Transgenomic Inc (OTCMKTS:TBIO) Could Be A Near Term Recovery Play

We looked at Transgenomic Inc (OTCMKTS:TBIO) early January, in response to the company logging a 300% twenty four hour run on the back of a seemingly innocuous press release. The run didn’t last, of course, but Transgenomic did manage to maintain some of its gains, and entered February looking as though it was trading at or around a medium term floor.Last week, however, the company took a bit of a hit on the back of a delisting.Transgenomic fell from $0.76 a share to $0.39 a share, a nearly 50% dip, but has since recovered a little, to open this week at $0.43. Is there any value in an exposure at this point? Well, maybe, and the value is rooted in a near term merger.Before we get into the details, a bit of background.Transgenomic is a biotech company that has developed a diagnostics technology (and a development asset, rooted in said technology) designed to improve upon the current standard of care diagnostics in oncology. We went into it in quite a bit of detail in our previous coverage, so we won't spend too much time on it here. By way of a brief intro to it, however, it's designed to identify cancer presence based on a far smaller blood sample (we're talking a finger prick) than current technologies allow. It's neat, it works (or so the data suggests) and it could be a real revenue driver for the company if management executes on a successful dev/rollout strategy.That's not really the focus here, however.Transgenomic announced back in October that it was to merge with a company called Precipio, and change its name to the latter on close. There was a catch, however, and it was that the merger wouldn’t go ahead if Transgenomic was delisted. Now, the delisting was a seeming inevitability, and so the Precipio merger wasn’t really expected to play out – despite it being a positive play for Transgenomic management.The delisting just took place, as mentioned above, and Transgenomic is now OTC. However, as per the latest company update, it seems as though the merger is set to go ahead, and not only this, but it's expected to remedy its prestated barrier to completion. Management has stated that the merger will go ahead as planned, and will close at some point during the second quarter of 2017. That is, assuming shareholders approve it, and we expect they well. Some may not be too happy to approve it, but we don't think that's going to be enough to stop it playing out. On close, and here's the important part, the resultant company will meet all initial listing standards for the Nasdaq Capital Market.So the situation is this: Transgenomic has just taken 10% hit on the delisting, and is trading more than 60% off January highs (with the decline likely driven largely by the potential for a delisting, leading into the actual announcement). However, the Precipio merger should remedy the delisting issue, and get Transgenomic back on the exchange, albeit with a revised name and ticker. From the available information, the new company will remain focused on the cancer diagnostics technology on which a large portion of Transgenomic's valuation is based, so we really are looking at the same company, but with a different name.And therein lies our bull thesis. Specifically, the more than 60% discount that has hit Transgenomics over the past month and a half is rooted in an issue that should resolve completely by the second quarter of this year, and by proxy, we should see a recovery to at least an equal degree.There does exist some risk, and it's rooted in the technicalities of the reverse merger. As the ticker changes, and the new company is listed, there's going to be some exchange of old shares for new, and the portion of the new shares that the old base represents is as-yet unknown.With that said, we think it should be a straight up swap, and that it's a risk well worth bearing given the potential for near term recovery.We will be updating our subscribers as soon as we know more. For the latest updates on TBIO, sign up below!Disclosure: We have no position in TBIO and have not been compensated for this article.