Plasmatech Biopharmaceuticals Inc (NASDAQ:PTBI) rocketed on “news” that the FDA granted orphan drug status to its newly acquired gene therapy products.
But PTBI’s announcement is simply hype churned out to raise the stock price … which is exactly what it did.
Why would we claim this is nothing more than a stock-hyping promotion?
The products had already received orphan drug designations – and been announced.
One full year ago.
Here’s the headline:
“Abeona Therapeutics Receives U.S. Orphan Drug Designations for treatment of Sanfilippo Syndromes A and B”
PTBI announced May 6 that it would acquire Abeona, along with the acquisition’s therapy for Sanfilippo Syndromes A and B. Two weeks later, PTBI issued its press release making it sound as if it had just received the US Food and Drug Administration designation for the therapies, here.
PTBI said FDA granted the designation for PTBI’s “lead product candidates for the treatment of Sanfilippo Syndromes A and B.” Orphan drug designation makes it easier to gain marketing approval to treat a rare medical condition or “orphan disease.”
PTBI’s new CEO, Tim Miller, Abeona’s former CEO, is quoted in both the current and the year-old release.
As for the Rare Pediatric Disease designation that PTBI says it has also received, a PTBI corporate presentation suggests Abeona had already received the designation. Spokeswoman Sandy Walsh said the FDA does not disclose the names of companies that request or receive this type of designation.
But this is just the beginning of a long list of issues that we believe will soon ground the PTBI rocket.
While investors may find other viewpoints here, we’ll tick off additional reasons we believe this stock is on the verge of crashing back to earth.
*Promotions: “There’s no such thing as bad publicity.” Or is there?
Seeking Alpha also has published two PTBI articles in the last few weeks, both fairly bullish and written by the same author.
On May 18, contributor to TheStreet.com touted the Soros investment and the initiation on a “buy” by H.C. Wainwright.
DLS Research, owner of SmithOnStocks, has also promoted PTBI, when the pharmaceutical company was called Access Pharmaceuticals. Investors may check here, where a Seeking Alpha author took DLS to task.
And HotStocked is yet another business that has trumpeted PTBI.
Investing in companies that must rely on stock promoters to get more eyeballs on their stock is risky business. Other company investors have taken the advice of promoters, such as Jonathan Lebed. TheStreetSweeper wrote about the Lebed-promoted Jive in 2012, which ended in disaster for virtually everyone but the Lebed team (JIVE, then ~$24, now ~$5.55).
*Bad News: Shark Tank’s Mr. Wonderful says, “It’s all about the moneeeey!”
PTBI last year increased cash by cutting expenses such as its lifeblood – research and development – and diluting shareholders’ stock. Its accounts payable rose and revenue collapsed.
Here are more details:
|Dec. 31, 2014||Dec. 31, 2013||% Change|
|Net Income/Loss||$-26.8 m||$4.5 m||Down 702%|
|Revenue||$ .9 m||$2.0 m||Down 122%|
|Accounts payable||$ 1.9 m||$ .9 m||Up 120%|
|Research & Dev.||$ .3 m||$ .9 m||Down 62%|
(Source: SEC filings)
PTBI blames losses on R&D:
“Our losses have resulted principally from costs incurred in research and development activities …and from associated administrative costs.”
Then PTBI turned around and noted a few pages later that R&D dropped more than half-a-million bucks!
Indeed, those “associated administrative costs” really mean stock-based compensation jumped astronomically.
In fact, stock-based compensation nearly tripled.
For their hand in running the company that’s now lost $298 million, PTBI folks received $1.3 million in stock-based compensation.
|Dec. 31, 2014||Dec. 31, 2013||Percent Change|
|Stock-based comp||$1.3 m||$0.4 m||Up 197%|
Wowser! The deeper the hole, the better the pay.
Full compensation is hard to track in PTBI’s game of executive musical chairs but new CEO Miller will receive $350,000 yearly, along with a possible bonus and stock options for 400,000 shares worth around $3.5 million.
Another big player who has sat in several chairs and handled at least five of PTBI’s private stock offerings through his SCO Securities, is Steven Rouhandeh, executive chairman.
PTBI’s filings note this about SCO entities linked to Mr. Rouhandeh: “During 2014 and 2013, SCO and affiliates charged $300,000 each year in investor relations fees.”
