I just completed reading a March 27, 2014 article that was published by Seeking Alpha, titled Behind The Scenes With Proactive, Inovio and Unilife, by Richard Pearson. This hard hitting article paid certain attention to Inovio Pharmaceuticals, some assertions made that I simply must rebut. (SYMBOL: INO).
I got to tell you, this one was heck of a well written piece of speculation and fiction, well disguised as a dissertation of fact. The author, who at one time held prestigious credentials as a global investment banker, takes the opportunity to provide a lesson as to the inner mechanics and potential misdeeds of small cap trading. Stock promotion, scams and scoundrels, no doubt.
The primary problem I had with his piece was that he made an extensive reach toward Inovio,but, surrounded the claim between some research data that was entirely irrelevant to Inovio. I tried to use keyword searches to verify his claims about Inovio, but, came up empty handed in my trek for verification.
Interpretation and style are key components to a good writer, but, intentional manipulation, misrepresentation and a dedicated desire to mislead and overstate speculative research should be treated with great caution by the audience. Understanding that editorial pieces are opinion, the reader can be lead to make a conclusion based on the information provided, however, it is a dangerous practice for an author to lead from misinformation. I am not insinuating any of the above necessarily to the Scenes author, I am simply stating an opinion, in general.
Take me, for instance. I am long Inovio. And, yes, I have written two editorial articles and have had the pleasure to offer two in-depth interviews with Dr. J. Joseph Kim, CEO of Inovio pharmaceuticals. I write about Inovio because I hold an investment in the company, well disclosed in each article I present for publication. I also have written on some speculative, high momentum, high volume small cap biotech stocks because I believe in their future as well. I appreciate the liquidity in the stocks and the risk/reward plays to my investment style for speculative investing.
First, my disclosure.
I have never been solicited by, paid any compensation from, been asked to research or been promised any form of consideration by any organizational member of Inovio, nor have I ever been contacted by any third party seeking the same. My only compensation has been through Seeking Alpha, which is based on page views.
Second, my articles have not included front running, email notices to my followers or any attempt to lead investors into making anything other than a rational decision as to whether or not to invest into Inovio based on the data I presented and the readers personal interpretation of said data.
Now, contrary to every listed rule in "Investing 101", I love this stock... I like the management, I like the science and I like the authenticated, published and peer reviewed data that the company has provided to the market. I present the data as is, though, I can, and do, provide an editorial and speculative opinion about the material and data presented.
Now,let's take a look at the article titled, Behind The Scenes With Proactive, Inovio and Unilife.
The "Behind The Scenes" article does disclose a short position and from which a thesis was prepared.
But, let's break down some of the points made, exclusive to Inovio.
RP: "Inovio has a minimal institutional base"
False. As of the December 31, 2013 institutional filings, Inovio had fifty nine institutional investors. Of these fifty nine institutional investors, forty of them had increased their stock position during the fourth quarter. At that time, cumulative institutional holding surpassed 7%.
More impressive for Inovio, institutional ownership of a stock that is trading at less than five dollars per share and has NEVER traded above five dollars a share is quite significant. True, many investors, novice and professional, will claim that the five dollar threshold is more of a guideline than a rule. Such is not the case for funds that are required to provide a prospectus that make strict stipulations as to purchase and sale thresholds.
Added to the numbers filed at then end of the fourth quarter, Inovio announced a deal that closed to accredited institutional investors and they had raised over $63 million dollars.
Although some of these guys may be considered as "minimal", I will provide you the top seven holders and share holdings as of December 31, 2013, then provide you a link to check out the other fifty two institutional holders:
State Street Corp - 7,496,319
Vanguard Group- 4,025,848
Goldman Sachs Group - 1,039,406
Morgan Stanley - 876,021
Knoll Capital Management- 408,352
Northern Trust- 359.705
The fifty nine institutional holders own an aggregate total of 17,428,564 shares, reported on December 31, 2013.
Simply put, the institutional base at Inovio is quite sound and has been showing signs of growth throughout 2013.
RP: "Inovio uses promotional vehicles and paid writers to pump the price of their stock"
As stated earlier, I wrote four pieces pertaining to Inovio. Two were editorial and two were interviews. I wrote them with a disclosed "long" position with the intention of adding to my position if I elected to do so. I also told you that I was never solicited or approached by any person, place or thing to write or ask for an interview. I did the pieces on my own free will, with the intention of learning as much information for myself as I would in turn provide to my readers.
Contrary to the assertions made in that article, I found many of Dr. Kim's responses to be well understated and less enthusiastic than I would have hoped to present to my readers. I tried to push for glowing endorsements and forward looking comments of the VGX data, but, no such luck. Dr. Kim remained prudent, not taking the opportunity to shamelessly promote or provide personal speculation.
I wanted to the first to break major news that the VGX-3100 trial would be fast tracked and pushed to the front of the paper stack at the FDA was immediate approval.
However, what was provided from Dr. Kim was a well measured, optimistic, yet realistic approach to how we should interpret the data to date. He provided honest and thoughtful answers, but, even as the comments in my articles demonstrate, readers wanted more...almost hoping he would provide answers that we all wanted to hear, rather than the prudent responses, although with an air of optimism, no doubt.
