FUD on Eastgate Biotech Could be Last Stand for Naked Short Position

Where there is Smoke there is Fire

  • Current Financials Due in 2018
  • Dual Listing Coming with Financials
  • Extremely Large Naked Short Position
  • Value Play
  • Surgery Center Update
  • Possible Licensing Strategy with Oral Insulin

Eastgate Biotech Corp. (ETBI) has been quiet for a very long time while investor’s have been patiently awaiting their financials.  Recent activity in the past couple of days indicates that investors are speculating again that financials are due.  The stock is up roughly 46% at the time of this article on very strong volume.  With the financials may come an update on the anti-aging clinic Omni Surgery Centre in Canada or more importantly some sort of licensing deal with their oral insulin.  Investors appear to be enthusiastic that the surgery center may have done a pivot to unlock some of the value in the unused space by hiring a new medical director who could have brought a number of surgeons to the facility over the past 6 months and moved the company into a profitable position.

Potential Catalysts

In April the company did a 3(a) 10 deal with Northbridge Financial.  The company essentially ran out of shares and without the financials complete were unable to issue any more and stuck at this 500 million outstanding share area.  Based on the share volume that traded in that period the only conclusion that could have been drawn was that the actors related to Northbridge accumulated a large naked short position.  The short position could range from 20 – 100 million based on the trading volume in May.  Since June the company has been traded in a very narrow trading band and volume has dried up to almost nothing.  With a large short position in place and the potential of the largest shareholder who sold the Omni Surgery center to the company cancelling Northbridge’s deal it’s not hard to see that current financials would be a big threat to the large naked short position.  On Investors Hub there is a lot of FUD about the Surgery Center not having any equipment or activity.  Obviously if anyone were to actually call the clinic they would verify that it is fully operational but to what extent investors will have to patiently wait for their update.

Dual Listing

Gunpowder capital indicated in a press release on December 11, 2017 that once the filings were completed in 2018 they would “immediately assist Eastgate with obtaining reporting issuer status in Canada.  Once Eastgate has successfully become a reporting issuer in Canada, Gunpowder will then assist Eastgate in listing its common shares onto a Canadian Stock Exchange.” A dual listing on the Canadian and OTC Markets is very positive for the company as it increases the size of the potential shareholder base and draws retail investors in Canada that see their model working.  The Omni Surgery Center is clearly a testbed in Canada for a much bigger play whereby they use the Surgery Center as a model for future acquisition and a roll up strategy.

Long Term Equity Player

The Company purchased the Omni Surgery Centre for $2 million dollars.  The terms to the seller were cash and stock in the ETBI.  A new surgery center would cost an estimated $5.0 million and the company had $2.0 million worth of tangible assets in the form of equipment which doesn’t depreciate very quickly.  This makes ETBI a value play with a $.01 value based on assets assuming 500 million shares outstanding.  Keep in mind that the Seller took stock as part of the deal so he wants to see the stock go up and would be very foolish to continue to sell shares under the Northbridge agreement should they go current.  Based on the lack of volume it’s safe to say the Northbridge deal is over in his eyes and he is simply waiting for the update to show the turnaround in the clinic.  In essence this is a long term investor betting on equity in the company to make a return.

Surgery Center Profitability Likely

The potential of the surgery center was in its utilization rate.  If that has increased then an update is going to be very positive.  Based on careful analysis this model is very scalable and once the fixed costs are covered the profit from renting the surgery center falls directly to the bottom line.  The shorts could be in for a very rude awakening if this company reports break even number because that would be a prelude to bank financing which loves revenue streams from medical centers.

Licensing Deals on Intellectual Property

The potential to strike a licensing deal on their intraoral insulin should not be understated.  This is a huge market in Canada and even bigger worldwide.  Investors in the USA don’t understand the magnitude because insulin requires a prescription but in Canada it can be purchased over the counter.  Diabetes is a growing disease and this simple technology if employed could help a huge population in developing countries who don’t have ready access to needles for injection.  In May 2017 ETBI hired an agent to go after the market in the Philippines where 20% of the population has diabetes and a tablet or a mouthwash could easily treat the disease.

Investment Summary

This company had been a target of shorts and FUD for close to 9 months.  It’s clear that something has to give and listing on an exchange or going current with a company with millions in assets and a way to finance themselves going forward is not a good position for a short to be in.  As a minimum this company should be worth close to $.01 based on just the value of the one surgery center alone.  All investors have to do is connect the dots and hopefully this article puts this investme

DISCLOSURE: The owners of PSInvestor are LONG on this company, and reserve the rights to trade in and out of this security. PSInvestor has NOT been compensated to mention the company in this article. For our full disclaimer, please CLICK HERE

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