Very interesting reading, but still not tendering.
Belas' Conversation with Matt Vincent
Belas asked me to post this for her as she is traveling:
Dear Everyone At ICell,
I had the opportunity to speak to Matt Vincent yesterday as he has been reading the board and he wanted to get the right information out there because of all the conjecture about why he left the company and because he wanted to stay connected with our stem cell community. So he wanted to set the story straight. He went to Paul and asked if he could do this on ICell and Paul agreed.
Matt did leave Ocata at the end of the summer, but he was not forced out and he did not quit over differences with management. As he told me, it was a very tough decision. He has worked with Ocata/ACT in one form or another for a decade, and has made some of his closest friendships there, including with Dr. Lanza. Matt has his graduate degree from Tufts Medical School and has kept in touch and consulted with PhD advisor over the years, helping him to set up a company in the Boston area called Arisaph Pharmaceuticals (Matt is updating their website, in case you look at it is out of date). The company is working on treatments for fatty liver disease, cardiovascular disease and several different cancers. Like Dr. Lanza, his old advisor had looked to Matt over the years to help him on a range of IP, BD and science projects and is one of his best friends. Arisaph has entered a phase where it is about take off, having three phase 2 studies that will complete this year and filing INDs for at least two new drugs. The company is being pursued by some of the best bankers to go public when market conditions improve. It is a small management team, they wanted a "jack of all trades" like person on board to help propel that process. Matt was their first choice, but the job was not going to be left open for him indefinitely and he had to decide over the summer. I know that I will be one watching for this and investing in this when it happens. We all know of Matt's expertise in patents and in bringing Dr. Lanza's science to the forefront so I will anticipate this happening this year and hopefully Matt can keep us in the loop through ICell. He will be presenting next week in San Francisco at the JP Morgan Healthcare Conference .
Matt also has a scientific article coming out in Nature within three to six weeks, and I was unaware that he had a previous article in Nature a year ago in January. His co-authors are a husband and wife team by the names of Frank McKeon and Wa Xian, who Matt has collaborated with for many years. Frank and Matt started a company called AsymmetRx a number of years ago and developed an antibody that is now used in virtually every prostate biopsy done in the US and Europe. Frank, Wa and Matt are working on a new start-up, which Arisaph lets him do, code named Tract Pharma. That company will be focused on therapies and diagnostics for addressing diseases of alimentary canal (esophagus through GI tract). In the esophagus, they have undercovered the mechanism by which Barrett's esophagus develops - a meta plasma that afflicts about 50 million worldwide with 5-10 percent developing into esophageal cancer (the 2nd most deadly form of cancer). They have also cloned the stem cells in the GI tract from patients with inflammatory bowel disease, and have identified pathways in those cells that are go astray in those patients and which might be targetable with new drugs.
With respect Astellas, I had a chance to get a better understanding of the current deal materialized, and even though he had already left the company when it happened, a few of his views on it. Even though they were not vocal to us about their efforts, Matt told me that they were meeting with every big pharma company with ophthalmology programs (including Pfizer, GSK, Roche and Bayer) on a regular basis, and including the heads of opthalmology for those companies. The uniform message from these companies was, however, that they wanted to see data from a controlled and blinded clinical trial, such as a phase 2 trial, before they would invest heavily in a collaboration. According to Matt, theses companies were very upfront that they would rather wait and overpay for a program in order to avoid some of the risk of any early stage program, particularly in areas like gene and cell therapy. Our patient base was too small and yes, some of the findings were incredible, such as the Cowboy, but then we had a patient like Maury who really never saw any benefit from the treatment. Also they wanted to see results from other patients, not just late stage patients, and they did want to see a control in the the trials. So they wanted to see results from a greater patient base. Also, over the years Ocata has learned that the site of injection may be important and this could be one reason why some do very well with the treatment and others not as well. In low vision patients who only have peripheral vision, they develop what are called preferred retinal locus and there was some thought that location of the injection relative to this spot, and other factors, really needed to be understood better in a phase 2 study before the big pharma companies would be ready to open up their checkbooks. Matt reminded me that the cost of this type of deal is not just the upfront payment, but the partner becomes obliged to support $50-$150 million of funding the phase 2 clinical trials and preparing for phase 3 before they would get to this level of comfort.
