Financing…Quality Matters

Until they mature and hit profitability, small-cap growth companies rely on financings to fund their operations. Sometimes that money is easy to come by and sometimes it simply isn’t. This is most likely the one key fact to consider when looking at small growth stocks.

In 2021, money was available on the cheap for smaller companies and the smart ones loaded up. Now, and ever since the end of the pandemic cheap money and micro-cap explosion, times have changed. We are firmly stuck in a market where financing is much harder to find, if it’s available at all.

For quite some time now I’ve been speaking about balance sheet risk and how investors should focus on companies with stronger balance sheets. With interest rates not cooperating and remaining stuck at high levels, this concern has made itself quite evident, impacting many companies on an almost daily basis. How a company is handling its cash burn and balance sheet issues has become the primary driver of stock prices in my universe.

INmune Bio (INMB) is a great example of how to manage corporate finance for a small public company. In good times, they raised a lot of money and, in doing so, they kept a very clean balance sheet. This gave them a long runway and great flexibility.

However, long bear markets can shorten any runway and INmune was looking at a cash burn that would consume most of their resources almost simultaneously with key data releases…a tricky position to place your company.

I’ve always said companies need to raise money at least six months prior to ground zero or shorts would target them. In the case of INmune, the six month mark was approaching. Smartly, they went out and took care of the situation, raising $15M this past week, with investors paying at the market prices.

How did they get this done? Having a clean balance sheet allowed them the flexibility to entice investors with a warrant, a necessary evil in current times. More importantly, the management team and insiders stepped up in a big way, leading the round with over $1M invested. In a tough funding environment, management investing gives the company the best chance of obtaining financing.

The other key thing INmune did in their financing was only allow fundamental investors to participate. It’s much easier to get a financing done with fast money. However, the end result is not always so pretty. Getting fundamental investors provides a sign of strength to the market while, importantly, not bringing new sellers into the aftermarket trading.

So, meaningful insider participation leads to a strong order book and the final result for INmune is a very solid financing. At the time of this writing on Friday morning, INMB is up 35% for the week.

It also helps that many shorts were leaning on INMB in advance of financing. They are now realizing that data is coming and there is no more “deal overhang”. The shorts here are likely entering full panic mode as the stock is rallying right into Russell 2000 rebalancing demand. In short, INmune lined their stars up perfectly. Great job guys!

One aspect of INmune’s financing that I believe is very important is the structure of their warrants. The expiration date of the warrants, which have a two-year life, has an acceleration clause. When the company releases top-line data from their phase 2 Alzheimer’s trial, the warrants’ life shortens to 30 days. In addition, these warrants do not have a cashless provision.

What this means for INmune is that, assuming good data and a strong stock, the company will bring in an additional $15M in capital within a month of reporting data. The additional flexibility granted the company through this structure will completely eliminate any concerns about the company needing to immediately raise capital once they release data.

I’ve mentioned many times in the past that INmune, for reasons unknown to me, has a large short interest. After the last investor update, where the company spoke to needing capital (they also had a “going concern” from the auditor as they were down to less than one year’s cash), that short position only increased. As of the last public update it had jumped to over 1.5 million shares.

Those shorts are now in deep trouble. INmune, as you look out towards the rest of 2024, is primed for a massive run. That run started with the closing of the financing, which removed the biggest near-term risk from the stock.

Next up, the Russell 2000 reconstitutes itself in June, with the first date of inclusion determination being in May. As of now, INmune appears to be well over the minimum market cap needed for inclusion. Assuming they stay over the threshold (estimated at $150 million), there is forecasted demand from index funds of around 1.2 million shares. That’s a lot of stock for a company that has a very tightly held float.

Once you get through June, it gets scarier for shorts. INKmune data from their prostate trial should hit the market sometime in Q3. While Wall Street hasn’t really focused on this program (Alzheimer’s is much sexier these days), the upside from success in a solid-tumor NK cell program could be worth billions in market cap.

With little value to the program associated with the current share price, it’s quite binary data from an investors standpoint. Once again, would you want to be short into that data?

Then, even before we get to the most exciting event, the phase 2 AD data in Q4, we are likely to get data from the extension trial. To remind investors, every patient in the current AD trial has the option to continue taking XPro in an extension trial once the 6 months of phase 2 is over.

Most patients have opted to enter this trial and INmune is sitting on a growing pile of data. Once enrollment in the phase 2 is complete, another catalyst likely to hit soon, the risk of tainting the trial through a placebo effect is over and INmune can start publicly discussing the extension trial data. One could reasonably surmise they are likely to do so sometime in Q3.

While not as exciting as top-line phase 2 data, since there’s no placebo group anymore, I believe that the extension trial data could provide a nice window into the success of Xpro. Continued compelling biomarker data, like the previously seen grey matter scans and EEG brainwave improvements, would really drive the stock going into the bigger news event.

The bottom line here, in this writer’s opinion, is that the table is set for a very strong run in INMB. The lineup of catalysts is strong, the short position is panicked, and the biggest negative (financing) has been removed from the stock. I expect shares of INmune to only build upon this week’s bounce and am beyond excited for the rest of 2024.

Back to the structure of INmune’s warrants. I have seen this structure pop up a few times now, as companies look to find creative ways to insure funding through key milestones.

Other firms that have structured similar deals are enVVeno (NVNO) and IN8bio (INAB). Both raised a large sum of money without needing a discount by offering tiered warrants with acceleration clauses. If they get exercised, the companies are fully funded. And, even if they don’t get exercised, the first tranche of capital was raised on very reasonable terms. This is truly a win-win structure for the company and investors.

Atomera (ATOM) hit a new 52-week low as they went another quarter without closing a second licensee. The good news is that ATOM is getting closer and closer to achieving real revenues from STMicro. The bad news is investors have grown tired of hearing about potential deals with seeing none closed for over a year now.

Is this a buying opportunity for patient investors? Or, is the writing on the wall that Atomera will need to revisit their business model in order to move forward with more partners? The jury is out on this and will remain in recess until a second partnership is announced.

I continue to believe that the data which compelled STMicro to partner with Atomera has to be compelling and, eventually, others will jump on board. Timing is everything in a market that lacks patience, so owning ATOM continues to be painful. I’m optimistic that the pain will turn to euphoria someday…when that will happen is anyone’s guess.

Quest Resource Holding (QRHC) put out another nice PR this week. As I’ve detailed the last few weeks, QRHC is seeing organic growth starting and the stock is primed to continue this move. A good stock to buy and sit on for the next few years.

TW Research's Disclaimers & Disclosures: TW Research may have been compensated for writing this article. For a full list of disclaimers and disclosures, please visit


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