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Putting Clarity To A Misguided Editorial On Inovio Pharmaceuticals 23 comments
Jun 12, 2014 12:11 AM | about stocks: CLDX
Never has it become more apparent that the power of the pen is alive and well, especially in the world of financial investments, where opinion rather than fact can dictate extreme and volatile movements within a stock or even an entire sector.
Take the erratic and unusually volatile day that Inovio Pharmaceuticals (Symbol:INO) had to endure after the market digested the "opinion" of a writer from the Thestreet.com's editorial team named Adam Feurenstein. Those who trade in biotech stocks might know the name as his biostock mailbag is a regularly scheduled piece of editorial journalism that takes a strong, one sided position on a stock. The pieces are entertaining and although Adam can be a little bit condescending to his audience, his point of entertaining at the expense investment diligence should not be taken lightly.
Seeking Alpha is consistent with its policy to limit "ad hominem" pieces. Ad hominem pieces typically attack the traits of a person or his character rather than addressing the main issues at hand, preferably with a well thought out argument based on facts that can be verified by the readers. At Seeking Alpha, who certainly has its defenders as well as detractors, a reader can at the very least be comforted with the fact that the issues presented have been verified, vetted and checked for accuracy and timeliness by an editorial team that stands behind each publication.
Sure, there are always two sides to a trade and Seeking Alpha has been available to publish each position to an investment thesis. Readers have the right to enjoy, and publications have the obligation to ensure, that material can be relied upon as factual and with a thesis based in a good faith effort to present a point of legitimate reason.
Now, I am in the camp that believes that information presented by Adam Feurenstien about Inovio on June 10, 2014 was nothing more than a sensationalist and inflammatory editorial based on nothing more than an "opinion", utilizing selective censorship and editorial privilege to make an opinion read like fact. While it would not be proper for me to take a shot at Adam, I can quote what he thinks of himself from a past interview.
"I tell people I don't have an academic background in science. I don't have an M.D. or a Ph. D. But I cover biotech investing - that's not the same thing as covering the actual science behind it."
I don't have a problem with political science majors becoming prolific biotech writers, but, when they lack a basic sense of consistency and can blatantly mislead and willfully misconstrue information for the benefit of supporting an opinion , readers need to be astutely aware that the information presented should be used for entertainment purposes only.
Let's take an example of how an opinion by Adam can change to fit an investment opinion. When Adam covered a stock named Celldex (SYMBOL:CLDX), he had their backs when Celldex decided to hold back potentially positive and/or negative information about a trial. In fact, he went as far as to make an excuse for them as to why they may be entitled to a fee pass from his opinionated scrutiny:
"Celldex hasn't disclosed response rates in patients with greater than 50% GPNMB expression levels. The company told me that results were fairly consistent and suggest that higher GPNMB expression levels resulted in greater response rates. That's fine but Celldex still won't tell us the response rate in the third bucket of patients with greater than 50% GPNMB expression levels.
I want to see those data because if what Celldex says is true, it will further verify the mechanism of CDX-011 and increase the chance that this is real drug. Celldex may be reticent at this time to give us these data because the patient numbers are too small, but it's still important information and somewhat bothersome that the data are being kept from us."
In contrast, when it came to analyzing a response to an interview question made by the CEO of Inovio, Feurenstein not only ignored the fact that Inovio has made no indication that the data from the double blinded study has even been forwarded to them for review, he goes way off the mark and compares a study by Trimble, et al to define his gold standard and to mislead readers absent of relevant data:
"Don't be fooled by Inovio's smoke and mirrors. A T-cell response to VGX-3100 absent a statistically significant shrinkage in cervical lesions compared to placebo is clinically meaningless. It's a failure.
In a 2010 study published in the journal Cancer Immunology Immunotherapy which followed 50 women with high-grade cervical intraepithelial neoplasia (CIN 2/3) -- the same type of patients Inovio enrolled in the VGX-3100 phase II study -- Trimble et al found that systemic immune response (a T-cell response) did not predict regression of CIN 2/3 lesions.
Moreover, 26% of the CIN 2/3 lesions followed in the Trimble study shrank completely on their own, without any treatment, after 15 weeks. You can find other studies in the medical literature which cite CIN 2/3 complete regression rates of approximately 35%.
In other words, the efficacy bar for VGX-3100 is very high, which explains Kim's desire to walk back expectations."
Understandably, this kind of selective reasoning can incite a selloff of shares to many of the retail class. However, smarter investors know that the comparison makes little realistic sense when applied to the technologies that Inovio is utilizing in the study.
For instance, Feuerenstein referenced that Trimble did not demonstrate the success that they had hoped for, which became his comparative to Inovio. Importantly, and omitted from his analysis, Trimble did not have the use of Cellectra, which is Inovio's electroporation device. Now, being that Inovio has validated this proprietary device and has demonstrated that Cellectra has provided a seven fold increase in cellular uptake, it would certainly be a key piece of information to leave out of an assertion, if one wanted an argument to be persuasive to the unsophisticated investor. But, telling readers of a seven fold increase and best in class T cell results would be counterproductive to his thesis. And, the Inovio results certainly dwarfed the results to his comparison, Trimble.