From Ocata's perspective, going it alone with what they faced trying to raise money in the stock market was looking harder and harder by last summer. The reverse split and up-listing to NASDAQ was expected to finally get away from all the manipulation of the stock, such as shorting and "negative" reports from groups like MAKO, that had occurred on the bulletin board. However, as we all know, that did not happen and the stock continued to be driven down. Funding the phase 2 study by themselves would have required the company to further dilute the shareholders and probably would have driven the stock price down significantly lower (at least in Matt's estimation). As a quick aside, Matt has met several times with Elizabeth Warren who is really listening about the plight of shorting in the market with certain companies, especially since it hurts biotech companies in her (an my) state of Massachusetts. Matt discussed Mako with her, and Seeking Alpha and the negative effects they have on Ocata and other Massachusetts companies. Matt calls it a Wild West on the internet where shorting and fake analysts are not policed the way they should be by the SEC. We all know how much Andy Blidy has been doing with SEC concerns, working with Representative Eric Swalwell of California, and Andy has been relentless in trying to get things changed in this area. Andy and Matt should work together on this!
Japan, however, created a new opportunity for partnering in late 2013. Matt told me that he is the one who originally contacted Astellas at the end of 2013. At that point in time, the Japanese government changed the regulatory requirements for stem cell products (to help iPS technologies in Japan) so that is became far easier and much faster. In some cases, it could be done with a single phase study with less than 100 patients. With that in mind, Ocata began additional business development efforts to see if they could find a partner for Japan. Several companies were interested, and they had in depth discussions regularly with the business development and scientist at those companies. The other Japanese companies moved slowly, but Astellas had decided to start a regenerative medicine division so was willing to move more quickly. The relationship reach a point in early 2015 where Astellas had proposed a strategic partnership agreement and the two companies spent the next eight months in diligence and working out those terms. However, in that time Ocata's stock came under heavy pressure from people shorting it (i.e., MAKO) and the stock price and market cap for the company dropped down into the mid $100 million range. It was after Matt left Ocata that apparently Astellas decided that, based on the amount of money they we were willing to pay in upfront payments and milestones to Ocata, they would be better off buying the company (his conjecture) and the deal moved from being a partnership to an acquisition.
Astellas wants to create the Astellas Institute of Regenerative Medicine, open several trial sites around the world, and have Dr. Lanza run this for them. This will allow Dr. Lanza to keep his scientific team in place, to finish Phase 2 of the RPE's and to see his life's work through with hMSC's and blood platelets. As Matt put it, this is probably the best way to see a wide variety of Dr. Lanza's work beyond the RPE program be developed to the point that it can actually help patients.
Matt holds Astellas with the highest regard and wants us to know they are an honorable company. Again, only conjecture, but Matt does not think Astellas would be willing to go back to a partnership discussion, and expects that the current stock market conditions in Japan and the fact that Astellas did not raise the tender price indicates that Astellas has gone as high as they will go. I asked him about MAKO, and he does not believe that MAKO is connected to Astellas in any way. MAKO's pattern of coordinating short attacks on other companies would support that. Again, his history with Astellas predates Ocata and he holds them in the highest regards.
I mentioned Gary Aronson to Matt and what he is trying to do behind the scenes. With respect to a "white knight" scenario, Matt did not think that was likely. Because of the depth of discussions that Ocata has regularly had with all the major players and their position on wanting to wait for more data, he did not see how Gary Aaronson would be able to move another company to offer more for Ocata.
We discussed the change of the proxy vote allowing the company to reprice options and Matt believes this was done for the scientists and employees of Ocata. Past options for many of the employees are underwater significantly, with some of the longest tenured employees have options priced at more than $200 per share. The new plan would permit repricing for employees if dilution severely impacted stock prices going forward. Matt also wants us to know that he does not hold any shares of Ocata and his lowest priced options are priced at $8.50 a share and he does not have enough for him to realize much (less than $250) from any deal with Astellas.
This is where my questions to Matt (that are listed at the end of this) were such that he said he could only speculate on what was happening as he no longer was working with Ocata but was involved as a consultant.
Matt also believes that the consequences could be serious if we do not do this deal now with Astellas. He said that if we walk away more dilution will be inevitable (see above) to keep the clinical trials going, and that the company would probably be forced to slow or even mothball some of the other science programs from Dr. Lanza, at least until the end of phase 2 of the RPE trials. I said it was a terrible deal for the longterm shareholders who have truly kept ACTC/ Ocata afloat and that no one thought of us. Matt agrees that our retail base is very strong and very surprising for the new management. But if he were still with the company, he would recommend approving this sale because we do not have another investor who can see our science through the way Astellas can.
