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ImmunoCellular Therapeutics Ltd (IMUC) - Betting on a moon shot

9/11/2020

22 Comments

 
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In a former life ImmunoCellular Therapeutics Ltd (IMUC) was a  biotechnology company focusing on cancer immunotherapy, now its just  a cash shell with some potential.   
​All you need  is a chart to see what happened with IMUC.
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Down 99.97% from its IPO price of $40.

Things clearly didn't work out well and the company burned through a whole lot of cash,  around $117 Mil if you're asking. In 2018 they got kicked off the NYSE and  ended up on the pink-sheets. They then filed a Form 15 and went dark.

Then in  July 2019 IMUC issued a press release  announcing that it had agreed to sell ;

  "substantially all of ImmunoCellular's remaining clinical and pre-clinical assets, including its preclinical and clinical programs, technology, intellectual property and know-how."

The deal was for $1 Mil, payable in two installments;

"The aggregate purchase price of the assets is $1,000,000, payable by the Purchaser in two payments. The first upfront payment of $500,000 was received by ImmunoCellular upon closing of the agreement on May 8, 2019, and is non-refundable. The second, or continuation, payment of $500,000 is dependent upon the outcome of certain anticipated discussions between the Purchaser and the US Food and Drug Administration concerning the review and development of clinical asset ICT-107."

Fast forward to August 2019 and IMUC issued another press release  announcing that the asset purchase agreement was completed and that it had received the remaining $500k.

The firm was also  involved in  a lawsuit which  was settled in October 2019;

"Los Angeles, CA – October 16, 2019 – ImmunoCellular Therapeutics, Ltd. (“ImmunoCellular”) (OTC: IMUC), today announced that pursuant to an Order of the Superior Court of California, County of Los Angeles, entered on October 3, 2019, in the matter of David Wiener, derivatively and on behalf of ImmunoCellular Therapeutics, Ltd. v. Fractor et al., Case No. BC670134, the final approval of the derivative settlement is granted and the complaint is dismissed with prejudice. The Court approved the settlement amount of one hundred forty-five thousand dollars ($145,000.00) to be paid by ImmunoCellular’s insurer to Plaintiff’s Counsel, and for a Service Award of one thousand dollars ($1,000.00) to be paid to Plaintiff from the Fee and Expense Award."

If you want to read more about the background of the lawsuit see here    and here.


In the press release for the settlement the company also noted;

"With the successful conclusion of the derivative action and the recently completed sale of various company assets, ImmunoCellular plans to continue to pursue additional strategic alternatives, including a potential reverse merger with a private company seeking an expedited route to the public markets. The Company welcomes inquiries by parties interested in such a potential collaboration. As of September 30, 2019, ImmunoCellular’s balance sheet reflected a cash position of approximately $1.9 million with no debt or other liabilities other than ongoing trade payables related to its limited operations."

So, as of Sept 2019, IMUC stated it had a  cash pile of around $1.9 Mil and had no  liabilities other than some trade payables related to  its limited operations.

I noticed that IMUC also has some warrants  that were removed from listing along with it's common stock though these appear to be way out of the money and the spread on them is absurd.

I found this info in the last available 10-Q which pertains to the warrants;


"In connection with an underwritten public offering in August 2016, the Company issued warrants to purchase   993,115   shares of common stock with an initial exercise price of   $7.68 per share. The warrants have a term of   five years   and contain a provision whereby the warrant exercise price would be proportionately decreased in the event that future common stock issuances are made at a price less than   $7.68 per share. Due to the potential variability of their exercise price, these warrants did not qualify for equity treatment, and therefore were recognized as a liability. These warrants are traded on the NYSE American (symbol IMUC.WS). The Company initially valued these warrants using the closing price on August 12, 2016 of   $2.30 , which was the first day the warrants were traded on the NYSE American. Accordingly, the Company allocated  $2,284,395    of the total proceeds from the August 2016 offering to the base warrants.  As of the July 1, 2017 adoption of ASU No. 2017-11, the Company reclassified the remaining warrant liability of   $20,560   to additional paid in capital. As a result of the July 2017 financing, the exercise price of these warrants was adjusted to $4.15   and the Company recorded a dividend of   $16,327 . As of   March  31, 2018 , warrants to purchase   993,115   shares of the Company's common stock remain outstanding. "

So, there's 993k in outstanding warrants with an exp. date of  Aug 2021 and an excise price of $4.15.   Unless something crazy happens  in the next  year it seems safe to say they won't be getting excised.

Management also noted that t
hey were exploring  strategic alternatives including a  "potential reverse merger".