Roche, for instance, finds the data from Inovio to be quite appealing, especially the positive data highlighting T cell response rates. So much so, in fact, that they have agreed to pay up to $440 million dollars in milestone payments to Inovio as a partner to a current study. To those that have followed the progress of Inovio and understand the differentiating details of how Inovio is delivering the science, it is apparent that Cellectra is a vital and unique component throughout the data associated in Phase l studies. To make a comparison to Trimble, for instance, and leave out this key differentiating factor is a demonstration that the author, who admittedly does not have a scientific background, is willing to omit materially beneficial and supportive evidence presented from the Inovio trails.
True, many Seeking Alpha contributors come from varying backgrounds and areas of expertise and some readers may doubt contributor credentials as well. However, there is a reliability factor associated with Seeking Alpha contributors in that an astute editorial team screens the accuracy of articles, requires embedded link source and asks its contributors to provide fact based information instead of opinion based articles that lack a substantial amount of supporting data..
Sure, I have had differences of investment opinion with many contributors; however, the articles presented are never short of linked data to support a thesis by the author. Needless to say, when an editor edits himself, sometimes key information can be missed.
I wanted to get an understanding as to where the information in TheStreet piece might have found its origin of fact. I was surprised to find out that Adam has never once met with management, has never once had a phone discussion with management and has never once made a personal introduction at any of the numerous conferences that Inovio has attended. Any of the above would have been an opportune time to get first hand information from a CEO, rather than to offer conjecture as to the psyche of what a CEO is "really thinking" and present it is accurate information.
Imagine the success a trader can have when he has the psychic ability to get into the brain of a CEO and determine why a response to an interview question was made in a certain way. It's completely irresponsible for an opinion piece to neglect the obvious and available information that Dr. Kim has made available to the markets for the past several months.
In my prior two interviews with the CEO of Inovio, Dr. J. Joseph Kim, he has made consistent and guarded statements about the current trials. Obviously, the data referred to in TheStreet article was not in the hands of Inovio back in February of 2014, however, the CEO presented answers in the same optimistic, but, professionally guarded manner consistent with an honest and pragmatic CEO.
I have been surprised at the lack of promotion provided by Inovio and its management team. For the prior twelve months, the company has allowed the data to speak for itself. Peer reviewed publications, Best Therapeutic Vaccine awards and institutional investments from tier one biotech investors like Orbimed and Emerald Growth speak volumes, much louder than a faulty and unfounded insinuation that Dr. Kim is preparing investors for a failed study.
Roche, and I am going to make an educated assumption here, has spent hundreds of hours analyzing clinical data presented by Inovio prior to entering a partnership. An additional educated assumption can then be made that they were interested in the early success of the data, as they paid ten million dollars up front for the "right" to become a partner to a fairly limited part of the company's clinical pipeline. In addition, they are willing to pay an additional $440 million dollars in additional milestone payments to Inovio as the trials progress. As an investor, I pay attention to what causes the consummation of a partnership deal and treat the financial terms as a bonus to my confidence.
Now, I made it clear that my intent was not to discredit an opinion of an author based on character and/or personal trait. But, I did not agree to allow misstatement of fact or the rights to enjoy too much literary license go unnoticed. Nor should the absence of published and compelling evidence of early clinical success be allowed to go unrecognized .
TheStreet article cleverly cloaks misrepresentation to read as fact. Again, if a reader takes it as entertainment, no harm is done. However, when an author deliberately misleads in an attempt to influence a behavior it should be viewed as highly unethical, potentially violating civil statutes.
Take the instance where Feurenstein pens his assertion that the VGX-3100 trial data is already in hand at Inovio and that the company is shielding results. Well, on June 11, 2014, Inovio responded by telling the investment community and its shareholders that the data, in fact, is still blinded. This is a material misrepresentation that I highly doubt will be corrected by Adam. First amendment rights are the governing shield to journalists, but, it has never allowed facts to be intentionally misstated without consequence.
He went on to disregard the trial study parameters and mislead the readers to believe that the study design does not fairly represent a regression target that significantly differentiates results from prior clinical studies. He cites that a 25% regression rate has been considered relatively common in untreated patients. He then cites that a targeted 52% rate by Inovio would prove to be a failure in terms of results. Of course, the obvious omission is that the data from all previous studies highlighting natural regression has ranged from 4% to 40%. Thus a 52% regression target by Inovio would demonstrate a best in class result and would certainly be beneficial to Inovio on several fronts, but, more importantly the data can lead to an increase in treatment options for the cancer patients.
