Sunday thoughts - Who exactly is 'smart money'?

Its Sunday, and unlike last week I made it to Church today.  The readings were from Timothy and Luke.  The first being the passage about the love of money being the root of all evil and the second was about Lazarus lying at the foot of a rich man's door with dogs licking his open sores...yes, there wasn't just one Lazarus in the Bible.  Lazarus goes to heaven and the rich man is sent to Hades, crying out to the God of Abraham but he gets no consolation, he had the good life when he was alive.

Hardly the backdrop for a blog about the stock market, where most (and probably all, myself included) invest and trade with the goal of getting rich, or richer as the case may be.  

Our Pastor's sermon was about doing good, its not money that is evil but the love of money.  The rich man who left poor Lazarus outside his door to feed off the crumbs of his table, he could have shown him some kindness, invited him in...and now that the rich man is dead its too late.  The message was ''do good'' don't wait, don't make an excuse.

Ahhh to be rich, to have the money at one's disposal for whatever one wishes.  The markets almost worship wealth, and some investors will choose to put money into a stock because they're following a billionaire.  If social media is any indication many ZIOP investors stormed into that equity based on the involvement of billionaire R.J. Kirk, I myself took a flyer on another biotech based on Mr. Kirk's involvement, TBIO.  

Sometimes following a billionaire doesn't work out.  Investors who based the decision to buy Sandridge Energy based on the activist position of Leon Cooperman know that all too well, myself included among them.  Resverlogix, a stock I've written about here several times has the backing of billionaire Kenneth Dart, as does another biotech PPHM.

It would seem that having a big player as a backer is no assurance of success, even billionaires get it wrong from time to time.  So should we perhaps not include deep pocketed players in our definition of  ''smart money''?  I will suggest that no....we should not.  ''Smart Money'' players don't have to be billionaires or even millionaires by my definition.

So what is my definition then of a ''Smart Money'' player?

I will offer up what I consider a prime example, and although it is fictitious and from a movie I do believe instances like this occur.  

Younger readers might not be familiar with the movie 'Trading Places' starting Eddie Murphy and Dan Ackroyd which was made in 1983.  I won't bore you with a plot summary, rather I will include a scene available on YouTube.  

In this scene two old gentlemen, the Duke brothers, believe they have in their possession an early copy of a report on the orange harvest.  Their report tells them that the orange crop has been severely damaged by a harsh winter.  Looking to capitalize on this information they instruct their trader to start buying right at the opening bell and to keep on buying.  ''Don't worry if the prices starts climbing, just keep buying''.

What the Dukes don't know is that their copy of the report is doctored, and that the harsh winter didn't damage the orange crop.  Billy Rae and Lewis (Murphy and Ackroyd) are the reason the Dukes have a doctored report and instead of the Dukes getting rich they are financially destroyed.

So what's the point?  The manner in which the Dukes act is the way I think ''smart money'' acts, with bold confidence.  And just like the two traders who see the Dukes open their window on the trading floor and watch them eyeing their trader in the OJC trading pit....I think it can be possible to discern this ''smart money'' buying activity.  Not from the trading floor, (which has now been replaced by automated trading) but rather from the chart.

Take note however, the Dukes didn't issue a PR announcing to the world they were going to boldly buy up OJC futures, that would not be smart.  In today's world, if you were 100% confident that you had the inside track would you announce it to the world, spreading messages all over the internet and sending out emails?  No....I don't think so either.  If you did everyone would be buying with hardly any selling and your chances at profits would disappear.

I know in the movie the crop report the Dukes have is wrong....but that's Hollywood.  The guy they paid for it had it stolen and was then dressed up as a gorilla.  As the Dukes are going bankrupt their spy is being sent to Africa to be introduced into the wild gorilla population.

I've belabored this point long enough.  The smart money (no matter whether they're uber wealthy or not) buys with extreme confidence, and that confidence shows up in price and volume movements in a chart.  But note that if those price volume movements come in tandem with lots of Promotion, News and Hype....well then its almost certainly not smart money players but the dumb herd moving in.

Now to tie this in with my Pastor's sermon today....If you make some money in the markets, pay it forward, do some good, we're only here for a short time.  Money is not the root of all evil, the love of money is.  Money can do a lot to ease pain and suffering that exist in our own back yards.

Disclosure, I have long positions in TBIO, RVX and PPHM.  With ZIOP I have placed my bet on the short side.

Good luck 

Resverlogix (RVX.TO RVXCF) Trying to assign a price target

I am an active participant on the site StockTwits with the user name growacet.  

Its basically Twitter for stocks, but instead of # hashtags stocks are discussed using the ticker symbol with a $ dollar sign in front.  I have about 175 followers, and likely a similar number of ignores.  I'm sure a lot of $ZIOP bulls blocked me because they didn't appreciate my bearish opinions when that stock was trading at $13+ and I wasn't buying into the bullish predictions of $20+.

