Spencer Pharmaceutical (SPPH)

[sunspotter]

Spencer Pharmaceutical’s PR from last night - a translation:

First off, this PR was not issued because SPPH’s CEO has had a sudden inspiration to communicate more with his shareholders. It was written either because they have already had contact with SEC, such as a Wells Notice, or because their lawyers have told them to expect such contact.

Perhaps not entirely coincidentally, I have recently alerted SEC to the scienters that Dr. Arella has committed, and I suspect I’m not the only one to have done so.

Once a company knows it is the target of an SEC investigation, it will usually try to retrospectively cover its tracks by issuing a PR that “clarifies” its previous announcements, that is tries to amend its lies while not admitting that it did lie in the first place.

Here’s a classic of its kind from another penny stock scam Green Energy Resources:

http://investorshub.advfn.com/boards/read_msg.aspx?message_id=51113013



Secondly, the timing is significant – one minute after market closing. SPPH knows full well that this disclosure that is essentially a shell operating on behalf of a small Canadian hedge fund (of which more later) will cause a significant sell-off of its equity, so it releases the PR when no one can react immediately by unloading. Some one was selling yesterday though – I wonder who that was?

Because he was challenged, Arella admits that the Boston “address” is in fact a shell, although he tries to maintain that there may be some work being done there:

“the management does not work out of this legal address”

thus implying that some SPPH staff do work out of that office. I’ll bet a dollar to a cent that nobody works out of 8 Faneuil Hall Marketplace other, just possibly, than a “receptionist” who answers the telephone on their behalf as a part-time role while doing the same thing for other shell companies.

As for the excuse that they need the US accommodation address for a US listing, why do they even need a US listing?

Both Canada and France, where they claim to have real operations, have perfectly good exchanges – perhaps the real reason is that the US Pink Sheets do not require any significant filings or disclosures, whereas the French and Canadian bourses do (again, see later). And of course, Pink Sheet shares are incredibly easy to manipulate, by, for example, pump and dump outfits.

I’m sure anybody visiting the University at Montreal will get a tour by perfectly pleasant people of some labs – lab rats (I know, because I used to be one) don’t get out much, and welcome human contact. That doesn’t mean that the $16,666 that each month SPPH pour lavishly (that’s irony for anyone who was wondering) into R&D at that facility will transform SPPH into the Global Powerhouse that their previous PRS have implied they already are.

$50,000 per quarter is a derisory amount, particularly when you note that SPPH must be spending much more than that on banner ads on iHub alone. Just about every iHub screen on every MB has a prominent banner advertising SPPH, in an obvious attempt to boost interest in buying its stock. Any company that spends more on pimping its stock than on R&D is almost always a scam.

That’s doubly true when they’re in default of their obligations to their other “partner”, INSA:

“However, it should be noted that the partnership with INSA requires a payment of approximately $150,000 every quarter and the company has not yet provided the said payment and the partnership is on hold until such time as the payment can be made”

When discussing the Regulatory Approval Process, the PR conveniently omits to mention that previously they had claimed that commercialization of Met4 would commence in June 2011 in the US, Africa and various EU markets, and instead concentrates only on Canada, where , where it claims it will apply for a Special Access Program (SAP) from Health Canada for the fast-track approval of the MET4 product.

Incidentally, this is what a SAP actually is:

"What is the Special Access Programme?

The Special Access Programme (SAP) allows practitioners to request access to drugs that are unavailable for sale in Canada. This access is limited to patients with serious or life-threatening conditions on a compassionate or emergency basis when conventional therapies have failed, are unsuitable, or are unavailable."


http://www.hc-sc.gc.ca/dhp-mps/acces/drugs-drogues/sapfs_pasfd_2002-eng.php

In Health Canada's own words, you can see that the SAP has nothing to do with fast-track approval , in spite of Arella's claims. You can also see that there is literally no chance that yet another form of metformin will qualify in any way as providing something that any of the other modified release versions of metformin do not already offer.

What Arella wants you to believe is that Health Canada will approve a product – the combination of metformin with SPPH’s super duper drug delivery technology – without that technology ever having been tested in humans. In reality because of the risk that the technology might not work in humans – it might dump an overdose, or it might not release enough active, its human pharmacokinetic and pharmacodynamic profile is completely unknown – that’s simply never going to happen. Our friends north of the border may say “eh” a lot, but they’re not dumb enough to allow some fly-by-night start-up company to experiment on their citizens by approving a drug which has never been near a human being.

And nor will any other regulatory agency anywhere in the world allow a product which is a combination of an established product such as metformin in an untested delivery mechanism such as SPPH’s to be used without reasonably extensive human clinical studies.

Such studies will take more than a year from start to finish and will cost millions, maybe tens of millions of dollars.

Arella knows that, and he is deliberately trying to mislead you. Don’t let him.

“The company is currently being funded by a small independent fund located in Canada.”

You betcha. One of SPPH’s loyal longs (if there actually are any real longs) needs to ask Dr. Arella if his new found love of transparency will let him divulge who this “small independent fund” actually is.

Here’s my theory, borne out of substantial experience of similar penny stock scams.

SPPH’s sugar daddy is a hedge fund, which in exchange for the funding it provides SPPH, has received and regularly receives open, restricted, preference shares and warrnts of this stock. That would account for the huge percentage of the authorised share count which is not available to the float.

Now, in that position, hedge funds are good at doing one thing – “arbitraging” their position to make money for the owners of that hedge fund. They do this by both dumping the stock they own into the market, but also by going short on the stock, using their warrants etc. as guaranteed cover. Sometimes they do both of these things at the same time. It is an absolutely foolproof 100% guaranteed way of making money consistently, as long as you don’t kill the goose that lays the golden eggs by getting too greedy.

Interestingly, that kind of arbitrage, although immoral and unethical is entirely legal – and with a Pink Sheet stock, because of the absence of any significant reporting requirements, no shareholder even knows it is happening.

(What is illegal, and this is where Dr. Arella and Spencer Pharma have slipped up, is knowingly issuing false and misleading PRs such as their claim to be able to commercialize Met4 next year in a deliberate attempt to manipulate the share price in order to facilitate the dumping and the shorting. That’s why they’re now trying to back-pedal. (Too late, my friends, too late - no Safe Harbor statement covers intentional fraud.))

I guarantee you this is what is happening with Spencer Pharmaceutical stock, and that this is the rationale for the endless unjustifiable hype and unfounded optimism about this woeful pretense of a pharma start-up.

“The company has received an unsolicited all-cash offer on November 4, 2010 by a private equity fund. Although the offer is considerable, the company has opted to keep the information confidential until we receive further information from the purchasing party as well as retain an investment banking firm that can assist in said transaction. The company expects to release the information on the offer on or before November 12, 2010.”

There is a very high chance that Spencer Pharma will announce that they have decided not to accept this (entirely mythical) offer before the 12 November deadline. In any event they will never release the name or details of this supposed partner, simply because they do not exist.

No reputable private equity company would think about buying any of the stock of a start-up outfit with negligible research, that issues false and misleading PRs, defaults on its payments to partners, pays for banner ads that cost more than their R&D, has supporters who are unable to perform any real DD to justify why this company is anything other than a pump and dump shell, with many of those supporters disclosing that they are paid to promote SPPH.

Caveat emptor!