrants to purchase up to 13,688,633 shares of common stock at a combined price of $0.55 per share and related warrant for gross proceeds of $15.1 million. The warrants are exercisable at an exercise price of $.7936 per share and will expire, unless exercised, on the date that is 180 days after the fifth anniversary of the date of issuance. The net proceeds from the sale of the shares and the related warrants, after deducting the underwriters' discounts and other estimated offering expenses payable by Inovio, was approximately $14.0 million, which does not include any potential proceeds from the cash exercise of any warrants."
In consideration of both shares and warrants, this essentially introduced a massive 41 million shares to Inovio's then outstanding 150 million shares, diluting shareholders by 27.5%. Despite this, shares continued to trade higher after the financing, why was this? It's because shareholders realized the value of the financing, demonstrated by the following statement by CEO Joseph Kim after the closing,
"We are pleased to secure this investment to further advance the development of Inovio's synthetic preventive and therapeutic vaccines. As of February 28, 2013, we had approximately $16.9 million in cash, cash equivalents, and short-term investments. With this transaction, we believe we will have capital to fund the company through 2014. This would take us through multiple important milestones including the release of unblinded efficacy data from our phase II cervical dysplasia clinical study, which we are now targeting for the first quarter of 2014."
By taking an upfront hit of 27.5%, INO shareholders prevented the possibility of further dilution for the next 21 months. This has paid off handsomely for early investors who realized the value of the financing, easily netting over 250% in gains as the cash allowed the immunotherapeutic company to reach significant catalysts.
Investors in the biotech space seem to be picking up this trend, as seen through today's trading activity of Arrowhead Research (ARWR).
Arrowhead closed Monday's trading session at $5.86/share at a $150 million valuation, when the company pulled the trigger on a massive $60 million financing at market price, shares shot up to a high of $7.49/share (27.8% gain in share price), nearly doubling yesterday's market cap before consolidating at current levels of $6.60/share.
I expect similar activity for Advaxis upon the completion of financing.
Company Overview And Conclusion
For a more in-depth overview on Advaxis, read my previous article.
For those of you unfamiliar with Advaxis, here is the high level overview.
Advaxis is a biotech company examining the potential of its proprietary bioengineered bacterium, Listeria Monocytogenes. Listeria Monocytogenes' appears to be an ideal vector (delivery vehicle) for robust cancer immunotherapeutics that are able to target multiple types of cancers as a result of its idiosyncrasies. Unlike the majority of other successful immunotherapies that typically target a single aspect of immunotherapy, Advaxis' platform allows it to address multiple factors with a single formulation.
The company's lead product, ADXS-HPV, targets HPV-caused cancers and has received orphan drug designation for HPV-caused Anal Cancer. ADXS-HPV is currently in late Phase II studies for cervical cancer in India and 18-month survival data is expected to be presented at the Society for Immunotherapy of Cancer (SITC) conference November 8-10 of this year. Data that has been released seem to indicate an extremely mild adverse event profile relative to other oncology therapies, while boasting meaningful survival trends. Advaxis has multiple partnerships signed with organizations such as the National Cancer Institute of Gynecologic Oncology, Cancer Research U.K., Brown University Oncology Group, and FusionVax. Large pharma interest in the immunotherapy space has also ramped up considerably, with Merck (MRK) recently joining the race, alongside Bristol-Myers (BMY) and Genentech-Roche (RHHBY.OB), with MK-3475 (data being presented later this month) for non-small cell lung cancer.
In terms of pipeline progress and focus, I believe the best company for comparison is Immunocellular (IMUC), another immunotherapy company currently valued at $142 million with one candidate each in phase II, Phase I, and preclinical stages. It is quite evident, there is a large disconnect in valuation despite being in a similar stage of pipeline progression. There is a lot of bearish sentiment over shares of Advaxis, as demonstrated by the short activity over the last 30 days. Nearly 30% of the daily volume in ADXS was short activity, hinting at a possible short squeeze. On the other hand, the bearish sentiment isn't unwarranted; Advaxis has yet to deliver a profitable quarter, and is a microcap biotech company. I attribute this to former management, however current management and the board of directors' interests appear to align with current shareholders.
Catalysts Looking Forward
The following is a list I have compiled of all the catalysts investors should be looking forward for Advaxis:
- Completion of ADXS-HPV Phase II clinical study in India for cervical cancer.
- Reporting of final Phase II data at November SITC annual meeting.
- End of Phase II meeting with the FDA.
- Phase III protocol drafting and submission of a SPA for ADXS-HPV.
- Continue trials of ADXS-HPV that are currently being co-conducted with the GOG and CRUK.
- Initiation of additional Phase I/II study in head and neck cancer for ADXS-HPV, conduct Advisory Board.
- Discussion of development plan of ADXS-HPV for anal cancer with FDA in light of orphan drug designation.
- Continuation of preclinical analyses for IND submission for immunotherapy targeting Prostate Cancer.