I was recently asked on that site for a one year price target on $RVX.CA

1. 

   Sep. 9 at 6:20 PM

   growacet

   $RVX.CA Nice to see RVX holding up on an overall brutal day, and while volume is still light it was about 33% above normal. Bullish
2. 

   Sep. 10 at 12:56 AM

   S210

   @growacet what price target do you see this in a year from now?

   via StockTwits for iOS
3. In reply to

   • EMBED

   

   Sep. 10 at 9:07 AM

   growacet
   

   Howie

   @S210 If they pass futility analysis at halfway point of phase III trial then a MC of $1 bill USD to me seems fair and maybe conservative

Now, full disclosure right up front.  I am currently a shareholder in Resverlogix and have written about the company here before at AvoidTheBag.  As such my views and opinions should be considered as being extremely biased.  If you're considering an investment in Resverlogix I strongly recommend consulting with a qualified investment adviser to ensure you have the requisite risk tolerance and to ensure it represents a suitable investment for your profile.  

Personally I find trying to assign a future price target on a speculative stock to be something of a mug's game, but I did offer up the opinion that I could see RVX attaining a market capitlization of $1 billion USD if the company's phase III BETonMACE trial passes the halfway point futility analysis. To give that some context the current MC is just under $100 million USD.

Why do I consider assigning a target price to be a mug's game?  

With speculative stocks there are so many variables, and with development stage biotech, ultimately the biggest variable is success or failure.  At least in Resverlogix's case the finish line is within sight given that they've reached a phase III trial for their lead compound Apalbetalone also known as RVX-208.  But still, setting a price target is fraught with uncertainties and unknowns.  

But targets are put out all the time, and I assume the reason is because that's what investors want.  If a stock is trading for $1, $5, $10 or whatever....investors want an "expert" to offer up an opinion on whether that price is low or high.  Why buy an $8 stock if the target price is also $8?  Better to buy a stock that's trading for $8 but that is projected to go $20...maybe.

Resverlogix also has analysts offering opinions and price targets:

• Stonegate Capital Partners put out a report in November of 2015 with a target range of $3.54 to $9.34  
• Van Leeuwenhoeck Research provided their last update in May of 2016 with a new NPV of $8.50 CAD up from their previous $5.85 opinion:  
• Zacks put out the most recent report with a $5.00 CAD valuation target:  

1. http://www.stonegateinc.com/reports/RVX_NOV_2015.pdf
2. http://nebula.wsimg.com/2e68712bb20de1e4d82f91da58ab0b9f?AccessKeyId=F1B3D293B900048B2E3E&disposition=0&alloworigin=1
3. http://s1.q4cdn.com/460208960/files/News/2016/July-29-2016_T.RVX_Vandermosten.pdf

My own opinion is predicated on Resverlogix succeeding with its phase III trial, the goal of which is to prove that Apalbetalone can provide Relative Risk Reduction (RRR) for the incidence of Major Adverse Cardiac Events (or MACE defined as heart attack, stroke or death) in patients with Diabetes Mellitus.  

The phase III trial is called BETonMACE and it has been running for almost a full year now, however there isn't a specific end date because its an "events based" trial.  The results will be evaluated after 250 MAC events with a futility analysis to come after 125 events.  A futility analysis is used to determine whether or not a clinical trial should continue or not.  

If MAC events are occurring equally in both the Placebo and Apalbetalone arms of the study, then the trial will likely be determined to be futile and stopped.  If the treatment is outperforming the placebo, then the trial should reasonably be expected to continue.

The company is blinded to the safety and efficacy results, however a recent PR put out by the company announced that the independent Data Safety Monitoring Board had given a positive recommendation for continuing the trial with no modifications after a completed safety review.

https://finance.yahoo.com/news/resverlogix-announces-positive-recommendation-data-110000475.html

Of course the most obvious question, and one that is perfectly legitimate is this;  

If Resverlogix has so much awesome potential, then why is it trading at such a depressed level with a market capitlization of less than $100 million USD?

The answer in my opinion is as obvious as the question, its because of profile, or rather a lack of it. RVX is not a stock on a lot of radar screens.  And this pathetic and miserable little blog will do very little to change that.  Yes there are some analyst outfits covering the company, but they're small boutique shops that companies pay for exposure.  Nobody is ever going to confuse Zacks with BMO or JP Morgan.  

Daily volume for RVX.TO trading in Canada is only about 20,000 over the past three months and on the US side where it trades OTC with the symbol RVXCF the trading is even lighter with only about 3,000 shares changing hands on average.

The big boys like the aforementioned JP Morgans and BMO, I highly doubt they have brokers talking up an investment in Resverlogix, and looking at things logically....Why would they?  There are plenty of development stage companies engaging investment bankers all the time to underwrite initial and secondary offerings.  The major outfits underwriting those offerings and ponying up hundreds of millions, perhaps billions of dollars....those are the stocks that are going to get the buzz, the ones that will be put "in play".  

