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

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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.

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 they 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