Life science applications specialist NanoString (NASDAQ:NSTG), which provides tools for discovery and translation research, announced that it has entered into a credit agreement with its existing lenders. Driving the need for such an arrangement was a bankruptcy filing at the beginning of the week. With the critical but tenuous lifeline disclosed, contrarian speculators jumped aboard NSTG stock.
According to the company’s press release, the credit agreement comprises of $12.5 million in new money term loans, which have already been earmarked for funding. The arrangement also calls for an additional $35 million in new money term loans. These loans will be funded upon entry of the final order of the bankruptcy court approving the credit facility. Management expects this approval to occur late this month.
Catalyzing this unfortunate set of circumstances was NanoString’s decision to file for Chapter 11 bankruptcy, per its announcement Sunday. Further, pushing the life sciences firm to the brink was a pivotal loss in a patent infringement lawsuit last year. At issue are NanoString’s nCounter, GeoMx and CosMx platforms, which are used to spatially profile the RNA and certain protein targets in a cell sample, per Fierce Biotech.
However, 10X Genomics (NASDAQ:TXG) leveled several patent infringement cases regarding these platforms in both the U.S. and Europe since 2021. Ultimately, in late November, a federal jury sided with 10X Genomics and ordered NanoString to pay its competitor about $25 million in lost profits and $6 million in royalty payments, devastating NSTG stock.
An Unfortunate but Necessary Move Buoys NSTG Stock
Obviously, shareholders of any organization don’t aspire for a bankruptcy filing. However, in NanoString’s case, it arguably represented a necessity. Further, it gives much-needed breathing room for NSTG stock.
According to Fierce Biotech, NanoString pledged to appeal the patent infringement case. At the time, 10X Genomics stated that it planned to seek even more damages, royalties and reimbursement for its court fees. Additionally, it sought an injunction to prevent NanoString from selling its GeoMX products. Therefore, the Chapter 11 filing will temporarily pause all patent litigation against the life sciences firm.
Combined with the credit agreement, NanoString has a narrow window of opportunity to right the ship. Naturally, the complex and coordinated efforts to work its way out of a jam buoyed contrarian interest in NSTG stock. Of course, the central risk is that if the initiative fails, NanoString would effectively be behind the eight-ball. The reality is that 10X Genomics has shown no sign of letting up.
Further, while the speculative case for NSTG stock is tempting, it could be short-lived. According to Fintel, NSTG’s short interest stands at 14.78% of its float. That’s certainly an elevated metric. However, the short-interest ratio sits at only 0.06 days to cover. With the market session lasting six-and-a-half hours, the bears could unwind their entire position — based on average trading volume — in under 24 minutes.
Why It Matters
Presently, Wall Street analysts rate NSTG stock as a consensus hold. This assessment breaks down as one buy and three holds. While the average price target lands at $1.22 — thus implying about 407% upside potential — the most recent ratings materialized in late November last year.
On Penny Stocks and Low-Volume Stocks: With only the rarest exceptions, InvestorPlace does not publish commentary about companies that have a market cap of less than $100 million or trade less than 100,000 shares each day. That’s because these “penny stocks” are frequently the playground for scam artists and market manipulators. If we ever do publish commentary on a low-volume stock that may be affected by our commentary, we demand that InvestorPlace.com’s writers disclose this fact and warn readers of the risks.
Read More: Penny Stocks — How to Profit Without Getting Scammed
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
