Keryx Biopharmaceuticals Inc fka KERX

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What No One Is Saying About Paramount Biosciences: 3 Case Histories And 4 Companies To Avoid

December 18, 2012

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More...)

Either you know the history behind a Paramount company, or you don't. That seems to be the rule in the market. Paramount is owned by Lindsay Rosenwald, and is involved with financing and founding biotechnology companies. Those who know the reputation are likely to steer clear of Paramount.

This article aims to share my research on the companies of Lindsay Rosenwald and Paramount Biosciences, while telling some of the darker stories of Rosenwald's companies that are largely untold. It will also apply the research to four questionable Paramount companies getting press in biotechnology stock trading: Ventrus Biosciences Inc. (VTUS), a company whose drug has failed at phase III trials for Iferanseran, and will soon see phase III results for Diltiazem; Chelsea Therapeutics Inc. (CHTP), whose drug Droxidopa has been rejected by the FDA and may soon begin phase III trials anew; Keryx Pharmaceuticals (KERX), with a recent phase III failure and more phase III results due soon; and Coronado Biosciences LLC (CNDO), whose drug is in early development

These are stocks whose prices will never reach what analysts say they might (a success like Paramount's Cougar Biosciences was an exception). The three examples that are soon to follow are more the rule for a Paramount company. First, the company will usually adopt a pre-existing drug, known to be effective by someone, somewhere, for something. The drug's promise is then lauded by the company itself, and often by analysts. Eventually, the data disappoints investors. Those who stay on board, hoping for a turnaround, are subjected to both dilution through stock issuance and bad financing deals. Investors should conduct background research on all biotech companies, and those associated with Paramount should be viewed with the utmost skepticism.

Let us begin with a list of things owned by Lindsay Rosenwald, most of which pertain to this research investigation. I quote the website for Cougar Biotechnology:

Dr. Rosenwald is the Chairman and Chief Executive of the Paramount Capital group of companies. The Paramount Capital group of companies specializes in asset management, investment banking, venture capital and direct investing within the biotechnology and life-sciences industry. Paramount Capital Asset Management, Inc. manages investor assets through domestic and offshore hedge funds, as well as private equity. Paramount Capital Inc., a NASD member broker dealer, specializes in conducting private placement offerings for public and private development stage biotechnology companies. Paramount Capital Investments, LLC is a venture capital organization that takes a controlling interest in public and private companies, including start-ups and distressed turn-around companies.

You'll have to do a little reading of your own if you'd like to know more about his background. I recommend looking into deepcapture.com and their story on the Dendreon (DNDN) scandal. Included in the story "Michael Milken, 60,000 Deaths, and the Story of Dendreon" by Mark Mitchell, is the corruption behind certain hedge funds. Millenium, Perspective, Visium, and SAC, some of the most prominent biotechnology investment funds, were involved in the DNDN scandal, which included insider trading, pump and dump schemes, and corruption of the FDA, all mixed into one. It's all in the story. These firms take advantage of retail investors. Mitchell describes Rosenwald as "a trader working for a man who once managed, along with his father-in-law, the dirtiest, Mafia-linked brokerage on Wall Street" (pg. 7).

To continue, allow me to quote the rest of the bio for Rosenwald from Cougar Biotechnology's site:

[...] Dr. Rosenwald has financed or founded Cypress Bioscience, Inc., Bradley Pharmaceuticals, Inc., Genta, Inc (GENTAQ), Repligen Corporation (RGEN), Discovery Laboratories, Inc. (DSCO), Avigen, Inc., Indevus Pharmaceuticals, Inc., Cardiome Pharma Corp., Keryx Biopharmaceuticals, Inc., Neose Technologies Inc., Cell Therapeutics, Inc. (CTIC), Biocryst Pharmaceuticals, Inc (BCRX), and Hudson Health Sciences, Inc.

Here, I think that the biography could use some additional commentary, so I'll allow myself this: it seems unfair to mention only the successes of Paramount's portfolio when there are evident abysmal failures. The purpose of the following section is to shed light on some of its failures in producing effective drugs and maintaining investors' confidence and trust. Next, I will identify key patterns and persons within these companies; and finally, I will provide an analysis of Ventrus, Chelsea Therapeutics, Keryx, and Coronado Biosciences based on my findings and conclusions.

Three Examples Of Failed Paramount Companies

(company information deleted)

Some Observations

These companies mistreated and abused their shareholders' money. This is evidenced by several indicators. The first is the high level of class action lawsuits filed by investors who were lied to by promoters. Genta is a prime example. It settled class action lawsuits for "issuing materially false and misleading statements [...] that had the effect of artificially inflating the market price of the Company's securities." (Securities Class Action Clearinghouse). Genta paid out 2 million shares and $18M in New Jersey. To make matters worse, there was some question of the lead prosecutor, Milberg Weiss, having a conflict of interest. I traced public defendant Melvyn Weiss to Vioquest Pharmaceuticals Inc. (VOQP.PK) (of which he was an early investor), another Paramount company worth over $6 at the time, but only pennies today ($0.03). Weiss was later jailed for involvement in the Madoff scam.

Another issue we've seen with management is ill-advised financing at high cost to shareholders. Remember Warrell's 100 quadrillion shares issued for Genta. Red Acre Investments has published two articles on Seeking Alpha that outline the company's financing deals. The deals are typical of PIPES, or "private investment in public equity." In such deals, the private shareholders stand to profit if drugs do succeed, and public shareholders suffer from dilution. Indeed, in August 2012, Talon announced that its first drug had been accepted: Marqibo -- an encasing technology for cancer medicine that has shown to increase life expectancy. Shares reached $1.77 on the news, but the financiers Deerfield and Warburg Pincus have since cashed in, and TLON is at $0.47 on December 18, 2012.

