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Overriding philosophy: My orientation is that of a swing trader, intent on converting perceptions to profit. 1.Over 3 decades as a market observer and and independent trader. 2.Trained in investment banking, currently a private investor 3. I believe market volume and price interact similar to... More
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  • Acasti Pharma, Aonther Secondary Offering. A Closer Look At The Process Of Raising Money 0 comments
    Dec 16, 2013 5:56 AM | about stocks: ACST

    I have a very different point of view in regards to Acasti Pharma from Markus Aarnio is his article Acasti Pharma (ACAST): 7 Different Insiders Have Purchased Shares This Month by Markus Aarnio . See link . Acasti Pharma article by Markus Aarnio, highlighting insider buys .I think it could be helpful to shareholders and other market participants to here about another perspective about this company. It draws my attention because they just completed a secondary offering of new stock in order to raise capital. This is another occasion where we can examine the effect on market price. as well as take a closer look at the financing employed by corporations and their investment bankers vis-à-vis the public and their shareholders. I was surprised that the article failed to address any of these issues. Meanwhile, the dilution of the stockholder equity was significant.

    1.Acasti Pharma is 49.9 % owned by Neptune Inc. (NASDAQ:NEPT). It is part of their product portfolio developed with the intention of controlling a large market share of krill oil, which they believe will double in market sales from approximately 1.5 to 3 billion in total sales. This includes both over the counter, and prescribed medical versions of Krill oil. Acasti Phrama Inc. is their creation and independently traded subsidiary launched to develop a more powerful refined version of Krill to address the medical need to assist with hyperlipid and triglyceride imbalances that contribute to an increase in cardiovascular disease and risk of strokes. The Annual Income Statements for Acasti showed 6.8 million in net losses. Neptune lost 19.4 million in 2013. Acasti needs money to continue their trail phase development of their krill product.

    2. Acasti Pharma (NASDAQ:ACST) declared $700,000 of annual revenue for 2013, and one product in trial phase testing. The company has a market capitalization of $167 million. (I first submitted the Instablog on Acasti Pharma very late at night, with a couple of errors overstating the market capitalization. I caught it with the assistance of the original author of the December 10th article late in the night in an exchange of emails. Thanks to a class act and help from Marcus Aarnio, I got my figures right. See ACST, for confirmation of capitalization figures.
    3. Acasti Pharma now has a total potential forward expressed market capitalization of 159 million. (85.57 million Shares + potential 18.2 plus potential 18.2 warrants being exercised = 122.37 million shares x $1.37 closing price= $167 million revised market capitalization). Marcus and I still have a slightly different view of the market capitalization. FYI, until they file a new quarterly the increased market cap is not updated at any financial sites to my knowledge. My inclusion of the additional 18.4 million shares being exercised from the new warrants is intended as a realistic assessment of what shareholders real cost is. You have less than one million of revenue for a company with a market cap over $150,000 million. I was not able to determine total insider ownership of the company with an examination of public filed reports. I could find no direct confirmations. I can confirm that most of the corporate officers associated with Neptune Inc. (which has a market capitalization of $184 million with 61 million shares outstanding, and owns approximately 50% of total shares of Acasti) are also associated with Acasti Phrma. See Neptune home page. So I assume at least 50% of ownership resides in the hands of those persons associated in one way or another with the operation of Acasti. See the Neptune website for full disclosures. neptunebiotech.com

    4. This is yet another iteration of the process by which investment bankers raise capital from the public. Marcus' article emphasizes the $702,500 in cash purchase shares in December 2013, after sales of $1,046,322 just 2 months earlier in September 2013, for net total selling in the quarter of over $200,000. The article is titled Acasti Pharma: 7 Different Insiders Have Purchased Shares This Month.

    6. I continue to be interested in examining the effect on market response before and after investment capital is raised, especially in smaller capitalized issues. I think it's a fascinating part of our market system. We can all "profit" from a closer examination of the respective roles of investment bankers, corporate insiders, shareholders, and new buyers of companies that announce issuance of new shares, and their respective self-interests. Buyers want to buy stock that increases in value. Corporate officers want to raise capital as inexpensively as possible. Investment bankers are in the middle between the buying public and the corporate insiders. They do not work for free. These interests reach a pricing resolution that is quite dynamic in the days following a new stock filing. The fact that a few companies are starting to set the terms for issuing stock with Dutch auctions, giving all buyers of stock equal access and equal terms in ownership of newly issued shares is interesting. For example the Google insiders wanted to avoid negative feedback from new shareholders by leveling the playing field by issuing their historic IPO in a Dutch auction. Everybody paid the same price for Google. There were no "bag holders" as a result of middlemen dumping stock. There is obvious resistance to auction process from the investment banking community because it cuts them out of a preferred buyer status and reduces underwriting profits. In the example of Acasti Pharma, the warrants that are issued with the stock offering basically cuts the price of acquiring the shares to almost 50% of the cost of a buyer purchasing shares of Acasti Pharma on the open market. I don't think most buyers of stock actually absorb this important information. (You might also see my Instablog of NWBO in which I examined the recent capitalization of Northwest Biotherapeutics and the subsequent market action. Northwest Therapeutics Cure for Cancer Attracts Attention.) The market reaction for NWBO was quite dramatic with the price going from a high of $6.89 shortly at the time of their newly issued stock on November 19. The price of NWBO closed at $3.46. They issued 4.8 million shares at $4.80 with net proceeds of $27 million. Where did all that money go with NWBO stock offering as far as the market price? Adept traders were able to pocket a nice scalping profit with the explosive increase in the price of the stock provided they got out within 4 days of their purchase.

    6. Astute market observers are interested in the role that investment bankers play in raising capital and the effect on market action of small capitalized stocks. (Again, I encourage you to read my Instablog of NWBO in which I examined the recent capitalization of Northwest Biotherapeutics Northwest Therapeutics Cure for Cancer Attracts Attention.) The NWBO story unfolds with all the drama of a day-time TV soap opera. I fully intend to continue my examination of this and forthcoming capitalizations that I find interesting. I find it entertaining and helpful in understanding market forces. I hope it is helpful to others as well.

    7. Krill oil is available for purchase over the counter, inexpensive, and very effective in the form of astaxanthin. It is advertised to "Fight free radicals with astaxanthin, one of nature's best antioxidants. Astaxanthin has a unique molecular structure that makes it very efficient at neutralizing free radicals throughout the body. Astaxanthin reviews suggest the supplement may be beneficial for cardiovascular health, immune health and healthy aging. As a naturally-occurring carotenoid, it's also responsible for the red or pinkish color of salmon meat, as well as the red color of many cooked shellfish. Krill, the small shrimp-like crustacean, and the microalgae Haematococcus pluvialis are two of the most common sources used to produce astaxanthin supplements." Astaxanthin supplements see for example, swansonvitamins.com.

    In conclusion, my opinion is that the net purchase of $700,000 stock preceded by over $200,000 stock selling by insiders of Acasti in a 4 month period ($700,000 purchase- $1million sales) does not make this stock more or less attractive at this particular point of time. The marketplace always presents opportunities for profits or losses. Being informed is to your advantage. In the face of this information, I can't help but notice that ACST showed up on my proprietary scan for increased buying from late last week. I wonder what the next week will bring. Good Luck my fellow profit hunters.

    A picture is worth a thousand words... See below:

    Northwest Therapeutics chart

    Stocks: ACST
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