In an August 22nd article entitled: Cyclacel Pharmaceuticals: What You Don’t Know, I mused upon the motivations behind Andrew Fein’s $173 price target on an equity that was trading for a scant $4.48 on the day prior to publication. Was this based upon the notion conveyed by Cyclacel’s controversial CEO Spiro Rombotis in a promotional video found here that indicated a slower than expected evolution of the trial since enrollment had closed in December of 2014? Or was this the precursor to tapping an ATM agreement with FBR Capital Markets & Co struck in June? The answer came within the Q3 2016 Report, issued on November 14th, which showed that Cyclacel had tapped that agreement for $5m. That’s right! $5M. And then again in October for an additional $1.5m bringing their cash on hand to $19.5m at the time of publication. This for a company sporting a market-cap today of roughly $17M according to Seeking Alpha and $12m according to Yahoo. I suspect that the former is more accurate as they’re likely taking into account the added and highly dilutive shares.
I don’t know why I’m susceptible to falling into the retail investor trap that is Cyclacel Pharmaceuticals time and again but I am. And it’s becoming a very expensive habit. It’s undoubtedly one of the more difficult stocks to read. And August 22nd was no exception. We had Andrew Fein valuing the equity at $60 per share without (SEAMLESS) success. I too found Cyclacel’s developmental pipeline to be underrated. And the possibility remains that sapacitabine’s historically long tail at the end of the KM curve could still allow for an epic Hail Mary result but management’s greedy sale of shares tells a different story. As disappointing as the fire sale has been to the value of our holdings, even more frustrating for me was viewing that video now posted on the Cyclacel website. Nowhere within the 6m:52s conversation is any mention of the DSMB assessment that the study’s futility boundary had already been crossed indicating a likely failure to meet the 27.5% improvement in overall survival. That makes the video not only promotional but highly deceptive as well.
At one point in the conversation, the staggeringly uninformed host recaps sapacitabine’s strengths by stating: “So, no more infusion therapy, caregivers are freed up, patients are in-home, um, fantastic technology.” To which Spiro Rombotis responds: “Well, we think so.” But there’s a problem. The sapacitabine only arm was dropped in this trial due to, most likely, lack of efficacy. The active arm is composed of alternating infusions with decitabine. Consequently, there would be infusions upon approval and patients would be in home half of the time over the course of their treatment. The drug could be given on its own but that would be done without proof of efficacy as a standalone therapy. What bothers me is that Rombotis makes no effort to be forthcoming by correcting the mistaken perception.
If you want a good look at what the hidden hand of ATM dilutions looks like, feast your eyes on this screen grab featuring a typical day’s trading of CYCC.
Note the two large volume spikes just prior to noon and just after 3 PM. They are most likely the handiwork of a value diluting investment banker and his desperate partner. And just below is what the Cyclacel chart looked like on the day of Fein’s enthusiastic appraisal and after the ensuing punishment inflicted on us all by way of the ATM agreement. If you’re wondering why Cyclacel resorted to this retail investor unfriendly method of financing its operations you need only ask yourself who would subscribe to a public offering of a company with a pivotal study that was sure to read out poorly.
Wrapping it up, I’m underwater (again) on CYCC and have no choice but to hold. The chance of SEAMLESS success is about 100k -1 given the amount of money the company has raised. I have a small amount of dry powdered that I’d be tempted to wager on the day of published failure but the ATM facility would, no doubt, leap into action were the equity to jump off the floor thereby mitigating any chance I’d have to recover my losses. And since CYCC’s market-cap has swollen by nearly 50% since before this all began, Fein’s price target would of necessity be cut by at least a third or more. Therefore, the upside is downsized, though it remains significant. But only, however, if the company starts to think of its shareholders well being.
Always be well…
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