I am long, Cyclacel Pharmaceuticals (CYCC).
“The oldest and strongest emotion of mankind is fear, and the oldest and strongest kind of fear is fear of the unknown.” H. P. Lovecraft – Author
It is no small irony that the Phobos of biotech has demanded that the SEC step in to regulate all other social media voices over the meteoric rise in micro-cap stock prices. From his dual vantage points on Twitter with over 50 thousand followers, and lofty bully pulpit of The (darkening) Street, it would seem far easier for Adam Feuerstein to see the bigger picture that includes his own disproportionate influence over potential bag holders. That, however, would require turning his gaze inward a perspective that few urchins of the dark underbelly of Wall Street possess. It’s not surprising then that uber analyst Feuerstein is equally unwilling to identify the greater and more frequent malady of downside price manipulation that is far easier to accomplish with roughly the same skill set of lies and distortions.
The Hidden Bliss of Willful Ignorance
Now, you can’t foment. That’s a violation of… You can’t foment. You can’t create, yourself, an impression that a stock’s down. But, you do it anyway because the SEC doesn’t understand it. So, I mean, that’s the only sense that I would say it’s illegal. But a hedge fund that’s not up a lot really has to do a lot now to save itself.
Jim Cramer – Executive Editor of The Street
When Feuerstein labelled Cyclacel Pharmaceuticals “a zero” and it’s position holders as “trading worthless pieces of paper” he knew the devastating effects his derogatory commentary would have on the stock price because he’d done the same thing seven months prior, albeit, with several strands of justification and far less fear mongering. And while these threads hadn’t become fibrous wisps over the course of two changing seasons Feuerstein had to willfully ignore the avalanche of mounting preclinical evidence that was piling up regarding Cyclacel’s Phase-1 CDK2/9 Inhibitor, CYC065, if only because investors weren’t. Consequently, Feuerstein rummaged through his old articles to solicit a tired narrative about a company that, seemingly, unbeknownst to him was in transformation. This absence of a fresh perspective frequently substitutes due diligence with a cocky, careless disregard of the present day facts.
Let me state from the outset that I agree with Mr. Feuerstein’s historical assessment of the company and while I would phrase it a bit differently, Cyclacel has been both adept at conducting equity raises and deceptive about the timing of those events. And their lead drug candidate, sapacitabine, an underpowered nucleotide analog, failed miserably in a late stage trial, the reported outcome of which was delayed whilst the company tapped their ATM agreement for roughly $6.5m in badly needed cash. It then goes without saying that I’m no fan of Cyclacel’s executive leadership though I have, and do now, own shares. Fixing one’s sight on past performance alone, however, is no way to navigate the ever changing landscape of a biotechnology equity.
“The ‘Dumb & Dumber’ Cyclacel Investor”
It was in August of 2016 that Feuerstein penned his last article on Cyclacel the title of which referred to equity holders as dumb and dumber. In my own article entitled: Cyclacel Pharmaceuticals – What You Don’t Know, I didn’t disagree with most of his assessments at least as they pertained to past performance. And any shareholder that thought sapacitabine’s SEAMLESS trial had more that a lottery ticket chance of success hadn’t read my extensive coverage on Seeking Alpha which included numerous misgivings about apples to oranges comparisons of past trials and the almost ridiculous SPA requirement of a 27.5% beat of decitabine in the active arm. That noted, I had two strong disagreements with Feuerstein’s presentation.
Firstly, his use of pejoratives to describe corporate executives who lie, cheat and distort information germane to shareholder concerns is forgivable. I’ve rightfully referred to many of them as psychopaths for shedding one’s conscience seems to be requisite for ascension to the role of CEO. But calling shareholders “Dumb and Dumber” is another thing altogether. It’s designed to suspend critical thinking by shaming someone into selling their shares. When you read a Feuerstein missive on his home base of The Street, you’ll rarely find links to trial studies, SEC documentations or press releases. He’s long on bloviating and short on information. And this article was no exception.
