Investment and Company Research
Opportunity Research
MICROCAP HOT TOPICS

July 17, 2013

Nuvilex Teaches Wall Street A Lesson In M&A

Last week, Nuvilex, Inc. (OTCQB – NVLX) announced that it now owns exclusive worldwide licenses associated with the live-cell encapsulation-based pancreatic cancer treatment.  Plus, these licenses include worldwide rights to utilize the live-cell encapsulation platform technology to develop treatments for any and all cancer types, regardless of the cell type encapsulated.  While the news was initially met with little fanfare, a closer look indicates that this transaction is not just a major milestone event for the Company, but it should be considered a huge deal for the biotech industry, and afford the stock a significantly higher valuation.

Management noted that the broad spectrum of uses that the license for the oncology platform covers will provide Nuvilex with significant growth opportunities in the future for various types of cancers, while complementing the Company’s clinical research for pancreatic cancer. Moreover, management intends to expand its cancer treatment capabilities and to obtain additional assets to develop treatments for other serious diseases based on cell therapy and live-cell encapsulation.

Clearly, these are great positives for the Company, but it is the structure of the deal itself that deserves additional attention. It is not uncommon for small biotechs to acquire intellectual property via license. However, many firms make the common mistake of biting off more than they can chew as the management team’s collective eyes get big in anticipation of all of the benefits a license execution can offer. These firms invariably acquire associated entities or non-core assets in conjunction with an exclusive IP license that too often doom the firms that are run by scientists and not operators, and the end result is an ugly mess, with no access to capital.

In the case of Nuvilex, management originally intended to go down the path of acquiring the entity that owned the subsidiary that owned the IP.  It could have been clean and simple and would have also meant acquiring senior personnel, overhead, and unrelated costs.  Moreover, such a deal would have likely required greater investment dollars (and 100M shares) which would have resulted in substantial dilution.

By taking a very slow and steady approach, and focusing on the most critical piece of the acquisition (exclusive license) instead of becoming too big too soon (by acquiring the entity), management executed a great deal for shareholders. Nuvilex raised $1.5M in restricted stock at a price that was a premium to the trading price when the deal was announced with negligible dilution instead of raising more money with a heavier dilutive effect and becoming a Firm that was not laser-focused on the oncology treatment platform prize.  

Now, shareholders in Nuvilex own the exclusive rights to a highly efficacious oncology treatment platform that maybe used to treat multiple forms of cancer, based upon tremendous Phase II clinical trial results.  Moreover, by demonstrating prudence and patience, the Company should be able to increase its product treatment arsenal and attract new partners ad investors, as needed. Therefore, with the wind at its back, and a history of clinical and M&A success, shareholders appear primed to be rewarded with higher stock prices in the future.

Senior Analyst: Robert Goldman
Rob Goldman has over 20 years of investment and company research experience as a senior research analyst and as a portfolio and mutual fund manager. During his tenure as a sell side analyst, Rob was a senior member of Piper Jaffray's Technology and Communications teams. Prior to joining Piper, Rob led Josephthal & Co.'s Washington-based Emerging Growth Research Group. In addition to his sell-side experience Rob served as Chief Investment Officer of a boutique investment management firm and Blue and White Investment Management, where he managed Small Cap Growth portfolios and The Blue and White Fund.

Analyst Certification
I, Robert Goldman, hereby certify that the view expressed in this research report accurately reflect my personal views about the subject securities and issuers. I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the recommendations or views expressed in this research report.

Disclaimer
This Opportunity Research Hot Topics article was prepared for informational purposes only. Goldman Small Cap Research, (a division of Two Triangle Consulting Group, LLC) produces research via two formats: Goldman Select Research and Goldman Opportunity Research. The Select product reflects the Firm’s internally generated stock ideas while the Opportunity product reflects sponsored research reports. It is important to note that while we may track performance separately, we utilize the same coverage criteria in determining coverage of all stocks in both research formats. While stocks in the Opportunity format may have a higher risk profile, they typically offer greater upside as well. Since April 2012, Goldman Small Cap Research has been compensated $500 per article by a third party.  This article is the opinion of Goldman Small Cap Research and was written based upon publicly available information.  The Company has not endorsed or compensated Goldman Small Cap Research for this article. All information contained in this report was provided by the Company or derived from GSCR due diligence. Our analysts are responsible only to the public, and are paid in advance to eliminate pecuniary interests, retain editorial control, and ensure independence. Analysts are compensated on a per report basis and not on the basis of his/her recommendations.

The information used and statements of fact made have been obtained from sources considered reliable but we neither guarantee nor represent the completeness or accuracy. Goldman Small Cap Research did not make an independent investigation or inquiry as to the accuracy of any information provided by the Company, or other firms. Goldman Small Cap Research relied solely upon information provided by the Company through its filings, press releases, presentations, and through its own internal due diligence for accuracy and completeness. Such information and the opinions expressed are subject to change without notice. A Goldman Small Cap Research report, update, article, or note is not intended as an offering, recommendation, or a solicitation of an offer to buy or sell the securities mentioned or discussed.

This publication does not take into account the investment objectives, financial situation, or particular needs of any particular person. This report does not provide all information material to an investor’s decision about whether or not to make any investment. Any discussion of risks in this presentation is not a disclosure of all risks or a complete discussion of the risks mentioned. Neither Goldman Small Cap Research, nor its parent, is registered as a securities broker-dealer or an investment adviser with FINRA, the U.S. Securities and Exchange Commission or with any state securities regulatory authority.

ALL INFORMATION IN THIS REPORT IS PROVIDED “AS IS” WITHOUT WARRANTIES, EXPRESSED OR IMPLIED, OR REPRESENTATIONS OF ANY KIND. TO THE FULLEST EXTENT PERMISSIBLE UNDER APPLICABLE LAW, TWO TRIANGLE CONSULTING GROUP, LLC WILL NOT BE LIABLE FOR THE QUALITY, ACCURACY, COMPLETENESS, RELIABILITY OR TIMELINESS OF THIS INFORMATION, OR FOR ANY DIRECT, INDIRECT, CONSEQUENTIAL, INCIDENTAL, SPECIAL OR PUNITIVE DAMAGES THAT MAY ARISE OUT OF THE USE OF THIS INFORMATION BY YOU OR ANYONE ELSE (INCLUDING, BUT NOT LIMITED TO, LOST PROFITS, LOSS OF OPPORTUNITIES, TRADING LOSSES, AND DAMAGES THAT MAY RESULT FROM ANY INACCURACY OR INCOMPLETENESS OF THIS INFORMATION). TO THE FULLEST EXTENT PERMITTED BY LAW, TWO TRIANGLE CONSULTING GROUP, LLC WILL NOT BE LIABLE TO YOU OR ANYONE ELSE UNDER ANY TORT, CONTRACT, NEGLIGENCE, STRICT LIABILITY, PRODUCTS LIABILITY, OR OTHER THEORY WITH RESPECT TO THIS PRESENTATION OF INFORMATION.