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Great Basin Scientific Inc (NASDAQ:GBSN) Bounces Back To Recoup Losses

Great Basin Scientific Inc (NASDAQ:GBSN) Bounces Back To Recoup Losses
Written by
Chris Sandburg
Published on
July 11, 2016
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InsidrFinancial

Great Basin Scientific Inc (NASDAQ:GBSN) has been up and down all year, and has served up plenty of opportunities to take advantage of its volatility, both on the long and the short side. As the third quarter gets under way, things don't look set to change any time soon. The company dropped 9% during Friday's session out of the US, closing out the week at $1.30. Fast forward to the Monday open, however, and we've seen a complete reversal.Pre market back and forth has brought the company to trade at $1.44 – just shy of 11% up on Friday's close – and it looks as though this momentum is set to hold heading into the bell.For those not familiar with the company, it's a development stage biotech with a focus on molecular diagnostic testing. Essentially, it designs, develops, tests and commercializes diagnostics technology with, at this point, the goal of speeding up the accurate diagnosis of hospital acquired infections. Great Basin's value proposition is rooted in its lead technology, a testing module that uses what's called isothermal amplification to make the testing and analysis process smoother and faster. Essentially, it's a machine that can test for a theoretically limitless number of infectious diseases, with the only limiting factor being how many different variations of its tests it can get approved in the US and internationally.On June 28, the company announced the CE marking (the equivalent of US FDA approval but for the European market) of a test targeting the Shiga toxin, bringing the total international (non domestic US) approvals to three – Group B Streptococcus and Clostridium difficile making up the other two. All three are approved in the US, as well as a fourth for Staphylococcal blood stream infections.The key thing here is that Great Basin's potential is rooted in how many of its tests it can get approved, and how fast. The more it picks up approval for, the more it can sell to sites that already have its testing technology in place, and the stronger the pitch for its sales team when they try and sell the core technology to new sites. CEO Ryan Ashton looks to be focused on this exact growth strategy:

We look forward to driving new site placements for the Shiga Toxin Direct Test now that we have secured CE Marking, and extending the benefits of our unique, direct-from-patient test to labs and patients beyond the U.S.

To back this up, he's just put together a sales team called Great Basin Health Systems, which:

Represent(s) the first phase of the Company’s aggressive sales expansion objectives for the next 18 months

We've said it before, and we'll say it again. This company looks great from a scientific perspective, and it's making headway with it’s aggressive test approval strategy. However, as a potential exposure, it's rendered incredibly risky through its financing choices. We saw yet another example of this last month, with Great Basin announcing a senior convertible note issue worth $75 million. The issue is structured as OID, meaning Great Basin won't accrue interest on the notes, but it only picks up a total of $68 million net, and only $6 million of this is actually available right now. The rest will become available monthly in 15 installments starting Feb 2017. The first thing to note here is that these notes will be dilutive on conversion, which could quickly undermine the value of any early stage holdings. The second is that with the funds only becoming available from February, Great Basin is going to need to raise more money this year – reportedly, this fall.Whatever's happening behind the scenes, the bottom line is this company is very responsive to positive news surrounding its science and tech. That's where any upside lies. On the other side of the coin, shorts will be looking at its financial structure as a considerable weakness. We will be updating Insider Financial as soon as we know more. For continuing coverage on GBSN, sign up for our free newsletter today and get a free ebook as an added bonus!Disclosure: We have no position in GBSN and have not been compensated for this article.

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