But if the phase III BETonMACE trial succeeds, then I don't think that will matter.  In my opinion the market potential for Apalbetalone would be explosive with indications in major diseases like Diabetes, Kidney Disease, Cardio Vascular and Alzheimers.  All those conditions are impacted by bad cholesterol which Apalbetalone may alleviate.  

It is my view that a successful futility analysis with the company being given the green light to continue through to completion of the trial, that this would be the catalyst that could vault Resverlogix to a market capitlization of at least $1 billion USD, and even that is extremely conservative in my view.

Ultimately though, if the trial succeeds, I don't see Resverlogix taking Apalbetalone to market, I would expect them to be bought out by Big Pharma, as happened recently with Relypsa which sent it from around $14 as recently as May to $32 on the Nasdaq where it traded under the symbol RLYP.  

Recent Developments

Resverlogix recently cancelled their Annual General Meeting (AGM) which was scheduled for October 5th, notifying the market via a SEDAR filing.  No reason was given for the cancellation so I emailed the company's Investor Relations VP to ask why.  A reply came back saying that the meeting date had in fact been "changed", but that no reason could be given because that information is not in the public domain.  Here's the text of the email I received:

• Unfortunately, we can not advise to the reason for the change in meeting date as this would be information not in the public domain. When the business to be addressed at the annual meeting has been finalized a Notice of Meeting will be filed with the regulators (www.sedar.com) and ultimately the company will issue a press release regarding the details of the meeting closer to the event date

So obviously something is going on that warranted cancelling the AGM and I am hoping its something positive like another regional deal or a buyout by Big Pharma, but ultimately its all speculation at this point.  And even if there is a big deal being worked on that doesn't mean it will be finalized, lots of deals die in the negotiation stage.

But getting back to a stock's valuation, ultimately its about supply and demand.  I made lots of Ziopharm shareholders mad last year when I offered up the opinion that the $1 billion + valuation the company had was merely the result of retail investors being herded into the stock by a lot of fluffy news, cheeseball promotion and social media hype.

Its that old line about selling the sizzle not the steak.  And there is nothing wrong with frying up a juicy T-Bone and enticing diners with the sound of the meat sizzling.  But if they come and sit down and instead of a T-Bone they find a minute steak or hamburger, well they're not gonna stick around too long.

At the end of the day it all comes out in the wash and if a company succeeds then the market will recognize it at some point.  If a company doesn't succeed, or if they over promise and under deliver....well the market recognizes that as well which is why you see a lot of high flying heavily pumped stocks get pummelled downward.

If BETonMACE succeeds, in my view the sky is the limit given the diseases being targeted and the potential market.  But before that happens they will have to have a successful futility analysis, and with a positive report on that I can see Resverlogix attaining a market cap of $1 billion USD at least while waiting for the full trial completion.

Sizzle is nice, it can get the mouth watering.  But you can't eat sizzle.  

Ziopharm - What happens when the excitement wears off?

I have been following Ziopharm since March of 2015 when it popped onto a lot of radar screens. After paying the MD Anderson Cancer Center $50 million in stock for a partnership agreement (and another $7.5 million to expedite the deal) the ZIOP symbol started showing up all over message boards and social media sites where public companies are discussed.

We all know what happened of course, after getting up near $15 in 2015 shares of ZIOP cratered, recently trading for less than $5.  That is until today.

The company released its 10Q yesterday (after market close Aug 9th) and conducted a conference call, the transcript for which is available on Seeking Alpha HERE.  Pre-market activity likely got some excited in my opinion, as the PPS climbed back over $5.  Shares traded as high as $5.30 before the open, and when the bell rang at 9:30 the climb continued.  ZIOP quickly jumped as high as $5.48 for a gain over over 12% from the previous day's close of $4.86

Whether you're invested in ZIOP or not (either long or short) this type of activity is instructive I believe.  When companies are burning cash and selling forward looking promise excitement is almost a commodity in of itself.  And Ziopharm has a long history of generating excitement, in tandem with a massive accumulated deficit that is now over $600 million and growing.

Overall ZIOP finished the day in positive territory, closing at $5.14, after retreating from that $5.48 inter-day high.

Retail investors have a reputation for being focused on price, to the exclusion of almost everything else.  If someone shows up on CNBC and starts screaming BUY BUY BUY for a stock, and if it starts climbing....typical retail players get excited and don't even worry about who is selling or why.  

Conference Calls are a great way to drum up buyers, especially with purely speculative money burning companies relying on forward looking promise to attract investors in my opinion. 

I'm not suggesting there weren't solid positives on the CC, there were.  There's some pre-clinical initiatives which I assume will be with mice, and that's good news for the rodent world.  And the company seems to be progressing with its phase I safety trial which clinicaltrials.gov shows as having a "study completion date" of December 2018, or about one year after the company projects its financial resources will run out.

