When I removed Bioasis from the Tailwinds Select Portfolio, it was with great reluctance. This is a Company that I believe has groundbreaking, lifesaving, technology. The management team is strong and the board is outstanding. All the pieces were in place for a very successful investment with one exception…they needed money.
Here’s what I said when Bioasis left the Portfolio…
“Bioasis remains a company with great promise, and a solid management team/board. However, there is no compelling reason to own it at this time. In our opinion, they will need to raise money in the near future. It’s our impression that the Company is setting itself up for a total reset round that will be done with US institutions (friendly to the new chairwoman) and at a lower valuation.
“However, the next round will likely be simultaneous (or followed shortly thereafter) with a US listing. When the round happens, we believe this will mark the bottom in the stock and will likely revisit it…”
I feel very strongly that those words ring truer now than ever. In my opinion, Bioasis is on the verge of a very large financing led by US investors and, likely, insiders. This round of financing will probably be done at a discount to market, likely at $.50 per share CAD. If and when it gets done, it will be the best buying opportunity this stock has seen, with the potential to be one of the best buying opportunities in the market for all of 2018.
Now, I use a lot of caveats in my note, such as “probably”, “likely”, and “my opinion”. This is because I know nothing concrete about a financing. However, I do know that I have over 30 years of history dealing with small cap companies. And, in the case of Bioasis, all the signs are there that we’ll be looking at a sweet buying opportunity very soon.
Let’s explore some of these signs with more of my conjecture attached to them.
- We know the Company needs money, desperately. At the end of Q3 they had under $2M in cash. The burn rate looks to be somewhere around $600 per quarter which means they run out of money right here in Q2. I think it’s safe to say they will raise money soon.
- Where will this money come from? Bioasis has made zero qualms about tipping their hand that they prefer a US listing. The corporate offices have moved, the website is a “.us” address. Suffice to say that the future of Bioasis lies south of the Canadian border.
- I expect it will be a large institutional round of financing, not a smaller one. Look at the history of the board. They have raised tens of millions of dollars into private companies. Their network of investors is all institutional. This is the pool of capital they will access. To do so there are two prerequisites; a US listing, which is coming, and great data, which I’ll touch on in a minute.
- The round is likely done except for the paperwork. Rathjen stepping into the Chair is a very telltale sign, as is Caroline Hill joining the Company. Who joins a Company with 2 months cash in the bank? Why would Rathjen step into Chair of a soon to be bankrupt company? It’s not a stretch to realize that nobody is the least bit concerned with the cash situation at Bioasis. Which means that cash is on the way.
So, I believe that we are looking at a very large financing in the very near future. Could the Company do another small round to keep things on track until they release data? Sure, but it doesn’t make as much sense seeing who the key players joining Bioasis are. They play on a big stage and aren’t about to waste time on a couple million.
Taking that one step further, the new board members and management wouldn’t be getting involved to a higher degree for just a couple million profit. These people are not small time players and are looking for their next big score. For Bioasis to be that score, two things need to happen. First, the data has to be great (I’ll touch on that later, still) and they need to have a big stake in the Company.
Management and the board are not incentivized to do a small deal and get the share price up. Their stakes in this Company are not that meaningful. With 510,000 options, and no stock at all, board members are looking at a modest payday on a win. However, if the Company were to do a big deal now…and, if they were to invest in the round…and, if they were to get a new options package based on the dilution that happened…then, all of a sudden, the current management and board will be well incentivized to bring this Company to the next level.
Frankly, I think the people in charge would rather recap the whole Company, than see previous management and board members be the largest beneficiaries of their efforts. Therefore, I see the likely scenario being a larger deal now, instead of another bridge-type financing.
It’s all about data, though, isn’t it? In order to get a large deal done, you need something compelling. I believe this data already exists and is likely very positive. What leads me to this conclusion? Three signs point to this, the first two of which we’ve already touched on. Here are my three clues…
- Rathjen and Hill have both looked under the covers before moving into their current roles. They would be naive to do otherwise.
- US investors would only commit $10s of millions upon knowledge of success. Private placements, which this will surely be with the tight timeline to insolvency, are done under NDA. Investors sign an NDA, see the data, write the checks. They are free to trade when the data is public, which generally happens before their shares are free-trading anyways. My conjecture is that they’ve seen compelling data.
- The NHP data was due a while ago. Yet, no one has seen it publicly. However, on the Company’s recent presentation it shows NHP data due in mid-March (see pic below), well over a month ago?!? Yeah, this data is done and it’s just under wraps as they close their financing.
Realizing that the slide above is from a presentation that was put on their website two weeks ago, one could easily surmise that the data isn’t late, just not available for you or I to view.
Investing is a business. There are no friends when it comes to money and shareholders are not a “family”. There is a massive opportunity before us in Bioasis and all the stakeholders are looking to claim their piece of the pie now before the stock runs.
In my opinion, there is a very high likelihood of a significant dilution coming very soon. My guess is it takes place at $.50 CAD. If and when that happens, it will be an equally significant buying opportunity. In the meantime, sit tight and watch it all unfold.Tailwinds' Disclaimers & Disclosures: For a full list of disclaimers and disclosures, please visit http://