I believe Oxygen Biotherapeutics (OXBT) is a Strong Sell and the shares have a high probability of eventually ending up worthless, given their non-stop net losses. After an incredible 500% run-up from $1.40 to $9 after purchasing a licensing agreement for levosimendan (Simdax) for just $4.8mm, the stock has since had a steady decline and looks to be running out of steam. So I was surprised to see an S-3 registration statement filed by the company on behalf of the largest shareholder, Gregory Pepin, which will allow him to sell his 5.3 million shares and warrants. The same day, there was an S-8 registration to allow insiders receiving shares as compensation to potentially sell 3.96 million shares.
Simdax was already evaluated by Abbott for the U.S. market, and Abbott chose to not proceed
Why would he want to sell now, when it is just getting started on Phase III trials for its claimed $600-million market opportunity? Perhaps it is because this is not a new idea?
2. 2004 Orion and Abbott "expand" marketing relationship.
3. 2006 Abbott says it is "exploring options for next steps in the U.S."
4. 4/27/2007 Abbott "has decided not to continue the development program for the product in the US, because it would not be commercially reasonable."
6. This same group of individuals then sells this to a floundering biotech company in exchange for $4.8m in stock.
7. Are we to believe that two global pharma juggernauts already spent millions of dollars and apparently years of effort attempting to commercialize this old drug in the U.S., both failed, but a few guys operating from a house in NJ now have a "$600m market opportunity" that they traded for $4.8m in OXBT stock?
8. Milestone payments based on the achievement of market capitalization (i.e. stock price increases!) - also why are licensing terms redacted? Reference details below.
At the same time, a number of stock promoters with highly questionable track records appear to be promoting OXBT stock. Multiple other stocks these promoters have been involved with were halted by the SEC.
SEC Warns Investors about Stock Promotions, Halts Stocks
On Friday, May 16th, the SEC issued a warning letter to investors. In this warning letter, the SEC highlighted 5 stocks it has recently halted. These stocks are:
2. Cannabusiness Group Inc. (OTC:CBGI)
4. Advanced Cannabis Solutions, Inc. (OTCQB:CANN)
While the press release specifically focuses on marijuana-related investments, there is another story behind three of these stocks: FSPM, PTOG and PHOT were all stocks that benefited from positive research reports from Small Cap Street LLC, a firm that is in the business of marketing and advertising public companies for compensation. Small Cap Street LLC is apparently owned and operated by Paul Lipp.
Small Cap Street has also recently published on OXBT and PVCT (see our full report), which were written by the same author who wrote the PTOG report, Osman Ghani, a paid writer for Small Cap Street LLC.
We do not know for certain who compensates paid promoters such as Small-Cap Street: is it the company, an intermediary, or perhaps a large shareholder about to sell stock?
However, based on the number of promotional articles and based on the disclaimers it appears to me that someone is paying for OXBT's stock to be promoted.
1. Osman Ghani put out an extremely promotional "research" piece on OXBT working for "Small Cap Street", and their other "analysts" have also covered OXBT. Osman Ghani appears to have zero biotech experience, per his resume.
a. Small Cap Street also has an unusual track record of publishing on stocks that get halted by the SEC (see PVCT report and see this disclaimer).
b. "The Group (and our Media Publications/Products) is periodically compensated for describing certain securities of the issuers highlighted on SCS Websites. In addition, in some instances the Group and SCS Websites's affiliates, officers, directors and employees may also have bought or may buy, or have sold or may sell the securities discussed in SCS Websites and may profit in the event of a rise in value of those securities."
c. "We are engaged in the business of marketing and advertising companies for monetary compensation. "
e. I have found Small Cap Street's disclosure to be confusing and unclear in the past. Did Osman Ghani write this 12-page report with graphs and charts on OXBT for charity, out of the goodness of his heart? If not, who paid him?
2. With virtually zero discussion of any potential market or sales estimates, Osman claims OXBT is worth a whopping $10.56 per share.
3. OXBT has also been "researched" by a Marc Bonacci on "Small Cap Street". Some of Marc's articles appear to reference the CFA Institute and designation, but when I put Marc's name in the CFA member directory, I could find no evidence of his name.
4. It also appears that a whole host of questionable-looking stock promotion websites, some of which have disclaimers about paid research, have published on OXBT, including:
a. "StockSumo.com": "Bull in Advantage does on occasion sell shares in the open market without notice, and on occasion is compensated by a Third-Party for its above-referenced services with the company stock."
b. "Blue Horse Shoe Stocks"
c. "flashmarketresearch.com" and "undergroundalerts.com" published on OXBT. A quick look at their websites lists no disclaimer at all.