This extensive network of Paramount companies leads to crossover directors and employees. Worse, someone who crosses over in a Paramount company is usually the person in charge when things go badly. It wouldn't be overly suspicious to guess that this is what the directors intend to do. That is why they keep getting these jobs. Writer Adam Feuerstein illustrates the crossover of Michael Weiss and Ron Bentsur:

Keryx's management team, past and present, has ties to Paramount. Michael Weiss was a managing director of Paramount who also founded and served as CEO of Access Oncology. He then became chairman and CEO of Keryx and held those reins when the company blew up in 2008 after the phase III trial failure of a drug for diabetic nephropathy.

Weiss eventually left Keryx, replaced by current CEO Ron Bentsur, whose previous job was CEO of XTL Biopharmaceuticals (XTLBD.OB), another failed Paramount-funded company. XTL Biopharma went bust in November 2008, also after a major clinical trial failed. Bentsur was chief executive of XTL at that time and Weiss served on the company's board.

It's confusing to see what counts as a success at Paramount.

One last point before we continue. Mark Mitchell helps point out one aspect of Rosenwald's strategy:

He invests in companies that have real scientists experimenting with real drugs. But in an overwhelming number of cases, these companies prove to have nothing to bring to market. The companies churn out lots of press releases heralding medical breakthroughs, and their stock prices soar. But ultimately they announce that, in fact, their experiments have failed. By the time the bad news hits, Rosenwald will typically have sold all of his stock (pg. 15).

The first part of this strategy is to pick up pre-existing drugs that have been known to work in other places. Chelsea Therapeutics Ltd., for example, is testing Droxidopa, which has been approved in Japan for years. Two of the companies we've already looked at adopted an existing drug and heavily pamphleteered both its clinical effectiveness and market potential. Genta's Perifosine was an older drug that had been tested by the National Cancer Society with no real success (Feuerstein). Ondansetron, tested by Hana as a spray, was developed in 1984 by GlaxoSmithKline (GSK). These drugs posed significant challenges while in development -- challenges that cost investors money and offered little or no long-term returns.

Three Paramount Companies Wounded, One Still Strutting

1. info deleted
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3. Keryx Biopharmaceuticals

Remember that Feuerstein helped us understand what a good CEO does. Just to remind us, here's a bio for Michael Weiss, former CEO of Keryx. These two are the best examples of crossovers screwing things up in high places. Weiss's bio on zoominfo.com is interesting:

Michael Weiss was Senior Managing Director at Paramount Capital, Inc., an investment banking firm focused on the biotechnology sector located in New York, USA. During his tenure from 1993 to 1999, he was responsible for negotiating and executing private and public investments in biotechnology companies, including Genta, Inc., a publicly-traded biotechnology company, for which he managed the turn around in 1997-1999.

So this is the Michael Weiss of Genta's 1997-1999 "turnaround," on which some hedge funds scored very large returns, and which left retail investors holding 100 quadrillion bags. He also had a hand in Palatin Technologies, Inc. (PTN), founded by Dr. Spana, vice president of Paramount Capital Investments, LLC. Dr. Spana also founded AVAX Technologies Inc. (AVXT.PK), where Weiss also serves on the board of directors. (None of these companies is known for their success, by the way.) In this report from 2005, Weiss is chairman of XTL Biopharmaceuticals Ltd. XTL should be remembered for buying Bicifadine, a drug with limited potential that failed in phase II trials in 2008. The stock price dropped 97% that day. The company decided to issue more shares, and undergo a reverse split in 2009. It recently underwent a 10:1 reverse stock split.

Ron Bentsur was formerly CEO of XTL and is now CEO of Keryx. He and Weiss essentially crossed streams. Like XTL, Keryx is headed down the drain. The phase III results from Perifosine (April 2012) were supposed to be good, but they weren't. Another phase III result is due this year: a long-term trial of Zerenex for Hyperphosphatemia. Keryx has another phase III trial in progress for Zerenex, as well as a phase II trial. See this article for more information. Don't expect any improvement in Keryx's performance. Investors should be skeptical of any optimism regarding this company.

4. info deleted

Using a known treatment and trying to get approval has been a recurring strategy for Paramount companies. It is easy to get excited about the possibilities, but as we've seen, this strategy is better for pump and dump schemes than passing medicines through the FDA. However, McCamant recently praised the company, so I wouldn't short it -- yet.

Final Thoughts

These companies are not serving the interest of retail investors, especially not long-term investors. There is no way to know if a drug is "junk," other than the data and the words of management. For smoother sailing, those interested in purchasing biotechnology stocks should look outside companies owned by Rosenwald and Paramount. It pays to remember that, for long-term investments, we should ignore enticing smoke screens and instead look for organizations with a record of integrity and success.

Additional disclosure: This article is based on my opinions and personal judgments, which must not be construed as facts. The writing is intended for informational purposes and should be used only as a reference for ongoing research. Investors should do their own due diligence and consider personal risk tolerance, preferences, and needs when making an investment or a trading decision.
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http://seekingalpha.com/article/1071151-what-no-one-is-saying-about-paramount-biosciences-3-case-histories-and-4-companies-to-avoid

Also see:

http://en.wikipedia.org/wiki/Lindsay_Rosenwald


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