For your reading enjoyment...Pat Cox's write-up.
Kelt
November 17, 2016
Positive Cellceutix Data for All Three Programs and a Legal Triumph
Dear TransTech Reader,
Earlier this week, Cellceutix Corporation (CTIX) presented extremely positive data for all three of its therapeutic platforms. Before talking about the company’s regulatory progress, however, I want to discuss the company’s recent legal victory.
Periodically, I need to explain to readers that the online financial media is a cesspool of misinformation and corruption. The short attack industry utilizes these online forums to manipulate naïve and uninformed traders.
Though I have responded to a few of these scurrilous attacks on biotechs in our portfolio, I try not to. It’s simply too time consuming. Moreover, the companies under attack always refute these attacks themselves. You should understand, by the way, that anything a company publishes is scrutinized by the SEC and FDA. Columnists writing on financial websites, however, have no such oversight and rarely suffer any consequence for slandering their targets.
Personally, I don’t read any of the popular online stock sites because they are so unreliable. The most charitable characterization of these sites is that they give platforms to organized campaigns designed to drive down the stock prices of target companies, generating enormous profits for the well-funded shorters. Some people believe, however, that the websites are participants themselves.
Not being privy to their internal workings, I don’t know what motivates these sites. I wish that WikiLeaks would turn its attention to their activities, but it doesn’t actually matter why they do what they do. The harm they enable is real, whether or not they are directly profiting.
Let me describe a typical short attack on a startup biotech. Some prominent website will feature an article attacking a biotech company. Commenters in forums will pile on with supposedly reinforcing information. Often, other sites will publish similar and apparently coordinated articles attacking the same company.
As a writer, I’m often impressed by the skill of those who pen these attacks. I know good writing, even when it’s employed in the cause of evil, and these people are good. Even educated and skeptical people often fall for these scams.
Following the first wave of disinformation, we often see announcements from law firms in these same publications asking other investors in the target company to join in a class action lawsuit. Even if the ads fail to turn up additional litigants, they accomplish their primary purpose which is to sow fear, uncertainty, and doubt in the minds of investors. When the easily swayed start dumping their stock, the price goes down and the short attackers follow up with additional articles and comments claiming success in foreseeing the company’s decline. This may panic other investors and contribute to a downturn in the company’s capitalization.
The targeted companies and their stockholders may suffer if the reduction in stock price increases the cost of raising further capital. This is true even if the stock price recovers, which is usually the case.
El jefe John Mauldin is one of the primary advocates for legal reform in this area and he writes regularly about it. There’s been some movement toward such reform in recent years as the number of victims mount. Progress, however, has been slow. It may be wishful thinking on my part, but we may have a shot at real change now. President-elect Trump is probably the first president elected with the financial experience and expertise to understand the short attack industry and the harm it does.
Regardless, the website Seeking Alpha published an attack on Cellceutix in August 2015 filled with false statements. Cellceutix immediately issued a letter answering the charges, including the ridiculous claim that Cellceutix was a sham company operating out of an empty office. Given the company’s easily verified affiliations with well-known research institutions and scientists, I find it amazing that anybody could be fooled.
The company’s office, by the way, is located in the enormous Cummings Center of Beverly, Massachusetts. Any serious publication would have sent somebody to the address listed on the Cellceutix website and discredited the entire article. Nobody involved in publishing the article, however, demonstrated any interest in the truth.
Nevertheless, a class action lawsuit was quickly filed by a law firm known for handling similar cases. The obligatory ads looking for other shareholders to join the lawsuit followed.
Typically, in these cases, the targeted company wins the lawsuit and moves on, hoping to recover their lost good will and share price. I’ve talked to multiple CEOs while they endured this sort of attack. Every one of them had been initially furious, promising to track down the attackers and put the hosting websites out of business. As time passed, however, they chose to cut their losses and move on.
Cellceutix didn’t follow that pattern. CEO Leo Ehrlich hired The Ashcroft Law Firm, founded by former US Attorney General, Governor, and Senator John Ashcroft. The lead counsel was Michael J. Sullivan, former US Attorney for Massachusetts.
