In most cases, equity financings below market are bad news for shareholders. There are exceptions though. Corbus Pharmaceuticals Holdings Inc (NASDAQ:CRBP) just raised $27.2 million in a registered direct offering, but the company surprisingly picked up intraday strength on the news, and was up as much as another 11% today, March 2nd, past the $10 mark at one point.
This is despite the offering being priced at $7 a share. While the short term run is great for shareholders, it’s the implications of the run that we are interested in more than the response itself.
Besides being priced at $7 a share with a previous close on February 27th at $9.10, factor in the immediate dilutive impact of the newly issued shares, and that $7 falls to $6.17. Despite this, Corbus hasn’t traded below $8.4 this week.
The fact that Corbus Pharmaceuticals Holdings Inc (NASDAQ:CRBP) hasn’t dropped to at or below the RDO hints at some sort of lock up provision, but there doesn’t seem to be anything of the sort associated with the positions – at least not that the company has made publicly available. This suggests that current holders are in the stock for the upcoming Phase II cystic fibrosis top line data catalyst and so don’t want to sell out now, even given the fact that their positions are diluted on the issue.
We don’t yet know who’s buying, and to what degree. We can speculate that a large portion of the new offering will be accounted for by firms that already have a position in the company. If this is the case then we’re looking at funds like Millennium Management LLC, which at last count held a 1.6% stake based on 729K shares held; Fidelity (through FMR), with a 2.4% stake of 1.1 million; or Knoll Capital Management, which at last count held a 5.7% stake of 2.5 million shares held.
What we know for sure is that the issue is fully accounted for, and the price has been established by way of negotiation between Corbus and the entities across which the shares will distribute.
To put this another way, if the company’s CF trial on its flagship Resunab fails to read out as these investors hope it will, they believe that there’s still value in a holding at $7 a piece. After all, Resunab has already succeeded in early Phase II trials for scleroderma.
This doesn’t mean the stock won’t fall below $7 a share if the cystic fibrosis data disappoints, of course. It still might. But the offering does serve to some extent as a roundabout floor from which retail investors can calculate downside risk. If the smart money is willing to pay that price without knowing how Resunab will perform on the cystic fibrosis indication, then it’s reasonable to base a retail position’s risk calculation on the same level.
This brings about the question, of course, what are the chances of the data reading out as positive?
Well, for those new to Corbus Pharmaceuticals Holdings Inc (NASDAQ:CRBP), the company is developing a drug called JBT-101, AKA Resunab which is a cannabinoid based therapy. This endocannabinoid system is a counterpart to the central nervous system, and plays a key role in the immune system in humans. It houses CB2 receptors, different from CB1 receptors found in the central nervous system, and these CB2 receptors are strongly associated with inflammatory response. With Reunab, Corbus is trying to turn off the CB2 receptors by binding to them, and in doing so, stopping the inflammatory process that leads to fibrosis in CF patients.
The drug has Orphan status and Fast Track designation, and has shown some promise in preclinical and phase I studies. However, its future really rests on a phase II trial that completed at the start of 2017.
The primary endpoint is safety, as measured by the number of participants with treatment emergent adverse events from baseline at Day 113, and this is going to be important, but markets are really looking at the secondaries, which relate to efficacy. We’re looking at three of the eight secondary endpoints as the headliners – change in Resunab plasma concentrations from baseline; change in lung function from baseline; and change in patient reported outcomes from baseline, all at day 85.
If these endpoints hit, the drug works, and we’ll see a large upside run on the stock.
Corbus Pharmaceuticals Holdings Inc (NASDAQ:CRBP) is collating data as we speak, and intends to have topline released before the end of the quarter, which means the end of this month. That gives the company about four weeks at most to get the data in the hands of investors.
To add fuel to the fire, short interest in the stock is at a record high of 5.77 million, and the company is now fully funded through 2018. Meaning, if results are positive, there will be a fairly big short squeeze as well.
Note: This article is written by David Rich and originally published at Market Exclusive.