Dr. Kim presented answers to dispel the most common attacks from the "short" side investor...the legacy from thirty years ago , the length of the trials and the scope of the company prior to his arrival in 2009.
The promotion theory fails to hold water as I looked further into the trading activity, both pre and post publication. In fact, of the four articles I wrote, there was no discernible difference in trading activity for either the day prior to publication nor the day of publication. There was little statistical difference and the fluctuation in intraday share price was within its normal trading range.
In fact, for each of the "long" biased articles, the same scenario essentially held true, especially if Inovio itself did not press a release on their own.
However, what was noticeably apparent was that when an article was published that posed a bearish view on Inovio, prior day volume increased substantially as did same day volume.
The "Scenes" article, for instance, had approximately 8.5 million shares traded on March 26, 2013. On the day of publication, the volume surged to over 17 million shares and the share price had an intraday range of over ten percent. As reference, several street blog writers do promote mailbag pieces days before they are set for print, allowing readers to prepare for a trade opportunity. You simply need to add your name to the email and follower list for that author.
The "Scenes" article pushed a premise to demonstrate the notion that potentially paid promoters of Inovio were front runners, my research indicates quite the opposite. For reference purposes dating back to January 1, 2014, please Check historical trade and price volume here.
RP: "Inovio had paid writers to promote the company"
Stock promotion is not illegal. I don't even consider it unethical unless insiders are dumping shares at the time of the promotion. Like any crime or unethical behavior, a motive must exist.
At Inovio, Dr. Kim is the largest shareholder and, drum roll please... he has never sold a single share of stock that I have been able to find in any company filing. I have found a Form 4 that shows PURCHASES, but,highlighting such an instance only discredits the authors statement that Inovio is using untoward methods to promote its stock price... but, for what intent.
Oh yes, the company did raise $63 million dollars. Unfortunately for shareholders, the offering was done at approximately thirty five cents below the current market price at the time.
Could this small cap biotech stock been able to pull the wool over the focused eyes of Piper Jaffray and Stifel Nicolaus? Is the company so discreet in it's corporate filings that these two Wall Street titans were fooled by a couple of supposed penny stock promoters to inflate the price of the stock prior to their commitment to underwrite the offering?
Piper and Stifel did offer the stock to several of their largest clients, instead of advising them to wait for the dramatic pullback once the short and distort guys take over and publish some articles from the 1986 trials.
You get the point. Stocks trade at a value seen as fair by the buyers and sellers. Shares trade each and every day based on supply and demand. To date, and as of the prior twelve months, the demand for Inovio shares has far outweighed the supply. Thus, the stock is up a few hundred percentage points.
Barring the recent biotech sector sell-off, Inovio is holding up quite well, understanding that redemption's from etf's will add volatility to the share price as the market plays through this correction.
RP:"I have identified clear indications of undisclosed promotions"
First off, let me reiterate...I have written four of the eight articles posted to the Yahoo! headline page since the early part of February. TheStreet.com added three, Motley Fool added one and a Seeking Alpha contributor added an additional editorial.
Other than those published, Inovio released several pressers on its own and a couple of rss feeds picked up on headlines. Again, if there is a paid promotion conspiracy, at least three things are missing:
1. Clearly, Inovio is at an inflection point. The news they are providing to the markets are peer reviewed and have been published by prestigious journals. The awards being bestowed upon the scientific studies at Inovio is presented in about a real as a format as can be expected..documented, sourced and reliable.
The releases need no promotion. The clinical results have been well received by the markets and the data can be considered material, whereby Inovio must report the research data.
If Inovio is expected to become silent from announcing these milestones, only then would I admit that there is a conspiracy to manipulate the price. However, I would take the other side of that trade and speculate that insiders are loading up on cheap shares at the expense of releasing material news.
2. Insiders are buying the stock, not selling. Wall Street firms are underwriting offerings, not shorting the stock. That is a big difference and plays quite contrary to the "promotion" theory.
3. Everything about the Dream Team and his buddy "Tom" should be ignored. In legal terms the information is inadmissible based on irrelevancy and speculation. Many "short" and distort authors sometimes take an opportunity to take a bit too much of artistic privilege...leaving truth at the doorstep.
Let's take a further look at Inovio and reiterate my position. I already told you that I have a long position, and, I have held that position well before the consideration to submit an article to Seeking Alpha was even a remote idea.
In fact, my first article was published in January of 2013. The fact that I was going to receive compensation was a true delight... I was able to write about stocks that I have researched and invested in, was permitted to provide my own editorial insight and had free range to write about any company that I felt comfortable to present for reader consideration.
I take public information, do my best to interpret the data and then present it to the reading public. As a "long"position, I am at the disadvantage of having to rely on published data. Unlike historical "short" editorials, they can use all kinds of various untoward tactics to make you think that they are telling you the truth.
