|Trading Updates: RNN, NBS, RPC and the Upcoming Pick|
|Thursday, 15 April 2010 03:00|
More importantly, the stock held the 20 day moving average and our sources tell us that many trading desks are now caught nakedly shorting it due to the erroneous Reuters report and a completely false rumor that there was a highly dilutive financing on the way.
The company has stated that they have been receiving warrant exercise money and that they now have more than $10 million in cash. Keep in mind that they will also be receiving $3.5 million from Teva in June in a further private placement at 20% above the stock's market price. This is in addition to the $4 million in milestone payments that they'll get from Teva by year end. Given that, it's safe to assume that RNN is in no rush to set up a financing.
From what we can see, it appears there may be up to 8 million shares naked short. Rest assured that they will forced to buy in soon.
Don't forget, also, that next month the company will have some important Zoraxel data to present and we believe they will make a deal with one of the six interested major pharmas for Serdaxin. Sources tell us that would happen (worst case scenario) by year's end.
When that deal is announced, this stock's price should quite easily find itself in the teens. In other words, short term the stock will rip the shorts.
Yesterday, we told subscribers who purchased shares Neostem (Amex: NBS) based on our alert two days ago that they may want to keep a close eye on the news wires. We continue hearing very intriguing rumors of a major development which may come into play and grab headlines in the coming days. It's about time, too. Neostem is one of our favorite undervalued plays and whether or not these rumors play out (we feel 90% sure that they will), once the company starts reporting profits, the stock should also start trading much higher.
I must confess that our staff and I are extremely intrigued by this "IMGG-like" imaging play that we keep touting as an upcoming trade alert. While we almost pulled the trigger on that alert today, we agonized about the decision to wait until next week to green light the pick.
Honestly, the only thing holding us back is the fact that we have yet to confirm some of the rumored details about a pending deal between the fully reporting micro-cap company and a multi-billion dollar publicly traded company. If we released the profile and special report on the company today, we might see the stock move 50-100%, but if we get further confirmation and jump out just ahead of the major announcement- perhaps as late as the middle or later part of next week, the stock could run as much as Radient Pharmaceuticals (AMEX: RPC) did after we alerted it last week.
This is a play with major forward looking development possibilities and an FDA approved technology that sets it far apart from others in the imaging sector, but given the attention span of biotech investors and day traders, we feel very strongly that the timing of this release is very important. So please, continue to be patient. We feel that it will be well worth your time.
Speaking of Radient Pharmaceuticals, we're told the company raised about $6 million dollars during their recent price run. The first half of the six million was raised at roughly $.40 per share and the second half at about $1.30 per share (roughly 6 million warrants at each of the price points).
Investors shorted heavily versus these 12 million shares and it appears many of them have been the source of the selling in the past few days. Most or all of this shorting is also naked since no one can find enough shares to borrow.
The simple equation means that a fully diluted share count would equal 34 million shares plus approximately 12 million warrants. That's where things are going to stay, versus 87 million shares if the company's debt had been converted. The now has all the funds it needs (roughly $10 million more in cash) to go cash flow positive in the third quarter and because of that, shareholders are not willing to let the debt convert in such an unfavorable fashion.
If the company makes the forecasted $3 million in earnings without any help from it's Chinese Pharma operations then they are looking at +$.10 per share this year.
If RPC makes $30 million in sales next year, then you're looking at somewhere between $.50 and $.70 per share next year.
That's enough for fund managers and analysts to put shares at well over $5 per share with a 10x multiple on it for future discount- and that does NOT include the value of the company's Chinese Pharma asset. If you added that asset- which, again, is being looked at as an acquisition target by at least one publicly traded company- then that's an easy $25+ million or $.75 per share.
The sentiment is that the naked shorts (as many as 20 million shares worth) will start to feel a burning sensation as early as is today. We'll see how long they can hold out before they have to start covering.
If that was all too complicated, then here is the Cliff's Notes version for you:
RPC = Still Greatly Undervalued (especially if the cancer test is as good as the peer-reviewed journal articles are saying it is).
Disclosure: Long RNN, NBS