On the financial side there was very little said, but that is something I expect with speculative companies seeking financing.  A Conference Call is about stressing the positives, so I wasn't suprised to see very little discussion of something so mundane and depressing as raising capital.  According to the transcript of the call this is what was said:

"We have cash, we have a cash runway through essentially the end of 2017..." (emphasis mine)

So all in all, at least in the short term, there's plenty to be excited about.  Obviously going forward they're going to be needing to raise cash, but that's in the actual 10Q filing and a lot of retailers can't be bothered to read it I bet.

We shall see what happens if and when the excitement that gave the share price this little bump wears off.  Or was there enough to sustain it for a while?  Like when they made the Anderson announcement at JP Morgan's Healthcare conference.  Personally I don't think so, but that is opinion....an opinion based partly on the lack of significant analyst participation.  

Companies like JUNO and KITE are getting analysts from the JP Morgans, Citibanks, and Goldman Sachs of the street.  Both Juno and Kite had over 10 analysts on their recent calls including those big boys.  Ziopharm on the other hand only had two, from Raymond James and Griffin, which in my view don't have near the profile and reach of the analysts covering the CAR T leaders.  

Sunday thoughts - Beware when a stock becomes a religion....

The world is evolving, or perhaps devolving....depending on your point of view.  

I'm finding more and more people insist on viewing things in absolute terms, as being right or wrong, black or white, good or bad.  It doesn't matter if its politics, religion, or even stocks.  Donald Trump or Hillary Clinton, a lot of people insist on seeing one as a saint and the other as the devil.  A particular faith or denomination is either on the side of God or its in league with Satan.  And with publicly traded companies the same dynamic plays out, stocks are either awesome or garbage for some people.

I write a lot about the lessons my late great father taught me from his days working on both Bay and Wall Streets, blending in my own experiences working in the financial services industry. Dad taught me things like: "Don't marry a stock, especially those that are purely speculative".  And "You'll never go broke taking profits".  

My Dad was a great teacher.  But so was my late great mother.

Back in my teenage years I was drawn into a particular faith group.  How?  Uhm, I think her name was Tanya.  It wasn't a total shift from the religious upbringing of my youth, but this was an evangelical bunch  and they knew for certain the path to salvation and eternal life, or so they claimed at least.

My Mother didn't discourage me from attending their worship services or their activities.  Her only advice was to maintain what she called a "healthy bias".  Mom was a smart woman.  If she had forbidden me from participating, or made a big deal of it....Who knows?  I might just be on a street corner somewhere testifying, or maybe on TV using my faith to heal the sick and afflicted.  

I came to hold the view that on some points they were right, others I didn't agree with....and a lot of it, I was in between and unsure.  In my experience that's a healthy view, and I find it takes strength to admit that you don't have all the answers.  Only idiots are convinced they know everything.  

Now to bring this back to stocks.

There are many social media participants who approach investments with the fervour of a religious zealot.  There are posters to various sites who certainly view Ziopharm this way.  That's what I found when I did my first Seeking Alpha blog post on Ziopharm in 2015 expressing the opinion that at $13+ it represented a speculative bubble:  A Speculative Bubble Poised To Collapse?  

When I published that I was roasted by the faithful in the comment section.  I quickly found out what Galileo must have felt like when he dared to publish his theory that the Earth rotated around the Sun, or Scopes for teaching Darwin's theory of evolution.  I was a heretic.  

Why did one opinion cause so much consternation?  

In some cases I think its merely nervous shareholders who lack confidence in their investment, feeling a need to defend their position from any and all perceived attacks.  But in other cases I think the reasons are more insidious, with professional industry players looking to stir up as much buying as possible so sellers can get the best possible prices for the maximum number of shares being dumped.

I've seen the same thing with ABRW lately, anyone who doesn't buy into the forward looking promise is attacked.  

And its not just pumpers who are desperate to convert the great unwashed, so called "bashers" are no better. They're often desperate to convince others that they are stock market experts who never make a mistake when they tell others to dump a stock.

There's one joker on Twitter who plays both sides, alternately pumping with abandon and then bashing like crazy.  Joe Natural with the handle @ChinaStockPro was trashing RLYP repeatedly, posting negative comments with a youtube video of  a tree crashing to the ground: "TIMBERRRRR"!!!

 

JoeNatural‏@ChinaStockPro

$RLYP - oh my, only one word to describe investor faith in this management team's ability to execute

12:51 PM - 27 May 2016

0 retweets0 likes

How did RLYP do?  It's now trading at almost $32 after a buyout deal with Galenica for $1.2 billion in cash.  Back on May 27th it closed at less than $20 when Joe posted his bashing message. Obviously a massively bad call by Mr. Natural, unless of course he was playing that video in reverse.

