Is this possible and if so, legal?

[Fermion]

My little biotech Endocyte has been taken out back to the woodshed and abused mightily.

Friday she was trading at $1.17 a share while they have around $2.70 a share in cash and zero debt. They cancelled a few trials and are scaling back to just a couple of drugs with the most promise. Wall Street thinks they will fail utterly of course, which is not unrealistic since almost all drugs fail and lose investor money (this is one main reason why we have high priced successful drugs but that is another thread).

The volume of shares traded is not bad. 1.4 million shares traded Friday on no news with a total number of outstanding shares just under 43 million.

So the question. At this level, could I set up a website seeking other small investors and gather their proxy voting rights in order to replace the board and initiate a sale of the company's current tech plus return most of the $2.70 to shareholders? Would it be any kind of collusion if we started buying up shares at prices around $1.20 area until we reached 22 million shares and could control the company?

They have cut the workforce while scaling back the drugs they will take to phase I and the burn rate is set to be about $5m per quarter in 2018 with 1st quarter 2018 still having them at $2.44 per share in cash. The current tech is probably worth a couple mil as they have an imaging drug in phase III which works great.

So essentially if we could force a sale, it is a guaranteed 100% return for anyone buying shares today.

Is it even remotely possible for a bunch of small investors to accomplish this and is it legal?

 

[pb4uski]

No idea. I'm guessing that Old Shooter may know.

 

[dallas27]

That money can disappear faster than you think.... having the cash and trying to liquidate it all and pay off all outstanding contracts can hurt. That said, you won't know what is under the covers unless you try, and I'd love to hear the story. Do it!

 

[Fermion]

Well unless they are straight up lying they have published their finances in the 10K and stated they will have reduced the cash burn to $5mil per quarter and have $105 mil left in cash beginning of 2018 after the closing of studies and costs of reducing the workforce.

At a current $50m market cap, that is a lot of meat on the bone considering how far we still are from 2018. $55 million minus $15 mil for cutting the rest of the work force and closing down all studies would still leave an 80% return for current investors.

I am actually thinking the easiest thing to get passed by the new board is a one time special dividend, returning something around $2 a share to shareholders. This would pull out almost all of the potential gains without having to go through the process of selling the company.

The nice thing about this plan is that it works even if word gets out that it is working and the share price spikes. It is kind of a pyramid scheme where anyone buying at $1.20 would be near the top.

I could see putting several hundred $k into this if I felt it was a sure thing. That would give me around 250k shares, with 0.5% of the voting rights. Heck, at that level you only need 100 people to participate and you are golden.

 

[joeea]

At this level, could I set up a website seeking other small investors and gather their proxy voting rights in order to replace the board and initiate a sale of the company's current tech plus return most of the $2.70 to shareholders?

Yes, you could attempt that. Why should others trust you with their proxy?

Would it be any kind of collusion if we started buying up shares at prices around $1.20 area until we reached 22 million shares and could control the company?

It is "collusion" in the strict sense of the word. But I suspect you are wondering if this is some sort of illegal collusion. The answer is no. Anyone could attempt to sway votes any way they choose. It's not clear that this would put you in a position to "control the company" though. You'd likely need to control the board of directors to do that.

Is it even remotely possible for a bunch of small investors to accomplish this and is it legal?

Anything is possible, but "remote" is probably putting it mildly. Nothing illegal, just unlikely.

 

[NW-Bound]

The company is small enough that a billionaire or corporate raider could easily take it over to rob its cash, yet they have not done so.

Could it be something not so obvious and the public does not know?

 

[Fermion]

I figured it was something like Heisenberg's Uncertainty Principle for stocks. The minute they take a look at it the price shoots up making it not worth taking a look. Too small for them?

 

[Fermion]

It is "collusion" in the strict sense of the word. But I suspect you are wondering if this is some sort of illegal collusion. The answer is no. Anyone could attempt to sway votes any way they choose. It's not clear that this would put you in a position to "control the company" though. You'd likely need to control the board of directors to do that.

I would have to look at the current structure to make sure the board can be replaced by a simple majority vote and also when the seats come up for election (if it works like that where they are staggered or something).

Yes it is all pie in the sky thinking but at some price point it has to be worth it to try.

If the company had $100 million in cash and was trading at $10 million market cap, surely someone would try to do what I outlined.

 

[Senator]

You are dealing with a penny stock, and it is virtually unregulated. You are fortunate that it still even trades at all.

 

[LOL!]

Go re-watch The Big Short and see how this is done in real life.

Now that you have told the world your intentions, I think you won't be able to do what you want.

 

[RobbieB]

I think you should buy a quarter million shares and get 100 more people to buy a quarter million shares each too.

I won't be one of them. Let me know how it all worked out.

 

[MooreBonds]

ghtily.

Friday she was trading at $1.17 a share while they have around $2.70 a share in cash and zero debt. They cancelled a few trials and are scaling back to just a couple of drugs with the most promise. Wall Street thinks they will fail utterly of course, which is not unrealistic since almost all drugs fail and lose investor money (this is one main reason why we have high priced successful drugs but that is another thread).

The volume of shares traded is not bad. 1.4 million shares traded Friday on no news with a total number of outstanding shares just under 43 million.

The problem is that it traded 1.4 million shares on Friday at equilibrium. And that was roughly 2% of total shares outstanding (note: NOT the float, but outstanding. I'm sure management/insiders/others who own shares do not own tradeable shares, so total shares traded as a % of the float just on Friday is much more than 2%).

