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When is a Warrant Not a Warrant? When Northwest Bio is Raising Money.

By: Adam Feuerstein | 04/10/14 - 10:24 AM EDT

You'd think I could get a few days off from writing about Northwest Biotherapeutics (NWBO), but no. 

I'll keep this brief, but there's a couple of important points to be made about Northwest Bio's announcement of an "up to" $32 million financing.

1. Northwest Bio raised $15 million by selling stock at $6.60 per share, an 8% discount to Wednesday's closing price. The $32 million haul is aspirational and assumes the single investor in the deal later decides to buy the $17 million "non transferable oversubscription option."

2. Northwest Bio claims today's financing includes no warrants. Well, that's a bit of a fib. The "non transferable oversubscription option" is a warrant, even if you don't want to call it a warrant. 

From today's press release:

The Stock Purchase Agreement also provides a non-transferable Oversubscription Option for the investor to purchase up to $17 million of common stock at $7.50 per share (approximately 5% premium to the closing market price) during the twelve months following the initial closing.
My finance dictionary defines a warrant this way:
A warrant is a security that entitles the holder to buy the underlying stock of the issuing company at a fixed exercise price until the expiry date.

No difference, except semantics. 

Who bought this Northwest Bio deal? A finance source tells me the single investor is Heights Capital Management, an investment fund which specializes primarily in PIPE deals. The firm also files under the name Capital Ventures International. 

Based on Heights' investment M.O. and the deal terms, Northwest Bio did not land a new, fundamentals-based shareholder who believes in the brain cancer vaccine DCVax. This is more likely a straight-up vulture financing in which Heights Capital gets below-market stock that can be easily flipped for a quick profit. The "oversubscription option" is free money which can also be shorted against.

One more thing: The DCVax efficacy interim analysis AWOL for months now may finally come out of hiding now that the financing is done. The company no longer has to worry about the stock tanking.

Adam Feuerstein writes regularly for TheStreet. In keeping with company editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback; click here to send him an email.

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