Spherix: Back To Trading At A Significant Discount-To-Breakup Value

| About: Spherix Incorporated (SPEX)

Spherix Incorporated (NASDAQ:SPEX) leverages its scientific and technical expertise and experience through its two subsidiaries – Biospherics and Spherix Consulting. Biospherics is dedicated to development of D-tagatose and recently completed a Phase 3 clinical trial to study the use of D-tagatose as a treatment for Type 2 diabetes. Biospherics is actively seeking a pharma partner to continue the diabetes development while exploring D-tagatose as a potential treatment for high triglycerides, a risk factor for atherosclerosis, myocardial infarction and stroke. Spherix's Consulting subsidiary provides scientific and strategic support for suppliers, manufacturers, distributors and retailers of conventional foods, biotechnology-derived foods, medical foods, infant formulas, food ingredients, dietary supplements, food contact substances, pharmaceuticals, medical devices, consumer products and industrial chemicals and pesticides.

During the summer, Spherix was trading at around the $1.30 level with a breakup value in the $2.20 range (pdf). The company had cash of $5.6 million plus other current assets of $0.7 million with total liabilities of $0.7 million. Spherix had 2.56 million shares outstanding at that point. Then on September 8, after the market closed, the company announced that its drug candidate, SPX-106, achieved statistically significant reductions in VLDL and LDL cholesterol when administered in combination with Dtagatose (SPX-106T) for nine weeks to genetically engineered mice prone to dyslipidemia. The aortas of these mice also showed reductions in the extent of atherosclerotic lesions as measured by lesion area in response to treatment. SPEX jumped 96% the next day.

SPEX is now back to trading around the same levels, closing on Monday at $1.25 a share. At the end of Q3, the company had cash of $5.0 million and other current assets of $0.5 million with total liabilities at $0.8 million. On October 26, the company raised $1.25 million in a private placement. Under the terms of the offering, the company sold an aggregate of 532,559 shares of common stock at a price of $2.365 per share along with warrants to purchase an additional 532,559 shares of common stock at an exercise price of $2.24 per share. (Spherix was able to sell shares at an attractive price relative to Monday’s closing price because the stock closed at $2.57 the day before.)

Pro-rated, the company now has cash of around $6.25 million, other current assets of $0.5 million with total liabilities of around $0.8 million and 3.1 million shares outstanding. This leads to a breakup value of around $1.90 per share, a premium of more than 50% to Monday’s closing price. Are we going to soon see September's price action all over again?

Note, the breakup value estimate does not include the value of Spherix’s assets that are inherently hard to value, such as its patents or drugs in development.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.