Another Trash Biotech Ready To Ramp

It's starting to heat up in biotech land. A sprinkle of M&A activity has caused the market to respond sector wide, and we've already seen some nice pushes with a big gap up in ACON and some profits in our NVAX options.

We're taking a shot at a name that has seen runs in the past-- Vapotherm.

Same song and dance as so many other biotech names-- they were hot in 2020 then got run over in the 2022 bear market. This name started the cycle early; its main product is a way to get oxygen into patients better, which was a "frontline" treatment in the pandemic.

It peaked out above $50 in 2020, now it's trading under a dollar.

Insider Appetite

Starting in late 2022 this name started to see some aggressive purchases.

The CEO was buying size around $0.75, and since then we've seen continued interest in the name.

Now I don't know what they know-- I could make some guesses but it's outside of my expertise. All I know is you have multiple insiders putting down serious size, and we are back at price levels where it's worth taking a shot to the upside.

Dilution Risk

This is the major problem I see with this name. They don't have a ton of cash, and they have a good chunk of warrants struck at $1.17.

The warrants were listed on February 8th, then there were 6 separate insiders putting money into the company equity. That tells me they are betting for upside of in spite of the current fundamentals of the company.

Why Now?

These buys have been around for a while and I've had the stock on a watchlist for a while. And it's traded like absolute trash since then.

There has been a slight shift in the technicals against the November lows:

Now let's draw a line against those lows and see how price interacted against it last week:

Into the obvious breakdown of those lows, there was an aggressive high volume candle that hit into that, suggesting either a short covering squeeze or a larger player that is using the "obvious" low to play games with the stock.

This suggests a good shot here to the long side. There's also the warrants at $1.17 that will most likely act as a magnet, and that's over a double from here.

Action To Take

Stock Trade

Buy to open VAPO stock at 0.50.

We are going to treat this like an option-- assume full risk on the trade and we will see what this looks like in a few months. If the stock hits $1.17 we will look to sell some into that as that's where you can see some dilution in the name.

Extra Notes

Here are some notes from when they issued the warrants.

• Vapotherm Inc (NYSE: VAPO) expects Q4 FY22 sales of $18.4 million to $18.7 million, versus the consensus of $16.32 million, with FY22 sales expectation of $66-$67 million compared to the consensus Of $64.47 million.
• For Q4, the company expects a gross margin of 27%-28% and 25%-26% for FY22.
• For the fourth quarter of 2022, the company expects non-GAAP operating expenses excluding impairment of long-lived assets and loss on disposal of property and equipment, of $20.9 million to $21.1 million.
• Cash and cash equivalents were approximately $15.7 million as of December 31, 2022.
• "Growth was driven primarily by consistent quarterly improvement in U.S. disposables turn rates, reaching 70% of the three-year pre-COVID historical average in the fourth quarter, up from 60% in the third quarter," said Joseph Army, President & CEO.
• The company looks to decrease annual cash operating expenses from $100 million in 2021 to $60 million to $62 million in 2023 while still making significant investments in future growth drivers.
• For FY23, Vapotherm expects revenue of $77 million to $79 million, compared to the consensus of $76.44 million, with a gross margin of 48%-50%.
• Concerning the previously reported two delisting notices from the NYSE in 2022, the company received a price cure notification letter from the NYSE indicating the company's stock price was above the NYSE's minimum requirement.
• Vapotherm announced a securities purchase agreement for private placement financing for gross proceeds of approximately $23.0 million.
• The company will issue 17.5 million shares and pre-funded warrants, purchasing up to 4.4 million shares. The warrants will be exercisable at $1.17 per share.