Over the last six months I have been one of ImmunoCellular Therapeutics (IMUC.OB) more public supporters. It's a company that has great clinical data to support a technology that is seemingly years ahead of all others in the space. However, until Friday, the company carried the burden of being an OTC stock, which restricts the company from certain investors and even disallows some from seeing its true potential due to the stigma that's attached to companies that trade on the OTC.
In a recent interview with the company's CEO, he explained to me just how far the company has come over the last five years, from starting with a market cap of just millions to trading with a market cap of over $110 million. In the same interview the CEO acknowledged Dendreon (DNDN), by saying, "Dendreon was instrumental in opening the doors for small companies like us to build the next generation of immunotherapy product by building on its success." Now that IMUC will be trading on the NYSE, a whole new door has been opened and the company will now have access to new investors without the burden of being an OTC stock. Let's take a look at the immediate upside that may present itself in the next few weeks, following this announcement.
One of the biggest hurdles for an OTC stock to overcome are the restrictions for potential investors. For example, most institutional investors are restricted from OTC stocks. Therefore, it is irrelevant if an institutional investor favors the company because if restricted the investor would be unable able to acquire shares. In addition to the limitations of institutional investors, some retail investors are unable to buy the stocks due to the limitations of their firm.
Some online brokerage firms do not allow investors to purchase OTC stocks, and the firms that do allow investors to buy OTC stocks may only have a limited number of choices. These restrictions hurt the company by forcing it to lose out on millions of dollars in potential investments. On the contrary, if an OTC stock uplists, it presents great immediate upside for the stock as new investors have the option to acquire shares.
In an article that I wrote on April 30th I discussed all the benefits of trading on a large exchange and how it could affect IMUC. One area that I discussed, a topic that returned a lot of feedback, was the issue or trend on Wall Street of institutional investors and index investing. Over the years, the number of firms investing in index funds has increased as it has become a popular choice of safety in a flat market. Over the last 13 years, the S&P 500 has traded with a slight loss with a dot-com bubble burst and a financial crisis that was comparable to the Great Depression affecting the way we make investment decisions.
To ensure that a firm's performance mirrors, or is as good as the market, some have elected to invest in indexes which are safe in a volatile economy, because the firm will always perform with the market or an industry itself. The Russell 2000 is one of these index funds and is perhaps the benchmark for mutual funds with a small cap strategy. Stocks that trade on the OTC do not have the opportunity to be included in such a large and lucrative index which, once again, causes the company to lose out on investments of potentially millions.
In the April 30th article I suggested that there was a chance that IMUC would be included in the Russell 2000 index and that because of the index rebalancing on May 31 I believed IMUC would uplist soon after my April 30th article. The median market cap for the Russell 2000 is $528 million. However, sub $100 million companies have been included in the index. I believe it is likely that with IMUC's clinical data, the assumed upgrades of its stock, and the fact that it now meets the minimum requirements, it could be included in the Russell 2000 following the rebalancing period, which means that every index fund that tracks the Russell 2000 will be required to buy IMUC. This could be a million shares or more and a major catalyst for immediate growth. In essence the timing of the uplisting couldn't have been better, and we will soon see if this possibility becomes a reality; either way, it is a speculative catalyst for the company.
In my opinion, if the company hadn't uplisted the stock may not have maintained its price for much longer, not because it's not worth a $100 million market capitalization, but because investors were expecting the uplisting to occur. So far, all clinical data has been impressive from IMUC, and the short-term catalysts have kept its stock trading higher despite the recent selloff in the market. Over the next few months I am anticipating a number of key developments, and if each falls in place, it could return substantial gains for the stock.
The first was the uplisting, which is most important, because it takes IMUC to a new level where institutional investors can acquire shares. The next will be the rebalancing of the Russell 2000 along with the ASCO, where ImmunoCellular is expected to announce very impressive data for its lead candidate ICT-107.
The news of a company uplisting usually has a positive effect on a stock by itself, but considering the events that could occur in the next month this stock has the potential for market leading upside. There are numerous examples of stocks that trade higher immediately after announcing an uplisting and in the weeks that follow the uplisting. Deer Consumer Products (DEER) announced its uplisting back in 2009. The stock then proceeded to post gains of 50% during the following week, and continued to climb even higher after the uplisting was complete. Navidea BioPharmaceuticals (NAVB), formerly known as "Neoprobe", uplisted last year and returned immediate gains of 25% before climbing over $5 a share.
The examples of stocks that trade higher immediately following an uplisting are seemingly limitless, but sometimes there are catalysts beyond the news of just an uplisting. I don't think ImmunoCellular could be in a better situation nor could it have timed the news of the uplisting any better. As the end of the month approaches I expect conversations to heat up regarding its chances to be included in the Russell 2000.
As this news passes we will be gearing up for an always eventful ASCO meeting. Therefore, I think it's safe to say that speculation may drive this stock much higher in the coming weeks; if speculation turns to reality, then this stock could very well finish 2012 as one of the top performers of the year.
Disclosure: I am long IMUC.OB.