Alliqua Biomedical Inc (NASDAQ:ALQA) Looking To Rebound

Today, we are introducing a new company that is being targeted by investors in the recent weeks. It is Alliqua BioMedical, Inc. (Nasdaq:ALQA), which is a regenerative technologies company. We will provide some insight about the company's products, but first take a look at the amount of shares being exchanged recently. In a few days, someone bought more than 6 million shares. The free float is approximately 28 million shares. Thus, it looks like somebody is out there accumulating a position. We're not quite sure what this investor is up to, but one thing may be true, something is definitely going on with Alliqua BioMedical.

Take a look at the chart:

Source

Business

The business model of Alliqua BioMedical is described in the following terms in the annual report:

"We are a regenerative technologies company that commercializes differentiated regenerative medical products which assist the body in the repair or replacement of soft tissue. Through our sales and distribution network, together with our proprietary products, we believe we offer solutions that allow clinicians to utilize the latest advances in regenerative technologies to bring improved patient outcomes to their practices. Our contract manufacturing business provides custom hydrogels to the OEM market." Source

The products of the company consist of three product categories:

• wound bed preparation
• human biologics
• antimicrobial protection

The names of the products commercialized are MIST® Ultrasound Healing Therapy (“MIST Therapy”), and Biovance® Amniotic Membrane Allograft (“Biovance”) and Interfyl™.

Investor Presentation

The company states that the sector in which it operates is growing at high pace due to the growth of diabetes, obesity and aging population. This information was noted in a presentation that was delivered to investors in 2017. Take a look:

Investor Presentation

The merger with Soluble Systems, LLC

On October 5, 2016, the company entered into a merger agreement to buy Soluble Systems, LLC. Alliqua BioMedical intended to pay in the following way:

"$35 million, plus warrants to purchase 4 million shares of New Alliqua common stock at an exercise price of $1.07. The transaction consideration consists of the issuance of approximately 17.6 million shares of Alliqua common stock, valued at $0.89 per share, the assumption of $12.4 million of senior debt, the cash payment due at closing of $5.4 million to retire Soluble’s subordinated debt, $1 million of cash payments by Alliqua to Soluble prior to closing, and $500,000 of other consideration." Source

However, on February 27, 2017, the merger agreement was terminated because the company could not secure the financing condition included in the agreement. This is the reason behind the recent decline in the stock price, which was worth $1.25 a few months ago and trades at the level of $0.5 right now.

The company needs money and it is sorting it out: Asset sale and capital raise

If you go to see the financial prospects of the company, you will see that it is looking for money to finance its operations. On June 30, 2016, it announced an agreement with BSN Medical, Inc. According to this agreement, the company sold rights to distribute sorbion product line for $4.1 million. It was disclosed in the annual report in the following way:

"All of our rights under our former distribution agreement with former Sorbion GmbH & Co KG (“Sorbion”), dated as of September 20, 2013, as subsequently amended and assigned to BSN, including but not limited to all distribution rights, exclusivity rights, intellectual property rights and marketing rights to the sorbion product line and our remaining unsold inventory of sorbion products purchased under the distribution agreement."Source

In addition, it was disclosed very recently that the company had closed approximately $3.8 million in a public offering. Rodman & Renshaw, a unit of H.C. Wainwright & Co., acted as the sole book-running manager for the offering. On February 27, 2017, the company conducted a private placement of 5,540,000 shares of common stock at a price of $0.50 per share. These proceeds represented a total amount of $2,770,000. The company noted that it was using the proceeds to finance its working capital, which confirms our initial thesis; it needs money and it is successfully sorting it out.

Some financial figures

Since the company is desperately looking for cash, so we went to investigate what is the balance sheet situation. We found out that the share price is trading at half the book value per share. Traders are discounting the worst here. Thus, some other investors may see an opportunity where other traders are seeing a default.

Just to give you an idea about the balance sheet:

• Cash And Cash Equivalents: $5,580,000
• Total Current Assets: $11,777,000
• Intangible Assets: $28,489,000
• Total Assets: $54,499,000
• Total Liabilities: $22,409,000

Conclusion

This company trades at a high discount to its book value per share and investors are discounting that it may file a chapter 11 soon. In order to prevent it, Alliqua BioMedical is selling assets and raising capital to try to pay down its debt load. If these steps work, some, "special situations" traders will do well. If it does not, Alliqua BioMedical will be restructured.

We encourage you to contact your financial advisor if you do not understand properly the financial statements of the company and you want to make an investment here. In any case, try to be informed about the next developments of the company on its website or here as we will be updating our subscribers as soon as we know more. For the latest updates on ALQA, sign up below!

Disclosure: We have no position in ALQA and have not been compensated for this article.