Mr. Rouhandeh’s stock option awards for 2014? Those alone were worth $523,000.
In fact, Mr. Rouhandeh and his SCO entities own over 14 million shares, exceeding a whopping 65 percent ownership.
*What About Soros?
But that stock cost Soros a fraction of what today’s retail investor is paying. The Soros fund’s increased position works out to a price of ~$3 per share for one block of 250,000 shares and ~$0.93 per share for the second block, according to the fund’s SEC filing.
And the position in PTBI is extremely small.
The Soros fund lists stock held in ~230 companies in the last quarter, records show. The fund includes many positions of those other companies of 10 million or more shares accumulated in that timeframe.
Is Soros still holding a position in PTBI now that the stock is about three times or more than the purchase price?
Fund managers have not yet responded to TheStreetSweeper’s request for a comment. But how long Soros might hold onto PTBI shares is a burning question, particularly considering the current price and all the institutional types selling PTBI.
*Top Investors Dump PTBI Stock
Three out of PTBI’s five biggest institutional investors have begun dumping its stock. These are Oracle, Sabby and Deerfield.
A total of seven institutional holders have whittled away at their holdings. PTBI’s biggest institutional investor, Oracle, has axed its shares to nearly half the original number. Two other institutions, Equitec and Messner & Smith, have sold out.
*Stock Offerings: “The Only Thing We Learn From History Is That We Learn Nothing From History.”
Wait a minute – if PTBI’s revenue dropped so much, how could compensation possibly rocket and cash reach $7.9 million?
We can thank the much-pruned money tree of the chronically unprofitable: stock offerings.
Here’s how the company has increased its stock offering and debt record in just the past year:
|Dec. 31, 2014||Dec. 31, 2013||Percent Change|
|Stock offering/debt proceeds||$12.7m||$ .03m||Up 42,233%!|
(Source: SEC filings)
So, PTBI has been handing out stocks like one mean dilution machine.
Under the most recent stock transaction, the company acquired Abeona Therapeutics. This happened, as we mentioned, on May 15 at a price of nearly 4 million common shares, plus up to another $9 million stock or cash in performance milestones.
Besides at least five private offerings prior to going public on Dec. 18, 2014, PTBI has been busy pruning the money tree. It has announced a $5 million private placing and a $7 million upsized placement in April, plus a May 6 $10 million private placement of 1.25 million shares.
Interestingly, companies with previous regulatory issues, H.C. Wainwright and Aegis Capital acted as managers or co-managers for some PTBI stock offerings.
*Stock Offering Or Debt Deal Looming
So private and public stock offerings have primarily kept this company afloat through its inception in Wyoming in 1974 as Chemex Corp., name change to Chemex Pharmaceuticals in 1983, merger and name change to Access Pharmaceuticals in 1996, and name change to PlasmaTech Pharmaceuticals and 1-for-50 reverse stock split in October 2014.
Indeed, the company’s filings of May 14 and others say it may need to obtain “additional financing.”
PTBI has been burning through ~$3.2 million per quarter without taking into account looming efforts to advance its products.
During Wednesday’s conference call, Mr. Rouhandeh wouldn’t offer cash burn guidance going forward. But he told analysts that they expect about a $10 million expense to get the Sanfilippo products into Phase 1 clinical trials anticipated at the end of 2015 – though they must proceed through Phase 3.
On top of general administrative costs, the salt diafiltration process for inherited COPD that PTBI in-licensed last September will take another $5 million to $6 million to get to market, he said.
Cash infusions such as $17 million private placements and warrants have pushed cash prior to burn to about $30 million in the second quarter, said Mr. Rouhandeh.
“It’s an exciting time at the company,” he added.
But, with the stock price this month floating around record highs and cash burning faster than ever, we’re expecting more excitement before too long. At some point, PTBI will likely need to jump out with an equity raise.
So, looking at PTBI’s rewarmed, year-old “news” of orphan drug designation which translates to more big bucks to try to get FDA marketing approval – plus the promotional efforts, the stock offering risk, the name-changing, the institutional selling, the cash burn and the big compensations – this company’s got some issues.
And when we checked out the location PTBI consistently lists as its principal executive office in suite 517 at 4848 Lemmon Ave. in Dallas, Texas. Here it is: