Mind the Gap…Micro Performance Continues to Suffer

This week we had a chance to interview Dr. Harlan Weisman, the CEO of TFF Pharma (TFFP). Dr. Weisman related the current travails at TFF to his experience at Centocor, a biotech company which he helped get off the ground many years ago.

In their early days, Centocor was struggling to raise money and investor attention as they developed some of the first monoclonal antibodies. The stock was in the toilet; the Wall Street Journal referred to them as “Centocorpse”, basically writing the obituary for the company.

Investors who put money into Centocor at that time of maximum despair made massive returns.

While no one is saying that TFF TAC is as groundbreaking as monoclonal antibodies, the opportunity represented in TFFP is quite similar to that Harlan saw at Centocor. TAC is most likely destined to become a drug that not only works but will rapidly take market share as efficacy and safety are best in class.

Meanwhile, TFF trades at a market cap close to $5M. Even with dilution, the upside of a multi-billion dollar drug has the chance to drive massive returns for investors willing to hold their nose and take the plunge on TFFP. All it takes is one strategic investor to see the value here and the stock will turn on a dime. That’s Harlan’s task and investors betting on TFF are essentially betting on his ability to right this ship and bring it home.

TFFP is not alone in the financing penalty box. The number of companies out there with interesting programs and dismal share prices is large and growing. That is what happens in a difficult funding environment. Companies look like value plays, and there is great “value” to the stocks, but, until they get a financial partner with the resources to keep them moving forward, these companies can resemble value traps.

Companies that frequently need to raise money are dangerous in times like this. I believe the valuation of TFFP is so low, I am willing to look through the future dilution. At some point, valuation does matter.

But, shares of TFFP aren’t going to have an extended rally until they solve their funding dilemma. In a “higher for longer” interest rate environment, in which I believe we are firmly ensconced, companies with cash flow are going to perform better. It’s not a coincidence that the best performing stocks on TW’s tracking list are Perma-Fix (PESI) and Quest Resource Holding (QRHC). They are both up on the year, making them exceptions in the world of micros.

Interestingly, both stocks have been down lately, each coming down from new 52-week highs hit in the last couple months. Making it more interesting, both are being added to the Russell 2000 index this month.

While I’ve spoken about the R2k a lot recently, I’m not convinced there’s a great near-term benefit to being added. These stocks are further proof that playing an R2K addition is no sure thing.

That said, I do believe the long-term benefits of addition are real. Companies see increased coverage, increased institutional ownership and increased liquidity. In the case of both PESI and QRHC, I’m in the camp that this pullback in front of the R2K rebalance is a great buying opportunity.

Speaking of the rebalance, I believe Atomera (ATOM) is suffering from being deleted out of the Russell 2000. Yes, delays in licensing and the continual tapping of the ATM are weighing on it but, with STM getting closer to production on a daily basis, the stock should find a floor one would think. However, it’s likely going lower through the end of June unless they announce some good news in the interim.

One constant theme I push in micros is insider buying. We saw yet more in Anixa (ANIX) last week. This while the stock is hitting new 52-week lows.

Both programs at Anixa are going well but the CAR-T, in particular, has the opportunity to create some near-term excitement for the stock. Cancer therapies, as opposed to vaccines, are very biomarker driven and, as the company keeps progressing through its early cohorts, we should be seeing some data in the near future.

The trials are open label and the insiders keep buying. My guess is they like what they are seeing. In addition, the company has ample cash to last through catalysts. Anixa is suffering from the plague that is hitting all these micro-cap stocks. Perhaps this one is ripe for a change of fortune?

Insider buying? Managing to raise money in this environment? Upcoming catalysts? Sounds like INmune Bio (INMB). These guys pulled a rabbit out of their hat with the recent insider led round…I think that shocked a lot of people that they could pull it off.

Meanwhile, there’s a large short position, an upcoming Russell inclusion, and hopefully we hear about full enrollment soon. INmune continues to be my top idea…

Despite recent weakness, INmune remains higher than the price of its recent financing. Which makes it an exception in my world. Other companies that raised money recently are not so lucky. Take Movano (MOVE) as an example. Funded by a strategic with strong insider participation, yet down at new 52-week lows. It’s tough out there.

The spread between the Russell 2000 and the S&P 500 is at record levels yet still keeps growing. Reversion to the mean will happen. For now, diversion from the mean is only getting stronger it appears.

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