Last Updated on May 1, 2019 by Chris Stang
On April 19th, both AVEO Oncology (AVEO) and Sesen Bio (SESN) filed preliminary Proxy Statements for shareholders regarding their respective upcoming annual shareholder meetings and proposals to be voted upon at said meetings. The timing of these of filings was peculiar, given the markets were closed on the date. Furthermore, these filings are often not issued as press releases and can fly under the radar of investors and traders. Each filing contained a proposal that I believe could lead to volatility in the coming days, that being proposals for reverse splits. Both companies have received notice of non-compliance from the NASDAQ on the basis of failing to maintain a closing price of at $1.00 for 30 consecutive business days. AVEO received this notice on March 18th, while Sesen received this notice on February 19th. Both companies are granted a 180-day period from their notice to record 10-consecutive business days with a closing bid price equal to or greater than $1.00. Failure to achieve this may result in delisting from the NASDAQ unless an additional 180-day period is granted.
AVEO’s initial 180-day period extends until September 16th. As of April 21st, AVEO has recorded 2 consecutive days with a close at or above $1.00. In the Proxy Filing, the board of directors pose, among other proposals, that shareholders vote:
“To approve an amendment to our Restated Certificate of Incorporation to effect a reverse stock split of our common stock, by a ratio of not less than 1- for-5 and not more than 1-for-15, and a proportionate reduction in the number of authorized shares of common stock, such ratio and the implementation and timing of the reverse stock split to be determined in the discretion of our board of directors.” [Proposal 5]
Interestingly, at the same time, the board is posing shareholders to vote:
“To approve an amendment to our Restated Certificate of Incorporation to increase the number of authorized shares of our common stock from 250,000,000 to 500,000,000.” [Proposal 4]
I am not certain what the board plans to do with the ability to perform both a reverse split and issuing extra shares, but this is indeed an interesting development for the very volatile micro-cap stock.
Sesen’s initial 180-day period extends until August 19th. As of April 21st, Sesen has recorded 5 consecutive days with a close at or above $1.00. In the Proxy Filing, the board of directors poses, among other proposals, that shareholders vote:
“To approve an amendment to our Restated Certificate of Incorporation, to effect a reverse stock split of our common stock at a ratio in the range of 1:3 to 1:10, such ratio to be determined in the discretion of our board of directors.” [Proposal 2]
Investors and traders should be on the watch for unusual volatility during the beginning portion of this week as Wall Street reacts to these proposals. At this point, these are just proposals, which will be voted on during each company’s respective shareholder meeting, both occurring in June. Traditionally, reverse splits are a blemish of a failing biotechnology company, however, each AVEO and Sesen have important clinical catalysts scheduled to occur within the next six month. AVEO is expected to announce an overall survival analysis of its pivotal TIVO-3 trial, while Sesen will be reporting 12-month data for its VISTA trial. AVEO’s proposals may attract more scorn than Sesen’s proposals, as AVEO is proposing both a reverse split and increasing the number of authorized shares.
In the long term, a reverse split will likely serve as a benefit to both companies, allowing them to attract larger institutions, however, this may be at the expense of short term pain as investors react to these proposals. At this point, I do not believe that there is enough information available to speculate whether or not each company will go through with a reverse split (if approved) even if they regain compliance, and investors should be prepared for this risk.
This is in no form a recommendation to purchase/sell equities and investors should perform additional due diligence prior to investing. Micro- and small-cap biotechnology stocks can be extremely volatile and should be invested in as such.
I/we are long AVEO and SESN, and may buy/sell shares held securities within the next 72 hours.