If a new (or any) investor wanted to exercise a large minority holding, they would need to buy at least 4 million shares for 10% of the company. Imagine what buying 4 million shares would do to the equilibrium trading price. It would suddenly jack it up, and that would be after just, say, a few hundred thousand shares of new demand.

So you have an activist investor who only has maybe 1 million shares purchased so far, with a new trading price 25%+ higher. To get a decent % stake they have to pay even more. And that's just for a minority stake.

Oftentimes, funds automatically vote their proxies per BOD "recommendations". So you have all those funds automatically aligned w/ current management. Then the hedge fund/activist investor has to look at the prospect of now owning just 5%-10% of a company, and having to pay much closer to book value, just on the hope that they get enough other shareholders to vote to agree with them.

IMO, not enough of a risk/reward prospect in this situtation.

 

[Fermion]

Yes sounds like just a pipe dream when you analyze it.

You would have to buy in very carefully over a period of months to not trigger the volume spikes. Like 25,000 shares a day for half a year just to get to 10% ownership.

Well, maybe will revisit this if it does drop to a $10 million market cap while they have $100 million cash on hand.

 

[Running_Man]

They have raised 53 million from stock issuance and debt issuance in 2017, the stock appeared mostly from management that got shares as options and purchased the stock, average price appears to be around $2.35. It would seem to have severe legal liabilities to wind down the corporation. With operating expenses of 4 million per month and having to fund legal accruals and any other contingency contracts and paying the current liabilities of 5 million I don't think your 85 million is going to go too far with 42 million shares. They actually speak of the risk of liquidity in the 10K and had plans to raise more cash so this would be a total 180 on the part of management and leave management up to shareholder lawsuits I would think if they change months after laying plans out. Nowhere in the 10K does it speak of the possibility of dissolving, only potentially going bankrupt if further financing was not available

Once underway I would be surprised if you would get $1.25 a share payout, I has a friend who was CEO of a company-- brought in as a consultant exclusively for that role-- that decided to close down and just pay out their cash, they started with $12 a share in cash after selling all assets and ended up paying out $8.25 by the time anyone with a financial say could be closed down and the process took 28 months.

Anyone investing in 2017 is looking for the homerun I believe and not a 25 cent a share value play. But you could start the process and see how well it is appreciated.

There is also the issue of the mysterious financial agreement that the SEC has ruled for secrecy purposes does not have to be revealed to the public. Would be interesting to know what is in that and perhaps that is why management has been funding the corp

 

[Fermion]

Just an update to this thread. Endocyte has now had some good results and has shot up over 130% since I posted this thread.

Damn you guys for talking me out of buying control!

I did buy 40,000 shares though.

 

[joeea]

Just an update to this thread. Endocyte has now had some good results and has shot up over 130% since I posted this thread.

Damn you guys for talking me out of buying control!

I did buy 40,000 shares though.

So they were bad. But now they are good?

Have you abandoned your plan to take over the company? Will you revive your plan when they are inevitably taken out back to the woodshed and abused mightily once again?

 

[Fermion]

So they were bad. But now they are good?

Have you abandoned your plan to take over the company? Will you revive your plan when they are inevitably taken out back to the woodshed and abused mightily once again?

It was a silly idea. It was just frustrating to see them trade at nearly 1/3 of the cash they had in the bank.

 

[Blue Collar Guy]

I probably dont know what Im talking about, but here it goes anyway. My son worked on Wall Street. Seems some firms have people that their job was to look at situations you just described. Companies that if you buy today and break apart/sell tomorrow you would double your money or more. I remember him telling me you have to do it in a manner that surprises people or you drive up the price. It could be the company you found is not on their radar. They would have zero interest in finding life saving drugs, just get paid and leave.

The whole thing was way above my grasp, and I think I told him something enlightening and supportive like , "wow"

 

[MuirWannabe]

I probably dont know what Im talking about, but here it goes anyway. My son worked on Wall Street. Seems some firms have people that their job was to look at situations you just described. Companies that if you buy today and break apart/sell tomorrow you would double your money or more. I remember him telling me you have to do it in a manner that surprises people or you drive up the price. It could be the company you found is not on their radar. They would have zero interest in finding life saving drugs, just get paid and leave.

The whole thing was way above my grasp, and I think I told him something enlightening and supportive like , "wow"

I saw that movie! It was called Pretty Woman. Or was it called Wall Street?

‘Blue Horseshoe likes Endicott Steel’

 

[Blue Collar Guy]

I saw that movie! It was called Pretty Woman. Or was it called Wall Street?

‘Blue Horseshoe likes Endicott Steel’

I think I had just seen a different movie, and we were out to dinner and I asked him about it. That was his answer to me. If he was pulling my leg I dont know.Most of the stuff he talked about confused me anyway.

Oh and everybody had a title, Assistant vice president, associate vice president, senor vice president. I would have started in the mail room, I would have been JR vice president of mail operations.

Update: I just called him , he stands by this statement, and he said they have full time guys working on computer programs that might actually find correlations between certain data and future stock prices.

 

[SecondCor521]

Fermion, an additional risk would be a shareholder lawsuit against the new CEO (i.e. you) and board of directors (your cronies) alleging that cashing out the company was not in the long term best interest of said shareholders. You would be especially at risk if the tech you sold off ended up going somewhere and becoming a blockbuster cancer drug or something.