Now this same false prophet and self proclaimed stock market expert is applying the same energy he used to bash RLYP and channelling it into pumping ABRW. We shall see how that works out.

Bottom line?  Be very wary of those who tell you they're never wrong.  If someone tells you they have the keys to the kingdom and you buy into their hype you might just get to heaven only to find that someone changed the locks.

Juno Therapeutics being sued - Is Ziopharm next?

The shine has definitely come off the CAR-T space.  

If you're reading this miserable little blog then I assume you're already familiar with Chimeric Antigen Receptors and how they can allow T cells to recognize a specific protein (or antigen) on a tumor cell. And with the issue of toxicity and how the companies in this space are attempting to overcome it. 

This new and exciting field caught fire in 2014 and 2015 as investors stormed into companies investigating potential treatments for various forms of cancer using this new Immunotherapy.

Kite Pharma (Nasdaq KITE) started trading in June of 2014 around $25 per share, and it didn't take long for it to take off, getting up around $90 by January 2015 and again in November of the same year.  KITE is currently trading around $50 per share with a market cap of around $2.5 Billion.

At $50.18 (the most recent close) KITE is trading 44.1% below its 52 week high of $89.84

Juno Therapeutics (Nasdaq JUNO) started trading in December of 2014 in the $35 to $40 range and it too soared, getting up near $70 by June of 2015.  JUNO is currently trading under $30 with a market cap of a little over $3 billion.

At $28.83 (the most recent close) JUNO is trading 50.1% below its 52 week high of $57.82

Ziopharm jumped into the CAR T space in January of 2015 after reaching an agreement with the MD Anderson Cancer Center in tandem with partner company Intrexon that included paying Anderson $100 million in shares of the two companies ($50 million each) plus an additional $15 million in shares (also split evenly) to induce Anderson to agree to the deal in time for a JP Morgan healthcare investor conference.

Shares of Ziopharm did as might be expected.  After trading under $3 as recently as October of 2014, by March of 2015 they were trading over $14, and ZIOP reached those levels again as recently as November of last year.  ZIOP is currently trading under $5 per share with a market cap of about $600 million.  

At $4.60 (the most recent close) ZIOP is trading 69.1% below its 52 week high of $14.93

Juno Therapeutics has recently become the target of law suits centred around allegations of violations of Federal Security Laws regarding the reporting of a Phase II trial patient death, and that insiders engaged in the selling of shares before the news was released on July 7th 2016.  Before news of the patient death JUNO had been trading around $40, after the news came out the PPS dropped down to its current price around $28.  

Here is a link with details of one lawsuit:

https://finance.yahoo.com/news/juno-therapeutics-inc-ceo-sued-001500402.html

Ziopharm also recently reported a patient death in its Phase I trial for Ad-RTS-hIL-12.  And as with JUNO the news sent ZIOP's shares sharply lower.  Trading in and around $6 in the days prior to the news, shares dropped under $5 on July 15th and closed today's trading at $4.60  There have also been stories written saying Ziopharm was in discussions in regards to a possible $50 million equity offering that has since been withdrawn in the wake of the trial news.  

THE STREET NEWS STORY - Brain Tumor Patient Dies After Ziopharm Gene Therapy Injection

This news has also attracted various law firms, with PRs announcing that Ziopharm is being investigated for possible breaches of Federal Security laws.  

Here are some links from law firms seeking to contact Ziopharm shareholders in regards to their investigations:

https://finance.yahoo.com/news/shareholder-alert-khang-khang-llp-152500517.html

https://finance.yahoo.com/news/shareholder-alert-bronstein-gewirtz-grossman-141600177.html

https://finance.yahoo.com/news/important-investor-notice-lundin-law-163600987.html

https://finance.yahoo.com/news/shareholder-alert-levi-korsinsky-llp-141100642.html

https://finance.yahoo.com/news/important-investor-alert-goldberg-law-001600961.html

https://finance.yahoo.com/news/federman-sherwood-investigates-ziopharm-oncology-202100911.html

https://finance.yahoo.com/news/shareholder-alert-pomerantz-law-firm-150300712.html

Does all this activity mean Ziopharm, like Juno, will be sued?  I don't know, I'm not a lawyer.  The extent of my legal expertise comes largely from reading about a dozen John Grishman novels and watching old episodes of Law & Order.

I do know that this is one of the many risk factors outlined in Ziopharm's SEC Filings.  From their most recent 10Q you will find this:  

The testing and marketing of medical products entail an inherent risk of product liability. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our products, if approved. Even a successful defense would require significant financial and management resources. Regardless of the merit or eventual outcome, liability claims may result in:

•

Decreased demand for our product candidates;

•

Injury to our reputation;

•

Withdrawal of clinical trial participants;

•

Withdrawal of prior governmental approvals;

•

Costs of related litigation;

•

Substantial monetary awards to patients;

•

Product recalls;

•

Loss of revenue; and

•

The inability to commercialize our product candidates.