Secondly, Feuerstein went only half way down the clinical pipeline and did a poor job of even that. He continues to ignore the fact that CYC065, Cyclacel’s second generation CDK2/9 Inhibitor has been in a Phase-1 dose escalation study since September of 2015. In fact, he didn’t mention it at all! It has now reached the sixth level of dosing without incident and is, according to the company, 40 times more powerful that seliciclib which Feuerstein did deride as “not worth anything”. Interestingly, it too has been in a Phase-1 study that reported promising results in June of 2016 shortly before Feuerstein wrote his disparaging remarks. In that trial, seliciclib is combined with sapacitabine to treat patients with advanced solid tumors. It has since been expanded to treat a specific subgroup of patients that were more amenable to treatment.
Developmental Biotechnology Companies Are Valued By Promise Alone
Immature and struggling enterprises that fail one day often succeed the next after a late stage candidate steps front and center or an altogether new compound is bought and developed. Regado Biosciences (RGDO) which later became Tobira (TBRA) would be a perfect example of the latter while Cyclacel, with time, might prove itself to be a stunning example of the former. This is not to say that Tobira ever had a commercial therapeutic. It didn’t! That’s the very definition of the word “developmental” – non-commercial. In fact, its acquired candidate failed a phase-2 study. But the therapeutic market size was large enough to warrant an approximate $150m market-cap (7x the size of CYCC’s today) and Allergan paid a 500% premium to buy the company on a gamble that it might succeed. In developmental biotech the word “might” can and often does carry a lofty price tag.
There is a middle ground between possible and probable, between might and maybe, which is occupied by the word plausible and investors appreciate that. So, when study group after study group added to a mounting pile of evidence suggesting efficacy in one of oncology’s prized MOAs investors logically acknowledged that Cyclacel’s $16m market-cap was woefully low. A company with a promising CDK2/9-Inhibitor in the top therapeutic landscape of oncology warrants a market-cap far in excess of the one Cyclacel sports today. After all, Pfizer’s (PFE) CDK-Inhibitor, Ibrance, approved as recently as 2015, is expected to bring in $3.5bn in 2017 revenues. And once investors made those logical connections, Feuerstein stepped in to quash that awakening. And he did so in willful violation of SEC rules regarding making false statement to promulgate false impressions. But why?
Qui Bono? Who Benefits?
Allow me to state with confidence that Adam Feuerstein holds no positions himself in any of the stocks he writes about. This provides a veil of objectivity that reinforces the idea of his independence from subjective influence. It does not, however, mitigate the possibility of external bias. And this is what people need to consider when Feuerstein renders his harsh verdicts on the equities he covers. What other people perceive of as courage in his cutting remarks is nothing more from my vantage point than complete indemnification from libel lawsuits afforded to him by his employer. I’m running a great risk writing this article of ruffling Feuerstein’s plumage and incurring his renowned wrath. That, however, is a risk that someone, somewhere, and at some time needs to take to stop this manipulation of micro-cap equities from taking place. I am now ready to take that stand!
To determine a person’s motives we have to ask the question: who benefits from their actions? I found the appearance of Feuerstein on Benzinga’s Premarket Prep to be extremely enlightening. The link I posted also contains an audio file in which two Benzinga analysts on BZ TV talk about AF’s earlier remarks. Here’s a quote from Brent Slava.
So, Adam is probably the top biotech reporter out there. He’s at The Street right now. He has a ton of connections. He’s probably the most connected biotech reporter out there right now. So, he’s a source you absolutely need to listen to if you’re in the biotech space.
