The cancer immunotherapy company Advaxis (ADXS.OB) is asking its current shareholders to take one for the team, and that is putting it lightly. Ahead of the company’s annual shareholder meeting, Advaxis sent out a proxy statement on April 30th containing a number of proposals that quite frankly wipe out current shareholders, yet reward management with an increase in number of shares under the Omnibus Incentive Plan. To rectify this egregious effrontery, the company filed an amended proxy statement yesterday “lessening” the damage to shareholder value, or does it? To understand the impact on shareholders, I will give readers a brief overview of the previous versus newly filed proxy statement.
At present, there are approximately 536 M shares of ADXS outstanding (fully diluted). Under the previous proxy, Advaxis proposed to reduce this number to 2.68M under the maximum R/S scenario. Proposal No. 3, however, gives the company the ability to take shareholders to the woodshed. Here it is from the "amended" proxy:
"Proposal No. 3: the proposal to decrease the total number of authorized shares of common stock, to now decrease the total number of authorized shares of common stock post-reverse stock split (emphasis added) to 50,000,000 shares (in the earlier proxy, we proposed a total number of 300,000,000 shares of common stock post-reverse stock split)."
While it is written as if its “reducing” the share count, it is actually massively increasing it via unholy levels of dilution. The trick is understanding that the proposed share count will be post-reverse split. The previous proxy thus asked shareholders to take a potential 99% dilution on their holdings in ADXS. Yes, that is right. The company is asking for a complete do-over.
If we perform the same exercise, the amended proxy only dilutes shareholders 90% under the maximum scenario. In order to have time to properly stew over this new proxy, Advaxis has moved the annual shareholder meeting to June 14th.
Like most investors in ADXS, I invested based on CEO Tom Moore’s statement that the company would go into licensing after successfully completing its Phase II trials with ADXS-HPV. Now that the India trial looks to be successful, I am left scratching my head wondering why there isn't a materially significant licensing deal (FusionVax?), and the company is indicating it will go into Phase III without a major partner. And now they are asking shareholders to essentially lose all of their investment for a possible uplisting to NASDAQ? That is absurd.
Over the past six months, EPE has repeatedly requested to interview management for a piece on cancer immunotherapy, and were told that management was “traveling” by Ms. Moore. Given that we receive dozens of requests by companies for interviews on a weekly basis, this response was beyond mystifying, especially for a company desperately in need of positive PR. As a final attempt at gaining some insight into the dark underbelly of ADXS, EPE contacted Mr. Moore directly via email, expressing our displeasure over the lack of transparency after Advaxis failed to notify shareholders through a proper PR of the failed CIN Phase II trial--instead choosing to bury it in a SEC filing. (To date, there still hasn’t been a PR disclosing these negative results). During the email exchange, Mr. Moore said nothing of the coming storm and simply apologized for the lack of communication with shareholders.
Looking back over the past two years, investors have watched in horror as Mr. Moore hired his daughter to head up IR (nepotism), despite zero experience in this field; misled shareholders about a proper licensing deal (sorry FusionVax is a cruel joke); and hide negative results in SEC filings. Now Advaxis is asking for our "faith" that a licensing deal is close at hand, saying that this is the correct step towards righting the ship.
I, for one, am out of faith. If a licensing deal was imminent or even possible, why would management take such extreme measures by blowing up their current shareholders? Why not sign the deal, reward shareholders, and finance the company that way? The truth is there is no licensing deal, or at least one significant enough to fund the company in a material way. Furthermore, an uplisting is a Red Herring. Besides the fact that ADXS will still have difficulty meeting the requirements to uplist, an uplisting only benefits future shareholders, and does absolutely nothing to create value for current shareholders, especially given the request to dilute shareholders post-reverse split.
To be frank, the gauntlet has been thrown down by management. Their interests clearly lie with themselves (Omnibus Incentive Plan), and shareholders are little more than a nuisance (e.g., “amended” proxy statement). I applaud shareholders for taking a proactive stance and refusing to give into being utterly wiped out by management. Unfortunately, their reply was wholly insufficient and still wipes out our entire investment. I therefore encourage shareholders to vote no on Proposals 2-4 in the amended proxy. The company most definitely needs major changes, but these are changes shareholders can do without.
Disclosures: EPE is long ADXS but this position is extremely tenuous. We are strongly considering liquidating our entire position within the next three trading sessions.