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Expert Financial Analysis and Reporting

Thoughts on Northwest Biotherapeutics’ Reverse Stock Split

Northwest Biotherapeutics (NWBO.OB) announced a 1 for 16 reverse stock split. This is a first step in a planned public offering of up to $25 million and listing of the common stock on the NASDAQ Capital Market. The reverse stock split will increase the price of the stock from the pre-split price of $0.30 per share to around $4.80.

The higher stock price is important because many institutions cannot buy stocks selling below $1.00. Without the stock split, the upcoming offering would have had to rely primarily on retail investors and speculative hedge funds. The reverse stock split may bring in large, high quality institutional investors.

There is often a knee jerk reaction on the part of investors to avoid a stock prior to an equity offering and some hedge funds have a strategy of shorting into an offering. The same sometimes goes for reverse stock splits. I recognize this risk, but I also think that as NWBO brings its story to the large institutional investing universe, there could be strength during and after the offering if institutional investors view the potential for NWBO as favorably as I do.

I cannot rule out the possibility of price weakness in the short term, but I think that the performance of ImmunoCellular (IMUC.OB) after its January 2012 stock offering may be an encouraging proxy. IMUC was trading at about $1.25 when it announced the offering. The stock weakened and the deal was priced at $1.10. Subsequently, the price increased nearly 300% to its current level of $3.00. I attribute this in large part to greater institutional awareness of the promise of the investment story and their buying in the after market. I see the potential for NWBO’s stock after its offering to strengthen as was the case with IMUC.

Tagged as + Categorized as Company Commentary, Smith On Stocks Blog


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