For those that follow oncology studies, the FDA has been generous in granting limited approvals for drug or vaccine indications that increase survival rate while at the same time generating minimal side effects to the patient. Inovio has stated on several occasions that the clinical findings thus far have indicated no serious adverse effects in patient response, with the most severe side effect being mild inflammation at the injection site. This is a key and differentiating factor that needs to be included in the analysis of Inovio. Potential partnerships can exist based solely on safety data, which can then can be combined with potential immunotherapy treatments. Inovio has announced Roche as a partner, but, has also discussed potential partnerships for the near future. I find it highly unlikely that Dr. Kim would be so bold to discuss partnerships if they were not indeed in early stage discussions. It simply is not part of his character based on past presentations and guarded disclosures.
TheStreet article also mislead readers as to the importance of T cell response, which Inovio is measuring in the trial patients. The current data presented by Inovio has demonstrated that responses in T cell activity have been statistically superior to other studies when utilizing its Cellectra delivery system. Results also highlighted that the SynCon DNA based immunotherapy, which has been targeting pre and late stage cancers, provided T cell responses with statistically durable results and have exceeded other current technologies. The effectiveness of the T cell response also demonstrated a strong killing effect against targeted cells. These issues have been key to the Inovio trials, however, they were conveniently missing from TheStreet opinion.
Certainly this data could have been presented accurately by Adam; however, cloaked within an opinionated story, the author took license to distort the study to benefit his own agenda.
Bottom line…no one has ever stood in front of the cameras and admitted that games are continuously being played on Wall Street. Well, Jim Cramer, who founded TheStreet and has a truly entertaining television show, has admittedly in the past worked hard to influence the price of a stock by whatever means necessary. So, he may be the exception.
But, even though no one else readily admits manipulation,from fear of consequence, manipulation by electronic trading, misinformation and misrepresentation of fact all play an important role to facilitate the markets, an imperfection that will remain for years to come.
My opinion is clear…TheStreet, on June 10, 2014, placed an article that materially misrepresented fact and willfully omitted material information that would have been a counterargument to its own piece. Instead of dealing with an entire study, the author took liberty to design his own conclusions based upon bit and parcel information. Further aggravation lay in the author's willful representation that Inovio has had data in hand and is withholding trial information in an orchestrated plan to mislead investors from the trial data expected in the first half of 2014.
I turn to the fact that institutional firms and current partners have spent hundreds of hours performing due diligence on Inovio, which then took a position in the company. These are the investment minds we can trust. The author who wrote TheStreet piece has not performed the required amount of due diligence, nor has he ever been in contact with the company to verify or substantiate his information. His opinion was based upon and written hours after a Seeking Alpha interview of Dr. Kim was published. Certainly, it was not enough time to generate meaningful and encompassing data, and, it showed.
I find it quite coincidental that on June 10, 2014 as the stock was rising nicely, responding to a release from Inovio that a new Phase 1/lla trial has been initiated, that at precisely 12:38pm a slew of investors just happened to be monitoring their Inovio position and responded within seconds to the misleading article. How ironic that such a misleading article can get to the hands of investors within seconds and cause a sell off of tremendous magnitude, in excess of 40 million shares pre reverse split. Perhaps it was coincidence, perhaps it was an orchestrated attack, no one knows for absolute certainty.
We do know this, however. With Inovio trading at these new levels of price per share, any short positions will need to be covered within three days of June 10, 2014 if they are naked in position. Being that the two brokers that I use have listed Inovio shares as hard to borrow, one firm told me that naked positions will be required, by law, to either have appropriate borrowed shares, or to close the position within three trading days. Essentially, a free ride for three days. Inovio will certainly get more support from the SEC enforcement division with its shares no longer at a sub five dollar level. Hopefully, the company utilizes an opportunity to have the SEC look into the motivation and trading pattern caused by the article published on June 10, 2014.
I stated at the beginning of the article that the pen is still a mighty strong weapon in the investment arena. It can cause wild swings and present erroneous data that can be cloaked in a veil of legitimacy. We need to accept the market as is, with all its imperfections and inefficiencies. We dot not, however, need to remain subject to market reaction from malicious and material misrepresentation of fact. It is my hope that the proper regulatory authorities look into such matters with swift and punitive action.
Until that time comes, we need to keep our blinders on and pay attention to the facts presented to us by the companies that we invest within. Inovio has presented strong and compelling data which can be relied upon as accurate and truthful. It is for that reason that I maintain a long term position and try quite hard to shield myself from the manipulative structure that the market can sometimes invoke. It is frustrating to be blindsided by well distributed articles that offer little journalistic truth and frustration will remain a part of the investor psyche.
In this case, however, differentiating frustration from anger is an important distinction. Investors should feel compelled to demand accuracy from an investment piece, and, if not offered by the author, perform some due diligence of their own prior to buying or selling a stock.
At the end of the day, regardless of public opinion, trial results will rule the direction for Inovio, and, based on published data from Phase l trials,indications exist that positive results should be expected.
Disclosure: The author is long INO. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.
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