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BIND Therapeutics Inc (NASDAQ:BIND) Shareholders Are On Borrowed Time; Don't Get Caught Out

BIND Therapeutics Inc (NASDAQ:BIND) Shareholders Are On Borrowed Time; Don't Get Caught Out
Written by
Chris Sandburg
Published on
July 26, 2016
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BIND Therapeutics Inc (NASDAQ:BIND) is in a real mess right now, and both investors and speculative traders are at loggerheads trying to figure out what's going to happen to the company going forward. Just yesterday we learnt that two other companies had thrown a bid into the ring, in addition to the Pfizer Inc. (NYSE:PFE) stalking horse of $20 million. The company gained nearly 30% during Monday's session in the US, and is a further 5% up premarket on Tuesday.Volume is up, and it looks as though the bulls currently have the reins, but the bottom line is, nobody on the outside knows what's going to happen to BIND once the asset sale goes through.So why are people buying?Well, there's one idea that shareholders will be the benefactors of any capital raised through the asset sale. There's a very very slim chance that this might happen, but given the numbers involved, it's unlikely. Pfizer's bid is unlikely to cover liabilities after things like severance, fees etc. come into the equation, and even if it does (or if one of the other two bids proves to do so) the chances of common shareholders seeing anything by way of return are practically zero.As a very relevant real world example, take a look at what happened to Dendreon's shareholders when Valeant Pharmaceuticals Intl Inc (NYSE:VRX) picked up the company early last year. All the info is here. For those not wanting to click on the link, shareholders got nothing, and Dendreon actively fought against their claim to any level of remuneration.So this leaves the possibility of a successful restructuring, and a recovery for Juno as a development stage biotech going forward. After all, this is chapter 11, not chapter 7. Well, yes, this is a possibility, but again, it's very remote. First, Juno will have no assets, a skeleton staff and won't be able to raise finance on anything resembling favorable terms. It's currently appealing a NASDAQ delisting, but in all likelihood that's not going to be successful. So, we've got a delisted company with no assets, no tech or patents and limited access to cash. Not a sound exposure, at any price.But this isn’t even taking into consideration what is most likely to happen, even if the restructuring is successful. Share cancellation. In the majority of chapter 11s the entity going through restructuring comes out of the other end of the process in one of two positions – the first, a failed restructuring and appending chapter 7. The second, it's restructuring has been successful, but it's owned almost entirely by its creditors. When this second scenario happens, common shares are generally cancelled. Cancelled shares eliminates any claim to remuneration.Take a look at what the SEC has to say about scenario two:

"Although a company may emerge from bankruptcy as a viable entity, generally, the creditors and the bondholders become the new owners of the shares. In most instances, the company's plan of reorganization will cancel the existing equity shares. This happens in bankruptcy cases because secured and unsecured creditors are paid from the company's assets before common stockholders. And in situations where shareholders do participate in the plan, their shares are usually subject to substantial dilution."

So that's where things stand. The most likely scenario right now is that BIND picks up a $20 million sale of its assets, and in doing so loses all of its value as a company. It becomes a shell owned by its creditors, and the current outstanding shares are cancelled.Despite this, shareholders keep buying. Who knows why? Not us.Don't get caught out on this one.Stick with us for more BIND updates and warnings like this – subscribe to our newsletter below!Disclosure: We have no position in BIND and have not been compensated for this article.

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