As we reported in last week’s issue of Breakthrough Tech Weekly, Argos Therapeutics (NasdaqGM: ARGS) announced last Monday that its IDMC (Independent Data Monitoring Committee) recommended continuation of the ADAPT Phase-3 clinical trials for its AGS-003 cancer treatment for renal cell carcinoma. That was the good news we had been waiting for, further bolstering our belief that the FDC will eventually approve this drug for use in the United States as these trial results prove the drug’s efficacy.

However, ARGS share price dropped on the news, leading many of you to ask why the stock price isn’t performing better in light of this apparent good news. In large part, the answer to that question is directly related to the additional shares of ARGS that have been issued to the institutional investor consortium that will buy another $30 million of common stock as a result of the company reaching this milestone.

This is the same group that agreed to purchase up to $60 million of ARGS shares provided the company hits certain benchmarks, including last week’s continuation of the ADAPT Phase-3 trials (see original Press Release for details). To consummate those transactions Argos is selling “treasury stock”, or shares that have been issued by the company but not yet trading in the open market, to these investors as it receives each cash infusion.

Once the treasury stock has been transferred to these investors it is immediately added to the company’s “float”, which is the amount of stock trading in the public markets. And since ARGS is a relatively small company, adding $30 million of stock to the float equates to a 25% increase in shares outstanding. All other things being equal, that should immediately decrease the value of all the other outstanding shares by an equivalent amount.

And that’s exactly what happened; over the course of last week ARGS declined 24.3% in value, almost precisely equal to the extent to the dilution of its common stock. Obviously that’s bad news in the short run, but could be good news in the long run since the cash the company is receiving in exchange is intended to keep it going until the clinical trials have been completed early next year.

Despite its erratic trading behavior, Argos is living up to our expectations in terms of achieving its business objectives. And with an additional $30 million in cash to fund its operations, we see no reason to change our long term view on the company’s growth prospects. That said, Argos is a high-risk play on an area of healthcare that is still in development, and as such should be viewed as a speculative investment.