On August 10^th Argos Therapeutics (NasdaqGM: ARGS) released its second quarter earnings report, which in terms of financial performance was about what everyone expected. Although earnings came in worse than expected at a loss of 48 cents versus the analysts’ estimate of minus 40 cents, it beat on its top line revenue estimate which for an R&D company like Argos is arguably more important since it isn’t expected to make a profit at this point in its maturation as a business.

The company’s CEO, Jeff Abbey, reiterated the list of positive developments that have occurred thus far in 2016, including the continuation of its ADAPT Phase 3 trial for its critical cancer treatment, AGS-003, and the successful raise of nearly $80 million in two separate secondary stock offerings. Although the first $30 million equity sale was done to ensure enough operating capital through the end of the current drug trial period, until now there was some uncertainty regarding the specific use of the second $50 million sale.

However, it appears that money will be used primarily to complete a construction project the company had temporarily deferred earlier this year, based on this quote in the earnings release from Mr. Abbey: “Specifically, we are advancing our plans for the build-out and equipping of a commercial manufacturing facility and expect to finalize our arrangements for the facility during the third quarter of 2016. We will then promptly begin the build out and equipping of the facility so that we will be in a position to submit a biologic license application (BLA) as expeditiously as possible following the availability of overall survival data from the ADAPT trial, provided that the data are supportive.  We also intend to expand our clinical development activities in a measured manner as we explore additional oncology indications, including the ongoing trials of AGS-003 as neodjuvant therapy in renal cell carcinoma and in non-small cell lung cancer.”

Although the combined effect of both secondary stock offerings was to dilute the value of Argos stock significantly, driving its share price back down below $5 after trading above $8 in early June, the long term strategy behind these secondary offerings is now rounding into form. Combined with the recent addition of Dr. Richard Katz as the company’s CFO, who has a history of guiding R&D companies like Argos through complex financial situations, Argos is clearly moving in the direction of expanding its manufacturing and marketing capabilities on the expectation of receiving FDA approval to begin marketing its cancer treatment in the foreseeable future.

Shares of ARGS have been all over the map since we first recommended it six months ago, and are now trading very close to our entry price of $4.39 despite the massive dilution that has taken place since then. However, the company continues to move along the path towards FDA approval we anticipated when we first started recommending it, so we continue to rate ARGS a buy up to $8 for speculative investors seeking long term capital appreciation.