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Advanced Cellular
(OTC BB: ACTC) Capital Raise Resets the Bar |
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There isn't much else to write about
this weekend. ACTC was clearly the story of the week in an otherwise
dull, listless, last week of summer. However, ACTC is providing
all the fireworks we need for a little excitement.
Earlier this past week I chronicled
the meteoric one day rise of 357% post release of the article in
Nature
Magazine. ACTC scientists are doing something no one else in
the Stem Cell industry has done. It's not new to OTC Journal
readers, but it is new to many investors that didn't have the advantage
of knowing about the company months ago.
When I pointed to the stock as the
biggest one day gain in OTC Journal history, one loyal reader pointed
out that, as measured from the level at which I first introduced the company
it was only a 40% gain. True, but nevertheless it still traded
up 357% in one day. I never said it was from the level of the first edition
back in March. In fact, my SSL for traders over the long, listless summer
months was $.75. Therefore, if you had a trading mentality, you should
have been out of the stock if you followed my advice- who knew this would
happen? On the plus side, I have written many times that this company could
be the recipient of high profile publicity which would put a charge in
the stock.
Yesterday, the company held a conference
call to discuss recent developments. I had the opportunity to listen to
the replay late in the day, but didn't realize I would have to budget an
hour for the call.
If you are interested in this stock,
you should listen to the call. It is extremely enlightening. I found it
interesting as much for what was said as what wasn't said. CEO Bill
Caldwell and Stem Cell pioneer Michael West discussed
at great length the importance of their breakthrough. In short, the company
can take a one to eight cell Blastomere (an early stage human egg) and
extract and cultivate fetal stem cells. From there, the Blastomere can
become a viable egg from which a human life can be born. Why is this important?-
Because it meets President Bush's rather Draconian demand that new fetal
stem cells lines be created without harm to potential human life. It allows
the NIH to fund more research.
Here's what wasn't said. During the
conference call, management did not address the company's ability to infuse
a Blastomere with some else's DNA. This gives ACTC to create a custom
fetal stem cell just for you. This discussion gets into the moral issues
associated with potential cloning. At this stage I believe the company
wants to focus on the less controversial aspects of what they have achieved.
I strongly recommend listening to
the call. The management does a much better job than I do describing their
breakthrough. Click
Here to be directed to the call.
The high print on Thursday was $2.30
(up from $.40 early in the week), at which point the rally turned the other
way, and the stock tanked. The sell off was sparked by ACTC disclosure
of a financing.
The original group that had invested
about $17 million in a debt deal with the company was holding approximately
14.2 million warrants with conversion prices of $2.53 and $1.27. The shares
underlying these warrants were already registered. In a move designed to
use their new found fame to load up their treasury with cash, the company
reset the price of all the warrants to $.95, and forced their conversion.
Net result: The company issued another
14.2 million shares, and will receive in return $13.5 million in cash,
which buys them another year of operations. I think this was a great move.
They needed to raise more money. They achieved it in one day, and it all
happened as a result of the market's recognition of their achievements.
They took advantage of a hot market to reload their treasury. Imagine the
arrangement they would have cut had the stock been trading at the depressed
$.40 level with little or no volume? This was much better for existing
shareholders.
Here's the chart of this crazy week.
The stock runs from $.40 to a high print of $2.30 in 1 1/2 trading days.
Then it tanks. Why does it sell off so abruptly? - because the company
announces they just sold 14.2 million free trading shares at $.95.
Here's the typical sequence on an
event like this. The first money to pounce on the stock comes from investors
who read the new information, understood the significance, and wanted to
own a piece of the company. The next money in, perhaps later that day or
early the next, is the hot money- traders who are buying the stock because
it is trading huge volume and going up.
Then, behind the scenes you have
the warrant holders who make their deal with the company. Believe me, this
is a risk averse bunch. They don't put their capital at risk long term.
They structure "no lose" arrangements. I absolute guarantee this bunch
has sold every single share they could, and sold them as quickly as they
could. It would not surprise me to learn that all 14.2 million shares have
already been dumped. Also, as the hot money learns about the massive issuance
of shares below the current market, yesterday's buyer becomes today's seller.
Hence, the rapid blow off in the stock.
I believe the stock could now well
be a great opportunity for both investors and traders. Here's why: I am
quite certain the excess supply created by the warrant conversion has already
been absorbed by the market. The supply will now dry up.
Like a faithful labrador retriever
fetching a tennis ball, the stock honed in on guess what price? - you got
it - $.95- the exact same price as the warrant conversion.
Moreover, $.95 is extremely
close to the $1.05 perfect 61.8% retracement of the entire
move.
If I had to make an educated guess,
I would say the market has already absorbed the excess supply from the
newly issued 14.2 million shares at $.95, and will now head back up.
In the meantime, there is probably
more high profile publicity in store for this company. Look for a number
of major news organizations have an interest in a small Stem Cell
company that has met Bush's challenge on the moral issues. A Wall Street
Journal reporter was on the conference call asking questions.
If you are a trader and want to jump
in, your SSL is $.75 once again. If you just want to own a piece of this
technology for the long term, own some now and don't worry about where
it goes in the short term- either up or down.
More on the technology sometime next
week.
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