Friday, 16 September 2016

LPTN Could Double At Any Given Moment

This week is another good one for our calls. Portola Pharmaceuticals, Inc. (PTLA), an oversold buyout candidate that we recommended it on August 24th when it closed at $20.41 hit over $24 today and ended at $23.60, more than a 15% gain. We recommend that readers start taking some profits though they may want to leave some on the table in case a buyout happens sooner than we think.

One that we recommend to stay away from at this time is Novavax, Inc. (NVAX). Sure, it is trading at less than its cash balance, which is the case for many biotechs after their lead drug runs into problems. But NVAX has almost as much debt as cash, and with it burning more than $70 million each quarter it will probably have less cash than debt when Q3 financials are announced. It could go down to 30 or 40 cents on liquidity issues.

One that we strongly recommend to buy instead is Lpath, Inc. (LPTN). We first recommended it on September 10th after news of a reverse merger was announced the previous Thursday, with a closing price of $2.68 on September 9th. It's up 17% to $3.13 since then, with its best day being today, up 8%. The stock is gaining momentum with volume of 218,000 shares being the highest volume day since September 9th, but with the low volume and low float readers know that this stock can really fly if more people take an interest.

While it's technically sound, it's the fundamentals that readers should really be excited about on LPTN. As mentioned in the previous article, StemCells Inc. (STEM) ran 600% in one day on August 16th on its merger news with Microbot Medical. LPTN's merger with Apollo Endosurgery is similar in nature but better in every way. Apollo had $68 million in revenue in 2015 as opposed to Microbot which is in the pre-revenue stage. Apollo's investors are also looking to dump more cash into the company as the transaction takes place:

"Apollo's major investors have committed to invest approximately $29 million of new equity in the combined company, which will form part of the Apollo 95.8 percent ownership. The major investors include affiliates of PTV Healthcare Capital, H.I.G. BioHealth Partners, Remeditex Ventures, Novo A/S, and CPMG Inc."

Think about this, if Apollo's investors, which includes five health care venture capital firms, are willing to place $29 million in new equity into the company, how much do you think they would be willing to put into buying LPTN shares on the open market to ensure a strong share price for Apollo? As we have seen with the volume, it wouldn't take a lot, maybe $1M worth of buying to ensure a strong stock price that would be in excess of $10 so that Apollo is not hit with the stigma of being a low-priced penny stock when it goes live.

When LPTN closed at $3.13 on Friday, it had a $7.43 million market cap. When STEM closed at $1.39 on Friday, it has a $16.69 million market cap. STEM gets 5% of Microbot while LPTN gets 4.2% of Apollo, slightly less, but not a big difference. But LPTN is getting a company with $68 million in revenue in 2015 and with investors willing to put an extra $29 million in new equity into the company while STEM gets none of that. This is why we recommend that LPTN will be at least a double. It should have a market cap that is greater than STEM and yet it is less than half of it. But a double isn't its entire upside. With all of the stocks that have ran from pennies to more than $10 this year, LPTN is absolutely ripe to become one of the next ones. The company has promised to release an S-4 filing shortly that shows more details on the Apollo merger. This should provide a near-term catalyst to move the stock.

If you like picks like LPTN, PTLA and other choices we have given out of the past few months, make sure you follow this report by clicking the follow button on the left hand panel. We do not get paid for our recommendations and participate in all of them.

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