I love reading stuff like this.

Here we have a  cash shell that has gone dark and is  sat in the shadows  on the pink-sheets, the market has pretty  much left it for dead and yet things are still happening in the background.

Take a look at what happened with SPOM when a reverse merger was announced; 

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In penny stock land all it takes is a press release to shoot a stock to the moon.

IMUC seems to be tying up all the loose ends in anticipation of  doing some type of reverse merger. In July 2020 they issued a press release announcing  that a vote had been passed allowing the firm to enact a reverse stock split;


"Los Angeles, CA July 2, 2020 -- ImmunoCellular Therapeutics, Ltd. (“ImmunoCellular”) (OTC: IMUC), today announced that, based on the vote count following the Special Meeting of Stockholders held June 26, 2020, stockholders voted in favor of the proposal to approve an amendment to the Company's Amended and Restated Certificate of Incorporation to effect a reverse stock split at a ratio not less than 1-for-3 and not greater than 1-for-10, with the exact ratio to be set within that range at the discretion of its Board of Directors on or before December 31, 2020 without further approval or authorization of its stockholders.
The Company believes that it is advisable and in the best interests of the Company and its stockholders to effect the reverse stock split in order to provide the Company with the ability to consider future strategic arrangements by reducing the number of issued and outstanding shares of capital stock. However, no timeline has been set as to when the reverse stock split will be implemented."

So, at some point before the end of the year there could    be a reverse stock split of between ten and three to one to make the shell    more attractive.   There's also a chance there could be a cash-out of shareholders below a certain stock threshold so bear that in mind.


Right, I think you've probably got the picture here. Lets look at the numbers;

Market Cap =$1.2 Mil
Share price = $0.0286
Common = 41.9 Mil
Warrants = 993k with  excise price of $4.15 and exp. date of Aug 2021
Cash =$800k
NOL carryforwards =$4.4 Mil 


My estimate of the current cash position for IMUC   is based on  the info they revealed here;

"As of August 23, 2019, ImmunoCellular’s balance sheet reflected a cash position of approximately $2.0 million with no debt or other liabilities other than ongoing trade payables related to its limited operations."

and here;

"As of September 30, 2019, ImmunoCellular’s balance sheet reflected a cash position of approximately $1.9 million with no debt or other liabilities other than ongoing trade payables related to its limited operations."

It looks to me like they are burning around $100k a month so they've probably burned through $1.1 Mil between Sept 30th 2019 and now,  another $100k will be gone by the end of Sept 2020 and they'll be down to $500k by the end of the year.


What is the stock worth?

This is a tricky one, my initial thought was  to take the average cost of taking a company public, slap a discount on it then add in a discounted value for the NOL carryforwards.

Edit;   This was actually a really dumb idea as a reader pointed out, Thanks Mike! 

OTC stocks aren't listed and the cost of getting on the OTC markets is a tiny fraction of the cost of taking a company public and getting it listed. 

The only value you can hang your hat on here is the cash, whatever discounted value you might put on the NOL carryforwards and what you think an acquirer might pay for the shell. 

What might they pay, $1,$2,$3 Mil?



Ultimately the market will make the final call on this one and I'm  simply betting the share price will be materially higher than it is now if a reverse merger is announced.

What are the risks here?

​Aside from the fact that  it's a dark penny stock, there's also no guarantee    that a deal will get done. This shell could end up sat idle on the pink-sheets for months or years.

Maybe a deal gets done but it is structured in such a way that insiders get a sweet deal and minority holders get screwed.

The thesis rests on the assumption of the stock re-pricing based upon a change    in market perception. There's no margin of safety here given the cash position is below the market cap. The  value is  essentially whatever an acquirer is willing to pay for a  shell with $4 Mil in NOL carryforwards.  

 

I should also mention that my broker, Tradestation, put in a temporary halt on the  trading of the stock.

I phoned the equity desk to inquire as to the reason and they couldn't give me a straight    answer  but suggested it could be a DTC eligibility issue.  They also said they could fix it for me to sell my position but that I couldn't buy any more at the moment. For now I'm holding to see how this shakes out. I'm not giving up on a potential   10-15 bagger that easily.

I contacted the IR contact for IMUC and they said the stock is DTC eligible as it can still be traded by brokers. @nonamestocks confirmed that Schwab is allowing trading of the stock and I've spoken to  a few other investors who can trade it through their brokers so it seems to be an isolated issue with TradeStation.

Nonetheless, one should tread carefully here. No sense going in heavy if things turn sour and you get trapped holding  a cheap ugly looking bag.