We currently carry clinical trial insurance and product liability insurance. However, an inability to renew our policies or to obtain sufficient insurance at an acceptable cost could prevent or inhibit the commercialization of pharmaceutical products that we develop, alone or with collaborators.

There is of course insurance for possible securities violations, which is included in a Schedule 14a filing:  

http://ir.ziopharm.com/secfiling.cfm?filingid=1193125-16-563936&cik=1107421

We maintain director and officer insurance providing for indemnification of our directors and officers for certain liabilities, including certain liabilities under the Securities Act. We also maintain a general liability insurance policy that covers certain liabilities of directors and officers arising out of claims based on acts or omissions in their capacities as directors or officers. We have also entered into indemnification agreements with each of our directors and named executive officers.

I don't know what "certain" liabilities means.  Obviously it means some, but all.  So whether they are insured or not...the devil, as is often said, is in the details.

Too often inexperienced investors rush into a stock on hype, excitement and a climbing share price.

It pays to be fully abreast of all the risk factors.  

Spotting the pumps easier than going long

This blog is not even three months old, and already I have managed to identify some stocks that, in my opinion, were inflated and due to come down.  Taking the PPS from my first write up on the following companies, here is how my bearish calls have performed as of this past Friday's close.

• May 8th  RYU.V   Down -18.9%
• May 5th  ZIOP     Down -27.2%
• May 17th KTOV   Down -54.9%
• June 12th ABRW  Up    +04.0%

My scorecard on bearish calls isn't perfect, but if ABRW does what I expect in the coming weeks and months, then I'll have to give myself an A+.  

As much as I'd like to pat myself on the back for my genius skills at sniffing out inflated stocks, it really wasn't that hard.  The way I see it this was all "low hanging fruit" so to speak.  Three out of those four companies, ZIOP, KTOV and ABRW were all hyped and promoted by an email blasting promotional outfit called StockReversals.  

I followed StockReversals long before I started this blog, and I've seen them pump a number of stocks that have all tanked.  In no particular order I've witnessed them pounding the proverbial table to drum up buyers for SBOT, MOBI, CLDN, LEJU and WBAI over the past 3+ years, touting long term value potential.  

If you want to check the charts on those stocks be my guest.  Those buying in expecting price appreciation over the long haul got creamed.  

RYU.V on the other hand was a stock I saw getting spammed all over a site popular for Canadian listed stocks, stockhouse.ca.  They'd just announced that Gwenyth Paltrow was going to promote their clothing line. I've seen so many celebrity endorsements for penny stock companies over the years, and have yet to see one deliver long term value to shareholders.

So why is identifying inflated stocks so much easier than finding companies with low share prices poised to make gains?

That's pretty easy to explain in my opinion.  Inflated stocks that are poised to drop big, they are SCREAMING for attention.  Why?  Simple....the smart money holders who want to sell need dumb money suckers to come in and pay the inflated price.  

Companies that are trading at or near their lows on the other hand, the good ones in my experience aren't experiencing heavy volume and don't have much in the way of news.  So it can be hit and miss trying to discern which ones might be good candidates.  

I have put out some bullish opinions on a couple that have born fruit though.  I wrote up EGT.V when it was 14 to 15 cents and it got up around 40 and is still trading in and around 28 to 30 cents.  And HMPR was at $1.81 when I expressed my reasons for being bullish and it just closed up over $1.90.

Hampton Road Bankshares is actually a company that I truly believe has the potential to deliver long term shareholder value.  That's not to say it is without risk, but to my eyes the fact that they are turning  a profit gives them a lower risk profile as compared to companies using their shares as capital to stay afloat.

Ultimately I think its every bit as important to know what to avoid as it is to know what to look for. Who wants to pay $6+ for a stock like KTOV only to have half your money wiped out in a matter of weeks.  

I've also mentioned some stocks that have come down, RVX.TO is one that I wrote about when it was trading at $1.34 and this past Friday it closed at $1.23 for a drop of 8.2%.   With RVX though I haven't seen any suspect pumping and table pounding all over social media....if that happens my opinion will change in all likelihood.  And if that does happen it might be reasonable to expect to see the PPS climbing well above even $1.34....only time will tell.  Ideally I'd like to see them succeed with the Phase III clinical trial.  

News Hype and Promotion boys and girls.  In my opinion that is the Unholy Trinity of the stock market that should be avoided.  Beware when something looks too tempting, things are not always as they appear.

Is Ziopharm guilty of fraud?

According to Running USA it takes the average man 4 hours 19 minutes and 27 seconds to run a marathon.  (SOURCE)

What does this have to do with Ziopharm?  You will see.

Imagine a sports drink company having 10 runners drink their product before running a marathon. Now imagine that all 10 beat the average time it takes to run 26 miles.  That might seem impressive. Maybe a press release would be put out citing the results.

