As we noted in last week’s alert, Ekso Bionics (EKSO) announced last Tuesday that it would raise additional capital by issuing 3.75 million new shares of common stock at a price of $4.00 per share. On Friday, the company confirmed that it had successfully closed that offering, generating $13.7 million of net proceeds (after deducting costs associated with the offering). The investment banking firms handling the offering also have the option of issuing another half million shares to accommodate excess demand.

From a purely mathematical perspective, another 4 million share or so of EKSO increases its float by roughly a third (now 16.4 million shares) over its previous level, thereby pulling down its share price by a similar amount to account for performance metrics expressed on a per-share basis. On August 8^th, the day before Ekso revealed the secondary offering, its stock price closed at $6.22. The next day – after the announcement was made – it opened at $4.00, or 35% less.

The company has been tight lipped about the use of this new money, other than stating in its press release that it “intends to use the net proceeds from this offering for its operations, including, but not limited to, increasing its investments (i) in its clinical, sales and marketing initiatives to accelerate adoption of the Ekso robotic exoskeleton in the rehabilitation market; (ii) in its research, development and commercialization activities with respect to an Ekso robotic exoskeleton for home use and/or (iii) in the development and commercialization of able-bodied exoskeletons for industrial use, as well as for working capital and other general corporate purposes.”   

Although that description is sufficiently vague to encompass just about everything the company does, it is important to note that it does not include using this money to pay down debt or engage in any other form of financial engineering. All of the proceeds will be used to facilitate executing the company’s operational activities, with the implied intent of getting an FDA approved product to market as soon as possible.

Obviously this development comes as bad news to existing shareholders, but from a purely objective perspective it is good news for all shareholders from a forward-looking perspective. The pace of exoskeleton product acceptance in the healthcare industry is accelerating, with the FDA recently granting provisional approval for certain uses. The two small exoskeleton companies in our Special Situations portfolio – Ekso Bionics and ReWalk Robotics – are gearing up for the transition from being purely R&D (research and development) laboratories to adding a robust sales and marketing functionality to their business models and need a war chest to do so.

We must reduce or buy limit and support level prices in recognition of dilution caused by the secondary offering, but we recommend Ekso Bionics as a buy up to $6.00.