The "shorts" can be extremely hypocritical too. It is ironic that these guys can print an article and belittle the author who writes a positive piece, on any stock, as they whittle their subversive story of fabrication, editorial horror and unsubstantiated speculation.
These guys always have "sources." I have sources too, which is why I print and link all of mine. I provide links to my data and allow the opportunity for my readers to see if the interpretation of the data is different. At times, I respond to comments and embrace debate.
True, I reached out to several CEOs for interviews. Management at Inovio responded with interest and responded with honest insight and far less optimistic approach than I would have liked to print. Sure, my questions are intended to lead a response, especially as a long position. I do my best to seek information that will serve my interest as an investor. I must admit, though, that as much as I tried to pull out data that would read as overly optimistic by management, that i had failed in that endeavor.
A large percentage of the comments from those interviews respected the fact that management at Inovio failed to deliver the knockout punch to shorts. Responses from Dr. Kim were optimistic, but, were well measured as well.
It was pointed out that much of the information being put out in these interviews was simply regurgitation from prior articles and publications. Well, let me enlighten some of you. Not every investor is glued to the Seeking Alpha, Wall Street Cheat Sheet or TheSteet.com website. Some readers take a glance every so often, read the headline of the day and remain content with their position. The expectation, however, is for accurate and timely data.
Suffice to say, not every person that logs on to Yahoo! finance is a day trader or a penny stock promoter. Quite the contrary, many of us simply want to find some consolidated and accurate information about our investments.
There always appears to be some poetic license with many penny shorts, as well. It's as if we should all accept the fact that they can be well paid by the hedge funds for their articles, but, shame on the paid author who holds a long position. How many times can you read an article on the Yahoo! headline page and then go to the historic price and volume chart and notice an anomaly in action. If you did not raise your hand, then you did not look.
On March 26, 2014, for instance, Inovio traded just below 8.5 million shares. But, when "Behind the Scenes" was published, the stock traded over 17 million shares and had intraday moves in excess of 10%. Please view historical trade data here, relative to March 26,2014 as well as the trade anomalies for other short based articles.
Let me provide some real time data, folks. Although Inovio and a few others get some good retail coverage, my articles will not generate meaningful movement, if any, in a stock that I cover. If there is, consider it coincidental.
Don't get me wrong, there are many small cap and micro cap stocks that rely on promotion and manipulation. However, there is no corroborated evidence to include Inovio in the piece.
I have taken time to inform about the success of the VGX-3100 clinical trials, the validation of the Roche partnership, the significant clinical response rates of the Syncon electroporation technology and the considerable institutional interest and ownership on Wall Street.
Here are a few lightning round takes from my perspective:
Most companies that attempt to manipulate the price of the stock is plagued with insider selling. Not happening at Inovio.
Most companies that attempt to manipulate the price of the stock offer far too much communication to shareholders and investors with fluffy press releases. Not happening at Inovio.
Most companies that attempt to manipulate the price of the stock cannot validate claims with science and/or peer published data. Not true at Inovio.
Most companies that attempt to manipulate the price of the stock does not receive industry accolades and worldwide recognition validating its platform and scientific progress. Again, not true at Inovio.
Seriously, is there a mass conspiracy at Inovio to crush the short thesis by defrauding multi billion dollar institutional investors, publish peer reviewed data, banking the investment of over $60 million dollars in a single tranche and securing a partnership of one of the largest and most successful biotech companies in the World?
In my twenty five years of investing, the greatest tell to me is when a short thesis begins to move away from the factual data and is forced to rely on speculation. Did Inovio use a promotion company? I see no evidence, but, some will read truth into anything. In fact, a sharp response from Proactive Capital clearly denies any such promotional campaign.
Even in a "short thesis, the author should at least reference the significant clinical data, the raising of $63 million dollars or the partnership with Roche? Why not simply give credit to a company that is hitting on all cylinders right now?
Listen, friends. Plain and simple..I am a retail investor who enjoys researching and writing about small cap stocks. I invest in some momentum names, but, I have never offered up anything for your imagination other than my analysis and interpretation of available data.
Personally, I would rather earn money investing in companies that I deem have tremendous growth potential rather than working off the fear of small retail investors.
Be careful what you read, my friends. Any statement that starts with or includes, "my source" is never to be relied upon, no matter the side of the trade. To me, the information is dirty if it cannot be fully vetted.
Any significant difference in share price and company press release, based on my editorial contributions, is purely coincidence. I have reached out to Inovio twice, and, they responded twice. They never saw me coming, so the speculation that they used me to front run news is fundamentally flawed and false.
The truth of the matter is that Inovio is progressing fast on several fronts. News is to be expected and it is my desire to see substantial news flow throughout the second quarter of 2014.
Bottom line...invest in a company based on published and reliable data. I will present you with facts, you decide from there.
Finally, this....because I had received so many comments as to my author name being Biotech Research Group while covering non biotech companies, I asked Seeking Alpha management to change my author name. However, to exterminate the conspiracy theory as to why I changed, I have requested that the original name be restored in all its glory.
Biotech Research Group... long Inovio, I'll keep the light on for ya.
Disclosure: I am long INO. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.