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July 16, 2016  ATB Energy Drinkers Excel At Marathon

ATB Industries, (Symbol POS.OTC) the makers of sports drink ATB Energy, is pleased to announce that at the recent Quahog Marathon ten male runners drank our product before running the race. While the average time to run a marathon for a man is over four hours, the ten runners who drank ATB Energy before the race had an average time of just under 3 hours.

ATB CEO Peter Gryphon had this to say about the results:  "We are very encouraged by this news, although ten is not a large number it strongly suggests that using our product might provide a net benefit to individuals looking to increase their performance.  And if these results are any indication it could be reasonable to expect that athletes in other sports could perform well above average as well".

**************************************************************************************

Sounds good of course.  But maybe those 10 runners were all veterans of the Boston Marathon, where men aged 18-34 must qualify with a time of 3:05 or less.  Maybe one of them was even a previous winner of the Boston Marathon where winning times are typically a little over 2 hours.  That would certainly improve the overall average.

Aren't numbers fun?  Taking the hypothetical PR at face value without asking any questions....investors  might just storm in and buy ATB Industry stock, perhaps giving it a lift.

Would this be an example of fraud?  Personally I don't think so.  Nothing in the PR states that ATB Energy caused these runners to run outstanding times, its merely suggested that there might be a benefit.  But what if subsequent to the marathon 3 of the runners died of acute kidney failure after they continued to consume the product?  Would the company be guilty of fraud if they failed to disclose this fact to their investors in a timely fashion?  What if the company also failed to notify the appropriate regulators?

So what does this fictitious example have to do with Ziopharm?

On May 18th Ziopharm put out a PR with the headline:

ZIOPHARM Announces Clinical Data Highlighting Favorable Interim Survival Results with Gene Therapy Candidate Ad-RTS-hIL-12 in Brain Cancer

The PR cites median survival rates for patients with glioblastoma as being between 6 and 7 months for those who have had multiple recurrences, and just 3 to 4 months for those who have failed salvage chemotherapy with drugs such as temozolomide and  bevacizumab.  

The company then went on to report that 10 of 11 patients enrolled in the study are still alive, which caused many social media participants to tout Ziopharm's therapy as the reason for their survival, cause and effect.  

What the PR failed to mention (as with the ATB Energy drink example) is any of the details on the patients.  How long they'd already been living since being diagnosed or had any of them undergone chemo that succeeded in shrinking their tumors.  The purpose of the PR seems perfectly clear to me, its right there in the subject line.  The company wanted to highlight survival results, even though a Phase I trial isn't even designed to measure survival.  The primary objective of a phase I clinical study is to prove safety, or efficacy for those who like the fancier term.

Thanks to the fact that one of the participants in the trial, (a Mr. Charles Peacock) authors a blog we know some details on at least one patient.  Mr. Peacock's blog reports that he was diagnosed with glioblastoma back in April of 2012, over 4 years ago.  So obviously this courageous individual has already beaten the averages and then some....like the Energy Drink users above, this guy is already a champ.  

His blog also relates how he had successful chemo treatments with temozolomide.  I wrote a blog piece already on this warrior and his outstanding spirit here:

http://www.avoidthebag.com/2016/05/desperate-ziop-pumper-cites-clean-mri.html

Now....In my opinion Ziopharm's PR of May 18th, it isn't an example of fraud.  I do think touting survival rates in a study not designed to measure that variable is a bit suspect  and I consider it possible it was put out to support Ziopharm's falling share price.  

After trading up around $9 in mid April 2016, by  mid May the PPS had fallen all the way down to about $7.  Did the PR help the PPS?  Well it didn't hurt, by early June the PPS had recovered to as high as $8 per share.  

Now let's fast forward to the present, the news that came out Friday July 15th 2016, that the total number of deaths of patients in the trial has now climbed to three.  

http://ir.ziopharm.com/releasedetail.cfm?ReleaseID=979750

The first two deaths were reported as being at 3.7 and 6.9 months after treatment.  But the news doesn't give any details on these patients, such as how long ago they were diagnosed or if previous chemo treatments were successful or not. The company asserts that the deaths were unrelated to the study drugs.  The third and most recent death they say "has just been reported to us", with this brain cancer patient suffering a cranial hemorrhage.  The PR calls this "an isolated" case.  

I don't like fuzzy words, and "just" is fuzzy.  Was it "just" today, "just" last week or "just" last month? The PR goes on to say that they haven't yet notified the FDA of the most recent death.    

Enter the lawyers:

Two PRs came out from law firms saying they are investigating possible violations of security laws, specifically about sections 10 (b) and 20 (a) of the Security Exchange Act of 1934.  Section 10 deals with misstatements or omissions made by a company that could constitute fraud while 20 seems to relate to the question of individual and/or corporate liability. 

Just as my medical background is restricted to high school and university science courses, my legal bona fides are equally thin.  With that being said I believe a lot will depend on timing.  How long did Ziopharm have this information before it was released to the investing public?  

