Reverse Splits Can Be a Very Good Thing for Stakeholders

These Companies Prove that Reverse Splits Can Be a Very Good Thing for Stakeholders

June 14, 2016 | 4:00 pm





The Wealthy Biotech Trader (or “WBT”), an investment newsletter focused on showing everyday investors new opportunities in rapidly growing, little-known, biotech, pharma and medical device stocks making news and subsequent market moves, would like to create awareness among investors on why reverse splits aren’t always a bad thing.

Companies included: Advanced Medical Isotope (ADMD); Staffing 360 Solutions (STAF); Organovo Holdings (ONVO); Innovio Pharmaceuticals (INO); Annavex Life Sciences (AVXL)

Few things can get investors’ attention faster than when a company announces a reverse split. This is due to the fact that reverse splits are often associated with penny stocks which most investors assume lack a path to profitability and only want to prop up their share price in order to float more shares. The other scenario could be that a company is desperately trying to maintain its listing in the major exchanges such as NYSE or NASDAQ since these require the stock prices to be maintained at certain levels.

However, many cases of reverse splits should not be viewed as a negative event since they give an opportunity for small over the counter (OTC) stocks to join the ranks of peers at the major exchanges, increasing exposure and liquidity. This essentially means that such stocks will be able to garner much needed attention from retail brokers and institutional investors as well as increasing their access to capital. In the recent past, there have been a couple of reverse splits that have gone on to be quite successful as we will highlight in this article and we believe that we have found another potential winner in Advanced Medical Isotopes (OTC: ADMD).

AMI, a late stage development company engaged primarily in the development of brachytherapy devices and medical isotopes for diagnostic and therapeutic applications with a focus on yttrium-90 brachytherapy treatments has revealed plans to effect a reverse stock split before the end of October. Management further explains that this course of action has been taken as the company plans to list on one of the major exchanges following the highly encouraging results from its product pipeline.

The market for brachytherapy products has been steadily expanding with recent research predicting its growth from $680 million in 2013 to $2.4 billion by 2030. Being one of the few companies developing brachytherapy products, Advanced Medical Isotopes couldn’t be in a better position to make the most of this opportunity.

CEO James Katzaroff has pointed out that the simplest way to describe the company’s lead product, Y-90 RadioGel, is that it’s injected into inoperable tumours and then hardens, effectively stopping the spread of cancer, with the radioactivity effectively killing the cancer cells, while focusing the therapeutic dose to the affected area. He believes that with a successful up-listing, Advanced Medical Isotope will be able to advance its clinical programs, as the company seeks to raise $5-$10 million in the next two years.

Another important aspect that investors should be aware of is the company’s strong commitment to reducing debt and increasing shareholders’ value. AMI reduced total liabilities from $20.2 million in 2014 to about $9.9 million in 2015. For investors with a high risk tolerance, the opportunity to own this stock now before it up-lists may mean the outstanding possibility for above market returns.

Previous reverse stock split winners

Innovio Pharmaceuticals (NASDAQ: INO) announced a 1-4 reverse split almost two years ago and has been on a winning streak ever since up-listing to the NASDAQ later in the same year. The company is taking immunotherapy to the next level in the fight against cancer and infectious diseases being the only immunotherapy company that has reported generating T cells in vivo in high quantity that are fully functional and whose killing capacity correlates with relevant clinical outcomes with a favourable safety profile.

President and CEO, Dr Joseph Kim pointed out that the move to list on the exchange would be instrumental for investors in terms of increasing the stocks liquidity and visibility at a time when the company had made some major breakthroughs in its product pipeline. Since the split, the company has gained 17 percent, grown its product portfolio and grow to a $775 million valuation.

Staffing 360 Solutions (NASDAQ: STAF) is a public company in the staffing sector engaged in the execution of a global buy-and-build strategy through the acquisition of domestic and international staffing organizations with operations in the US and UK. On September last year, the company effected a 1-10 reverse stock split which upon completion would see the stock uplist and trade on the NASDAQ exchange. Since then, the company has had an impressive performance with a number of analysts initiating positive coverage on the stock.

The company has managed to sustain its momentum as it recently reached the halfway mark of its goal of achieving $300 million in annualized revenue by the end of FY16Q3. Revenue rose by 42 percent for the most recent quarter compared to the year ago period also managed to generate $2.2 million in operating cash flow during the first three quarters of the current fiscal year. It is in light of this solid growth that analysts at See ThruEquity gave the stock a price target of $5.65 which translates to upside potential of more than 150 percent from the current share price.

Organovo Holdings (NYSE MKT: ONVO) has surged 12.9 percent on an YTD basis and is another great example of what an OTC stock can achieve after successfully up-listing to a higher exchange. The company is a commercial stage company focused on developing and commercializing functional human tissues that can be employed in drug discovery and development, biological research, and as therapeutic implants for the treatment of damaged or degenerating tissues and organs.

The company’s flagship commercial product is the exVive 3D Human Liver Assays and although management has decided not to reveal information on its sales until later this year, there is no doubt that the potential market is massive. Also, Organovo won’t be banking on this product alone as it plans to develop a kidney which will command higher prices compared to the liver. With the increased visibility of a national listing, the company will be able to raise capital to fund subsequent trials at more favourable terms.

Annavex Life Sciences (NASDAQ: AVXL) is among the more recent companies that have had to do a reverse stock split. The company effected a 1-4 reverse split back in October last year and also uplisted to NASDAQ. Although the clinical-stage biopharmaceutical company developing drug candidates to treat Alzheimer’s disease, other central nervous system (CNS) diseases, pain, and various types of cancer has not been able to get back to its post IPO highs of almost $13 per share, the stock still has plenty of room for growth.

Just last week, the company disclosed that the FDA had granted Orphan Drug Designation to its ANAVEX 2-73 for the treatment of Rett syndrome a clear signal of more upside potential in the stock. Rett syndrome is a devastating disease occurring in early childhood and almost exclusively in girls and since there is currently no cure, ANAVEX stands to become the standard of care in the near term.

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