The risks here are real and myriad in nature, on the flip side there is significant upside potential too. Weighing  up the pros and cons I think this one deserves a place in the basket, I'm in for the ride.

Thanks for reading,

David


Disclaimer: Long IMUC

  










22 Comments
Braxton Gann link
9/13/2020 05:27:25 am

Fascinating read as usual. I always enjoy reading UK investment blogs about mostly US stocks, but when this one comes out I drop everything.

Do you think TradeStation is pulling a Fidelity? Schwab is allowing trading for me as well.

Braxton

Reply
David
9/13/2020 10:14:42 am

Thanks Braxton,you are too kind!


I don't think TradeStation is pulling a Fidelity as they've let me buy pretty much anything I want aside from one stock which was non-DTC eligible.

I think this is a temporary freeze and it will hopefully get resolved at some point.Thankfully I built a decent position before they stopped me trading and I can at least still sell it.

I am starting to think about opening an account with Schwab though.

Regards,

David

Reply
Zach
9/18/2020 02:24:28 pm

David,

I had purchased around 2,500 shares at 40cents a piece. Now they are saying I only have 250 shares,???

Reply
David
9/19/2020 08:51:59 am

Hi Zach,

There was recently a 10-1 reverse split but if you purchased @ 40 cents then the split had already happened. I suggest you contact your broker to have them correct the mistake, it will be an error on their part.

Regards,

David

Rajat Varna
9/13/2020 08:46:21 am

Hi David, what about the scalability of such an investment strategy? Will one be able to take a 100k trade in such stocks?

Reply
David
9/13/2020 10:21:26 am

Hi Rajat,

It depends on each stock, sometimes I can build a position in a few days and other times it can take me weeks, months or longer to build a position. I like to buy the most illiquid stocks I can find so often I'm not able to get the position size exactly how I would want it to be but I'm okay with that.

If you've got the patience you should have no issue putting 100k to work in the these tiny illiquid OTC stocks, it will obviously take you time to build a position though.

Thanks for taking the time to read my blog.

Regards,

David

Reply
mike
9/13/2020 07:11:49 pm

This is an OTC stock and it is not listed. So I dont understand why you use the average cost of IPO'ing. You could virtually do the same for all OTC stocks.

Further, in some countries, tax losses of shell companies cant be used through a merger with another company.

Reply
David
9/13/2020 07:46:46 pm

Hi Mike,

That's a very good point, the cost of getting on the OTC markets is indeed a tiny fraction of taking a company public. I mention later in the article;

"There's no margin of safety here given the cash position is below the market cap. The value is essentially whatever an acquirer is willing to pay for a shell with $4 Mil in NOL carryforwards."

I think I'll amend the post having taken your comment on board.

Thanks for taking the time to read my blog and for sharing your thoughts, much appreciated!

Regards,

David

Reply
Jordan
9/17/2020 08:03:42 pm

Hi David,

Thank you for this post. The stock price exploded to .5 and then cratered back to .03 over the past two days. Was there a catalyst for this and has it impacted your assessment of this investment?

Reply
David
9/17/2020 09:52:56 pm

Hi Jordan,

The share price increased due to the 10-1 reverse stock split which was enacted by the company. The stock now sits at $0.40, down from its high of $0.51. My thesis still stands, if management does a reverse merger deal I think the share price will be materially higher than where it is now. Thus far they've been making the right moves, time will tell how it plays out.

Thanks for taking the time to read my blog.

Regards,

David

Reply
Mike
9/20/2020 10:30:20 pm

In my opinion, the new SEC rules unfortunately make dark stocks (such as IMUC) less interesting. I understand that you will be able to trade these stocks only in the grey market, which many brokers do not support (or you can only sell your stocks).
see here: https://www.sec.gov/news/public-statement/clayton-otc-2020-09-16

Reply
David
9/20/2020 11:20:05 pm

Hi Mike,

The new SEC rule is disappointing for sure and I don't think it will actually solve the issues the SEC thinks it will. The feedback they received was overwhelming negative and yet they still went ahead with it.

Best case scenario is that the darks and limited info stocks get moved to the grey market but retail brokers still allow us to trade them.If that is all that happens then I'll give my custom to brokers who allow trading on the grey market and continue to invest in these stocks as many of them eventually return to current reporting status over time.

The issue with the grey market is decreased liquidity (not a problem for me but it is for many others) and impaired price discovery due to lack of electronic quotations.

The flip side is that this rule may end up creating more value opportunities in this space.

We'll have to see how it all plays out.