Sullivan moved for dismissal with a “Motion to Dismiss”, which requires meeting the most difficult legal standard for a defense. To grant a Motion to Dismiss, a judge must accept everything the defendant presents as true and the company needs to defend itself with limited defenses such as showing that the case is legally invalid. Dismissal was granted and the plaintiff’s request to replead was denied.
Most other targeted companies in these circumstances would have gladly accepted the outcome and returned to business. The Cellceutix team and Ashcroft Law, however, decided to go after all damages and costs, which are sizable. Now, the shoe is on the other foot and the plaintiff and the law firm behind the frivolous suit against Cellceutix are contemplating serious pain.
Ultimately, we might even see the anonymous author and the publishing website exposed. Ironically, the anonymous author of the attack on Cellceutix followed up by attacking Ocata Therapeutics. He scared some investors into selling, predicting Ocata’s value would go down to zero, shortly before the company was acquired by Astellas Pharma for $379 million.
The Cellceutix lawsuit accomplished two things that we should care about. One, it made it clear that there are risks involved in launching frivolous lawsuits against Cellceutix. Secondly, it sent a message to the entire short attack community.
If the judge rules in favor of Cellceutix for damages and cost, frivolous lawsuits will no longer be a cheap, convenient way to move a target company’s stock price downward. There does, in fact, seem to be a significant drop in the number of lawsuits filed on behalf of short attackers. I believe all biotechs owe thanks to Leo Ehrlich and Cellceutix. If you’d like to read the details of this story, the relevant documents are here on the company website.
Other Cellceutix Progress
Cellceutix has recently brought three pharma industry veterans into the company management team to help with the accelerating clinical trial programs. Most notable is Arthur P. Bertolino, MD, PhD, MBA who now serves as President and Chief Medical Officer. Bertolino previously held positions at Novartis Institutes for Biomedical Research (NIBR), including Vice President of Dermatology and Vice President & Global Head of Translational Medicine for Dermatology. There, he played a major role in the approval of Ilaris (canakinumab) in the United States, European Union, and Switzerland. He also held positions as Senior Medical Director and Senior Director of Dermatology at Pfizer, Inc. where he led clinical programs for various drug candidates.
The Q1 Fiscal 2017 conference call held earlier this week will give you a comprehensive overview of the company’s programs and progress. In fact, I’m not inclined to paraphrase the whole call here because you can easily watch the entire professionally prepared program in less than an hour.
If you’re already an investor, you’ve probably seen it. If you’re not, I recommend watching the video, which includes the presentation PowerPoint. It’s embedded on the company website’s event page or it can be accessed on YouTube.
I will, however, point out that the Trump election seems to be very good for biotech. At the very least, Hillary Clinton’s “war on pharma” isn’t going to happen. Polls indicate that the public is suspicious of profit-killing drug pricing rules. The best evidence comes from liberal California’s rejection of Prop. 61, which would have implemented state drug price controls. Major reform or elimination of the Affordable Care Act is also good for biotech.
Trump has been saying the right things about deregulation and FDA reform, so it’s not surprising to see a hot acquisitions market. With three platforms in clinical trials, Cellceutix is well positioned to benefit from the current environment.
Though the company’s psoriasis drug has produced impressive clinical data, I remain most excited about the antibiotic program. For legal reasons, the company isn’t calling Brilacidin a solution to antibiotic resistant bacteria. Nevertheless, that’s what it is.
The drug utilizes a biomimetic version of defensins, the host defense peptides that effectively kill bacteria, fungi, and many types of viruses. They naturally protect vertebrates, invertebrates, and even plants from infection. Microbial pathogens have never evolved resistances to defensins because these immune system peptides mechanically puncture the cell membranes of their targets. If bacteria evolved cell membranes that couldn’t be punctured, they would no longer function as bacteria. The potential applications are enormous with multiple potential blockbusters.
For transformational profits,
Patrick Cox
