Shareholders and watchers of RVX and RVXCF have seen the stock tumble precipitiously in the wake of a financing deal first disclosed after the bell on Thursday June 8th. The following day the company announced financing of up to $10 million dollars CDN through the issue of units consisting of one share and one warrant with the price being $1.80 and with the warrants priced at $2.05
Prior to that news coming out the PPS had closed at $2.05 CDN on Thursday June 9th. Then the slide in the PPS began, by the time Friday's trading had closed RVX had closed at $1.64 on the TSX. More alarming was the volume, in spite of trading typically coming in around 30,000 per day that Friday saw over 1 million shares trading hands.
A casual observer might think that shareholders had bailed out on the financing news en masse, but that would be a mistake. And that wasn't the end either, the PPS has continued falling ever since settling at a close of just $1.33 CDN on Tuesday June 20th for a drop of 35% from before the financing was announced.
So what caused the fall? A look at the just updated short interest gives the answer. Short sales which had totaled 229,700 up to May 30th 2017 exploded higher to 841,500 current up to June 15th, that's an increase of 611,800 between May 30th and June 15th. Obviously borrowing over 600K shares from investors and then dumping them back into the market, that's going to have an incredibly negative impact on the PPS, especially in a thinly traded and tightly held stock like RVX.
Now I have a lot of respect for those with the willingness and capacity to short a stock trading for a piddly $2.00 or so Canadian. This is not an activity engaged in by individuals trading from a laptop and risking their child's college fund. To short a stock like RVX in these numbers requires a significant bankroll.
But perhaps, just maybe....it could be that players on the short side of RVX have overplayed their hand in my opinion.
The company just attended the Bio International Convention in San Diego on June 19th. They did a presentation, and the PDF of the Power Point slide show was made available just afterwards. Investor website Seeking Alpha picked up the slide show and published it on their site, you can see it here.
Take note of the debt figure on page 5 of the slide presentation. Investors and followers of the company should already have been aware of the company's debt, pegged at $68.8 million CDN and owed to CitiBank. The loan is collateralized by a standby letter of credit from Eastern Capital Ltd which is the investment arm of billionaire Kenneth Dart, a well known and successful BioTech investor and heir to the Dart Container fortune.
The stand by letter of credit though has a catch, if Resverlogix were to default on the loan, then Eastern would get pretty much all the company's intellectual property, including the patents on their lead compound Apabetalone currently in a Phase III trial called BETonMACE. And the loan comes due this coming August, which isn't far off.
It has long been my opinion that this loan has been an albatross around the company's neck, and a significant factor in depressing the share price of RVX, preventing the company from attaining a substantially higher PPS, that is my point of view.
But back to the PowerPoint published by SeekingAlpha. The debt figure increased, instead of $68.8 million the new figure is $117.6 million CDN, a difference of almost $50 million.
This sent my wheels spinning obviously. The most logical conclusion from my perspective was that the company had either extended the CitiBank loan or replaced it. I considered it possible that they had raised enough to retire the $68.8 million CitiBank loan, and to tap into and additional $48.8 million which is sorely needed by the company to finance trials and continue operations.
Well, those thoughts were quickly replaced by bewilderment when the company changed the Slide Presentation available on their own website and put the debt figure back to $68.8 million CDN on the updated link. You can see the newer version here:
I sent an email to the company's IR seeking clarification. It wasn't just the debt level that changed, but also the MC and the number of shares outstanding, both issued and fully diluted. The answer I got back was even more confusing with the head of their IR department claiming it was the result of a typo.
A typo??? Cambridge Dictionary defines a typo as a "small mistake in a text when it is typed or printed". That's something everyone has done, typing there when using the possessive form instead of their, or your instead of you're. But calling a difference of almost $50 million dollars and differences in the number of shares outstanding a "typo", that doesn't add up. That's like calling Mount Everest a little hill.
I don't know what happened, but I am more than a little bit skeptical of the "typo" story. I think its possible that the $117.6 million debt figure is based on something tangible but not yet final. That is a suspicion on my part, and something I do not expect confirmation of at this point. If however the company announces a new loan agreement that comes anywhere close to that new figure, then I'll be almost certain of it.
And finally, if that weren't enough we have the NYTimes reporting on the Trump Administration's new draft order which seeks to ease restrictions on Drug and Biotech companies. Adam Feuerstein of TheStreet.com just tweeted this saying:
Biotech and drugs stocks are going to triple in price tomorrow.
All of them.
Exciting times, exciting times. But I won't be watching the market tomorrow, I'll be visiting the Zoo on what promises to be a spectacular day. Please note, I'm just a retail schmo...albeit one with some industry experience to go by, but still just a retail investor. And I am a shareholder in Resverlogix so my opinions are obviously biased. Please read the full disclaimer at the bottom of this site.