The legal PRs also state that Ziopharm was engaged with an investment bank in an effort to raise 50 million dollars, however the news says that the deal has now been abandoned.  Those who have taken the time to read Ziopharm's SEC filings already know that the company does not have sufficient capital to fund operations to the completion (if successful) of clinical trials and that they'll be in need of financing by the end of 2017 or possibly even sooner.  

For investors wanting to make inquiries of their own, here are the relevant PRs from the law firms announcing their investigations:

http://finance.yahoo.com/news/important-investor-alert-goldberg-law-001600961.html

http://finance.yahoo.com/news/federman-sherwood-investigates-ziopharm-oncology-202100911.html


Disclosure:  I have no current position in ZIOP however I may in the future, in all likelihood going short.

Ziopharm - What happens when the money runs out?

Warning, this post is going to be relying heavily on Ziopharm's SEC filings.  If you are the type of investor who prefers Press Releases to audited corporate filings, then you you might just want to stop reading right now.

Those who've done their Due Diligence already know that Ziopharm is well into its second decade of existence and has achieved only minimal revenues.  You also know that the accumulated deficit up to March 31st 2016 is over half a billion dollars. With existing capital resources only foretasted to be sufficient to get the company into the 4th quarter next year, and maybe not even that long, the question is what happens then.  Here is what the most recent 10Q filing says:

• The Company has operated at a loss since its inception in 2003 and has minimal revenues. The Company anticipates that its losses will continue for the foreseeable future. At March 31, 2016, the Company’s accumulated deficit was approximately $504.7 million. Given its current development plans, *the Company anticipates cash resources will be sufficient to fund operations into the fourth quarter of 2017. The Company’s ability to continue operations after its current cash resources are exhausted depends on its ability to obtain additional financing or to achieve profitable operations, as to which no assurances can be given. Cash requirements may vary materially from those now planned because of changes in the Company’s focus and direction of its research and development programs, competitive and technical advances, patent developments, regulatory changes or other developments. *Additional financing will be required to continue operations after the Company exhausts its current cash resources and to continue its long-term plans for clinical trials and new product development. There can be no assurance that any such financing can be obtained by the Company, or if obtained, what the terms thereof may be, or that any amount that the Company is able to raise will be adequate to support the Company’s working capital requirements until it achieves profitable operations. (* emphasis is mine)

Next we'll look at the current cash situation

As of March 31, 2016 the same 10Q filing linked above lists cash and cash equivalents at $140,717,000 which is anticipated to be sufficient to fund operations to the end of next year.  From April 2016 to December 2017 equals a total of 19 months, which means the company is anticipating burning through about $7.3 million per month on average.  Of course the filings only say "into" the 4th quarter of 2017, which means it may not be enough to last right up until the end of the year.  The 4th quarter ends December 31st, but if they only have enough to last to the end of November 2017 then the burn rate would be $7.8 million per month on average.  

Using a middle figure of $7.5 million per month means that Ziopharm would be burning through about $90 million a year.  And given that they're only at the early stages it can be reasonably expected that their costs are going to escalate if they are able to progress into latter phase II and phase III trials.

The last capital raise via an underwriting agreement with JP Morgan Securities LLC provided Ziopharm with approximately $94.3 million dollars.  That was in February 2015 and involved the issuance of 11,500,000 shares at a price of $8.225 per pursuant to the underwriting agreement.  

Going forward it would appear that $90 million or so, that it would only provide enough capital to operate the company for about one year, and with costs escalating probably not even that long.  

If Ziopharm is looking to have enough capital to get them through another 2 years past the 4th quarter of 2017, then they're likely going to need close to $200 million in my view.

Bottom line

Sometime next year, barring a buyout, Ziopahrm is going to be running seriously low on capital to operate their business and to fund clinical trials.  Without a substantial revenue stream it is hard to envision them obtaining traditional financing through a lending institution.  A bond issue seems unrealistic for the same reason.  How can a company pay interest on a bank loan or on bonds when it doesn't have a steady, reliable source of revenue and an accumulated deficit of over half of a billion dollars?

The only possibility I see is more dilution.  How much will depend on the price shares are trading at when its done.  To raise $200 million, if they could get an underwriting agreement at $10 then that would mean 20,000,000 more shares.  Right now the PPS is trading around $6, at that price point its about 33.3 million more shares on top of the 131.8 million that were outstanding as of March 31st 2016.  

Thankfully, according to Ziopharm's filings, the company is authorized to issue up to 250,000,000 common shares and up to 30,000,000 preferred shares. So even if the PPS continues to erode they should still be able to issue enough shares to keep operating for a few more years before having to consider the possibility of a share consolidation in my opinion.

FULL DISCLOSURE
I sometimes like to have some skin in the game with the stocks I write about, and in the case of Ziopharm I do own some put contracts so my views are not without bias.