BioPharmX Corporation ( BPMX ) is a pharmaceutical company that announced on Monday 25 June that it had positive topline results from its Phase 2b trial of BPX-04 for Papulopustular Rosacea (BPX-04 being a topical gel, and papulopustular rosacea being a skin disorder causing redness, swelling and acne-like breakouts), causing the stock to initially pop up to a high of just over $1.55 in premarket trading before fading massively all day and closing at $0.79. That's a price even lower than what BPMX traded at before this news hit, leaving many investors to wonder what on earth is going on. In this article I will explain what is the overwhelmingly likely reason: major selling pressure as a result of BPMX's earlier-announced At The Market (ATM) offering.

BPMX's ATM Explained

On May 16 2019 BPMX announced an ATM offering where they "may offer and sell shares of our common stock, par value $0.001, having an aggregate offering price of up to $8.5 million", which is a massive amount for a company with a market cap as tiny as BPMX (their latest 10Q states there were only 10,683,167 shares outstanding as of May 31 2019, putting the market cap at current prices roughly around BPMX's entire $8.5 million offering). For those unfamiliar with ATM's for publicly-traded companies, this Wikipedia article provides a succinct explanation - it is simply a way for a company to raise capital by selling more newly issued shares. In particular, take a note of this line:

ATMs can be positioned in advance of an upcoming liquidity event or major milestone to take advantage of increased liquidity and a rising stock price

It seems highly likely that BPMX intended to heavily sell shares through its ATM as soon as the right liquidity event came along, and last Monday's news would have fit very nicely. Not only was the price far higher in pre-market trading, but volume on Monday was 17,764,338 shares (yes, that's more than BPMX's entire shares outstanding) according to Yahoo Finance compared to an average volume of only 637,617 shares for prior trading sessions. There was almost certainly also plenty of the ATM remaining, as the latest 10Q states they had "sold an aggregate of 1,236,420 shares of Common Stock pursuant to the terms of such Sales Agreement for aggregate gross proceeds of $1.1 million" as of the date of the filing of that 10Q (around June 11 2019). That leaves $7.4 million worth of BPMX stock to sell, still an enormous amount compared to its shares outstanding. We will have a better idea in a future filing how much of BPMX's ATM was sold on Monday, but my guess is at least $2 million worth and possibly much more, representing at least (very roughly) 20% of BPMX's market cap. It's easy to see how such selling pressure would cause a stock price to collapse.

Unfortunately conducting this ATM was something of a necessity, as BPMX was in desperate need of additional assets to stay listed on the NYSE and remain in business. Late last year BPMX had received a notice of non-compliance from the NYSE for having stockholders' equity of less than the minimum $2 million required, and as of their latest 10Q was still below this at around $1.4 million. In that 10Q BPMX also reports a loss from operations for the three months ended April 30 of $3.6 million and total assets of just $3.5 million. Presumably BPMX's ATM will allow it to raise enough proceeds to continue operating for some time, but as we saw on Monday, it does no favors for its stock price.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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