Regards,

David

Reply
Zachary Ralston
11/6/2020 04:22:45 am

Holding 48,769 shares here. Unfortunate I got into this company a few years ago. I’ve averaged down and am currently at $1.11. No reason to sell for a loss now and I am patient.
What share price do you think is possible with a successful reverse merger?

Should I keep adding and average down?

Reply
Paula
11/28/2020 12:42:50 pm

Wow! I am a novice, so much of what I read in the article made little sense to me. I bought into IMUC during phase one trials and kept buying through phase three and that fatal November evening when the phase two results were published and the stock price plummeted. At this time I have only 58 shares for a total loss of $31,000. Because it is in a 401 K, I cannot even use it as a tax loss.
My question: is there anything that may happen that will make this loss any less painful? Do I leave the 58 shares as they are in my portfolio or should I try and sell them? This was a very painful nosedive into penny stocks and I have yet to try again.

Reply
David
11/28/2020 02:36:33 pm

Hi Paula,

Firstly I am not a qualified financial advisor so please do not construe what I say as financial advice.

I'm sorry to hear you suffered such heavy losses on this stock.

If I were you I would hold for now, you mention you cannot sell for tax loss harvesting purposes so it makes sense to hold and see what happens.

Management are trying to find a suitable company, most likely another biotech firm, which wants to get onto the public markets but avoid the expenses associated with it. By merging with IMUC they can become a public company and also have some net operating losses that can be carried forward to offset future taxes.

Assuming IMUC manages to strike a deal the stock has a chance of jumping up on the news, obviously there is a risk that no deal is done and the firm just liquidates.

Given you have lost most of your investment already it seems to makes sense to wait and see if you can sell out at a marginally higher price to recoup a little of your losses.

Regards,

David

Reply
Zachary Ralston
12/6/2020 12:26:00 am

Spoke with Gary Titus this week. They have a deal lined up with someone from Cedars Sinai. About $4M total investment upon deal closing. Will be ready to start human trials Q1 2021. Should see a nice boost by end of year. However with good technology and proper execution this may turn into a billion dollar company!

Good luck to all.

Reply
Paula
12/6/2020 01:07:32 pm

Hi again! Thanks for your reply several weeks back. I do not understand the "reverse split." Is that why/how I ended up with only 58 shares of the stock?
If a merger occurs and the stock price goes up, is it best to hold the stock in the event that the share price continues to rise or is there a magic number at which I sell? Having lost 30K+ I would really like to recoup as much as possible.
If a merger occurs, is there a chance that the stock will rebound to even higher levels AND is there anyway I will ever be in a position of getting back some of the stocks that were lost when they did the reverse split?
Thanks for your patience with a novice!

Reply
Zachary Ralston
12/6/2020 02:39:10 pm

The company executed a reverse split so that they have available shares to issue for a funding opportunity. If you’ve been in as long as I think you were probably reverse split twice. Once at 40:1 and then recently at 10:1. So you probably started out with 23,800 shares.

A reverse merger will likely increase the stock price. However I would think 200% would be max initial increase. Or $1.00 per share. You have so few shares that there is no reason to sell for $58.

Just forget about this company, let it ride and check it in 5 years.

It is possible that they have a successful clinical trial and over they next few years we trade up to $10 - $20. This is still only $1,000 max for you. So just let it go and see what happens.

Just to put it into prospective for you. My average is $1.08 with 50,769 shares. If you even get back to even. Y position will be with $27 Million. So that’s a very very very long shot.

You only option in my opinion would be to invest $52,500 currently at an average share price of $0.35. This will make you overall average $0.56. I truly believe we will hit $1.00 over the next few months.

Granted it would be very hard to accumulate that many shares at that level. Not much liquidity here. Most are holding now.

Reply
Zachary Ralston
12/18/2020 04:29:12 pm

See that action this week?

Hoping we are on to something good!

Reply
Zachary Ralston
12/31/2020 08:51:45 pm

60k shares yesterday and 60k today. That’s what I like to see!

Reply
Zachary Ralston
12/4/2021 01:26:45 am

The merged! Still holding David?

Expected more in the initial news but time will tell! Maybe we can be the next OCGN!

Reply
David
12/8/2021 05:49:06 pm

Hi Zac, yes still holding.

Good news on the merger, lets see what happens next!

Reply



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    David J. Flood

    UK based Investor. I focus
    ​on Net-nets, Pico/Nano caps, AIM/OTC/Dark stocks & Special Situations. Balance sheets & Long-range price charts are my guide. Caveat Emptor!


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