Matt also knows that we at ICell will have lots of questions for him regarding Astellas and this deal. And he has graciously said he will try to answer as many questions as he can without violating SEC regulations. I miss having Matt in place and talking to him at the conferences that I was able to attend over the years with Mike C and others. Matt is just a class act, one whose expertise is invaluable, but also someone who also had time for the shareholders and would answer our questions. I wish him well with his new company and with his other two start-up companies that he is advancing.
The new management of Ocata need to know this; that had they been more open to the retail base, the longs who kept the company going, it would never have come to this dissension.
So to begin with, here are my questions to Matt. Thank you Matt for keeping the lines of communication open to all of the shareholders!
I do want to say that I have thought about our conversation and I am left still with a few questions.
1. Why does the SEC allow shorting to take place when they are fully aware of it, and are aware that it's Mako?
Answer from Matt: Shorting itself is not illegal, but does have regulations in place - i.e., no naked shorting. The issue as I see it is the coordination of shorting with false reporting on companies, such as we saw with MAKO and other "anonymous" sources. I think this is rampant and the SEC/Congress need to crack down on people holding themselves out as analyst, and require them to register and submit to SEC rule (and US extradition) before their postings can be carried on news feeds. HotStocks, for example, is run out of Hungary! Google and Yahoo charge these "analysts" to get their pieces listed in company news feeds - so it is not just happenstance that Seeking Alpha shows up in Ocata or others news feeds, they made it happen and paid for it. It is a business, and the SEC needs to regulate it to protect consumers. We fought for consumer protection acts when it comes to bricks and mortar businesses, but for some reason Congress chooses to let mod rule prevail when the business is conducted on the internet.
2. And why are they not held accountable if the SEC is aware that it is Mako, Seeking Alpha and whoever is responsible for feeding information? The SEC allows this to keep happening, knowing how this destroys businesses in the US, and knowing how corrupt the US markets are…Mary Jo White has received many emails from us at ICell and others too, so why is she not stepping in to do something?
Matt's answer: I have no idea why this is not a priority for the SEC. Allowing this manipulation of stocks for small and emerging companies hurts investor confidence in these types of companies, which in turn has probably resulted in the loss of jobs and innovation in this company. That is the conversation I have had with Senator Warren and what I think is getting members of Congress to start thinking about this problem more acutely.
3. You had already left, but why didn't the company fight harder for a stronger tender or buyout? Really, $8.50 per share still leaves so many of us under water after almost a decade of investing. I don't think I've ever seen such a loyal shareholder base and to know we kept the company afloat and no one fought for us in unconscionable.
Matt's answer: I agree - Ocata has been blessed with the most loyal investors any one could ask for. Again, I was not around for these conversations, but I do believe that the company's management worked as hard as they could at the offer (including fairness opinions, etc). If Astellas was willing to offer more, I assume they would have done that in December when they extended the tender offer. The situation in the stock markets now makes me even more skeptical that they would come up any higher. That being said, I think the consequence to this deal falling apart are pretty draconian. Ocata's cash runway, I think (i.e., this is just my opinion!) would require trimming down to the clinical programs and I can imagine that it would make the RPE program harder to partner even at the end of phase 2 as it would likely leave a perception of failure around (why did Astellas back out will be the concern).
Of course the most important things are bringing the science forward and helping the patients. Most of us would agree that is first and foremost as many of us are here because we lost loved ones. I understand that you, Matt, would approve this sale if you were still with Ocata. But for the longs here, the shareholders who kept this company going, this deal for us is just not what we had hoped for.
Matt's answer: Marion, I hear you and believe me, I absolutely understand. Many of us at the company imagined retirement someday based on a big deal propelling the stock to points where are options would be worth a substantial amount. As I look back, I blame the massive dilution the warrant issue created for the company and the constant shorting manipulation even after listing on NASDAQ as creating a substantially no-win situation - either we dealt with the decreased market cap issue for a buyout, or we suffered huge dilution to get through phase 2 on our own. Either way, it required resetting of expectations. I truly wish this could have been different for you, me, Bob, John, Irina, Erin and all the rest of the employees and long term shareholders in this company. If there is any comfort here, it is that Bob would now have a platform to really develop all the therapies he imagined and get them out to patients that much more quickly.
Thank you Matt for giving us your time and knowledge once again!
Marion/ Belas