So whom, you might ask, is Adam connected to? Well, for one, hedge fund operators. His mentor at The Street, Jim Cramer is one of those larger than life personalities that populate the airwaves of the main stream media and got his start in that capacity. And since many of the editors at Seeking Alpha have come over from The Street and have an array of friendships with prominent hedge fund managers contributing on that platform, you can bet Feuerstein is connected in that way as well. Feuerstein has hinted at connections with the FDA. But in the Premarket Prep show, Feuerstein also revealed his connections to investment bankers. He cautioned that a lot of the micro-cap run-ups in value that we see today are followed by add-on offerings at huge discounts to the going price. What he didn’t tell you is that a lot of these micro-caps like Cyclacel are deserving of larger market-caps that will give them the more favorable financing terms that they need to remain viable. Deserving because their pipeline candidates are succeeding and generating a logical response from the investment community. By capitulating the stock price with falsehoods that foment fear, Feuerstein holds them in bondage to stock purchase and sale agreements that are highly dilutive to shareholder value but do feed the lower end of the investment bank food chain.
What happens when you get caught buying this thing and then the company announces an offering? You know, you’re caught and then the offering comes in at a discount and you’re caught owning this thing much higher. So, I think, what I worry about, what I do see is that a lot of people sort of just start making a lot of fundamental justifications for why these stocks deserve to be trading higher.
Adam Feuerstein – Benzinga Premarket Prep – April 5th 2017
Those investors that Feuerstein professes concern for are now caught. But not because of an offering announced at a discount but because the narrative he created – that the company and stock have no value created a fearful sell-off that has many of them stranded at $8, $9, or even $10 a share. It could very well be that Feuerstein’s connectedness to biotech companies, investment banks and hedge funds had nothing at all to do with his commentary. And truthfully, it doesn’t have to! The commentary itself is what is wrong and stands on its own as the single force driving the downward trajectory of the equity.
Feuerstein is Right! But for the Wrong Reason
The question also has to be asked: why would Adam use his social media platform on Twitter to tank Cyclacel’s stock rather than allow for a gradual slowing of the upward trend that would have provided access to logical and profitable exit points? What Feuerstein did was to yell fire in a crowded theater when there wasn’t any. News, validated by research professionals and presented at respected oncology conferences drove the upward excitement. And the very investors he claims to be “worried about” are indeed now caught and stranded at those higher price points. And while Feuerstein seemed to dial back his charges of social media manipulation of Cyclacel’s price on Benzinga’s premarket show, none of the hosts had the courage to ask him why his own remarks, being the most feared voice in biotech, should have fallen out of the reach of his own regulatory concerns.
The SEC should step in and investigate whether or not Feuerstein’s claims that CYCC is “a zero” having no value is anything other than a blatant lie given that Cyclacel in its entire history as a developmental biotech has never been valued at zero. In fact, over the past 52 weeks, CYCC has been valued at between $3.05 and $10.50 a share. And while I’ve retained my holdings acquired prior to Feuerstein’s calculated tirade that included those follow on discussions on Benzinga, my position has been damaged as the company’s quest for relevance has been significantly compromised by Feuerstein’s false claim that we “are trading worthless pieces of paper.”
This week will mark the first time in my four year biotech investment career that I will have completed the filing of a SEC complaint against Mr. Feuerstein for blatant stock price manipulation. It won’t be the first time I’ve seen it. But, rather, the first time I’ve been directly effected by it. On Seeking Alpha, for instance, I witnessed two hedge fund managers manipulate the price of a nano-cap biotech equity all while investing millions of dollars in the company. My investment of $10k in Cyclacel may seem laughable to many of you who read this article. But I worked 10 to 14 hours a day, 5 to 7 days a week as a bus driver to make that happen. And each dollar means many times more to me than it will to any hedge fund manager anywhere.
Will it do Any Good?
I doubt it! You see after hearing Jim Cramer’s very public confession of stock manipulation in the video linked to above, I have resolved that the SEC fully approves of Cramer’s tactics and those of his counterpart on The Street. The system works for those who belong in jail. It does not work for hard working, circumspect investors like you and me.
Always be well…