5. Who paid for all this stock promotion about OXBT? Was it OXBT? Or perhaps OXBT paid or retained a marketing group or IR firm that then paid for this stock promotion for OXBT?
6. Just yesterday, PennyStocksWeekly appears to be added to the list - just in time for a big registration statement to become effective for millions of shares!
Twitter and Yahoo message boards listing paid promotions from PennyStocksWeekly just Monday, 7 days after the S-3 was filed, shortly before it should become effective and shares freely tradable.
OXBT Lists Its Own "Market Cap" as "Performance Milestone"??
Why might OXBT be tied to stock promoters? Could it be that the largest shareholder, Greg Pepin, just last week, filed to be able to sell stock? Could it be the company was looking at a financing, and the higher the stock price, the more money it could get from investors? Even more worrisome, the "performance milestones" (page 14. contract point 2.5) lists the company's own market capitalization as a "performance milestone" at which point the CEO's convertible note he received for the Phyxius deal vests at.
OXBT Management and Board have Track Records of Value Destruction and Shareholder Wipe-Outs
Current CEO, John Kelley was previously president of The Medicines Company (NASDAQ:MDCO) from 2004-2009. During a period where the overall market was roughly flat, his company declined 72% in value:
OXBT CEO John Kelley's last job as president of MDCO during his tenure
Other board member track records:
Ronald Blanck was at DelSite from 2003-2008 (wipe-out) and
Pyng Medical (on the board 2009-present): Stock lost 88% of value during this time period:
Anthony DiTonno, CEO of NeurogesX 2003-2011 (wipe-out)
1. Anthony A. DiTonno: Sued by shareholders for "misrepresentations and omissions" in case 4:12-cv-05034 in 2012 regarding his time as president and CEO of NeurogesX. Apparently, shareholders allege NeurogesX did not accurately disclose that Tobias was "actively seeking to leave NeurogsX" when Neuro was actively selling stock to investors; when it was finally announced that Tobias was leaving NeurogesX, since he was a critical part of the business, the stock subsequently fell -40%. Apparently, NeurogesX was forced to settle 5/16/2014 per court document 84.
Chris Rallis: Board of Aeolus Pharmaceuticals (2004-present): Lost 90% of its value
Note: PennyStocksWeekly published that Aeolus was their "Pick #2" back in 5/5/2006, with 125-166.6% upside! AOLS instead lost -66% of its value since, and is a $0.26 per share stock that trades on the OTC exchange. PennyStocksWeekly has also recently published on OXBT as well.
Chris Rallis at Triangle Pharmaceuticals (on the board March, 2000-present): Lost 73% of its value over this time period
OXBT Patent Protection and Contract Terms Questionable:
1. It is not clear that Simdax, even if you believe management and the stock promotion websites' extremely bullish claims, could even be economic.
2. One of the key patents (#5,569,657) actually ran out in 2013, and the other two expire in 2020. OXBT assumes it can get those extended, but with the pending Phase III trial (if it is successful and completed on time and on budget) not being completed until 2016, the drug would likely not be on the market until 2017, at the earliest. All drugs take time (typically years) to build a sales force and start generating revenue, so it is very possible that the patents will run out before material revenue is generated, let alone profit.
3. Furthermore, Orion originally developed Simdax in the 1990s, and apparently had an unsuccessful attempt at commercialization that it dropped. Given this simple compound has been out for over a decade, with one key patent already expired, do you think one of the generic pharma giants like Mylan or Teva could challenge these patents and beat the tiny OXBT in court, instantly rendering its product a very low value generic?
Phyxius/OXBT Simdax contract terms very questionable:
1. For those reading the license contract terms on Simdax closely, there are more red flags. Apparently, if the actual net sales are lower than the "minimum net sales", there is a "shortfall royalty" due to Orion that has to be paid within 60 days (contract point 8.7).
a. This reads to me that if the drug does not live up to whatever the internal sales expectations are, there could be a potentially large (terms have not been disclosed to shareholders) cash payment due that could wipe out OXBT.
b. Furthermore, the royalty terms, milestone payments are all redacted, so we don't even know what the terms are on this contract or what the financial implications could be for OXBT. Why weren't the contract terms fully disclosed to shareholders? In my experience, failure to disclose can imply bad news for shareholders.
c. The "$600m market opportunity!" claims by OXBT management also seem to imply a market that is beyond the LCOS indication. However, the contract terms on the Simdax agreement do not make it clear to me if OXBY or Phyxius would even have ownership of any "line extensions" (contract term 2.5) of this product?
OXBT Track record: Failing to get to Market
Back in Jan 2005, before OXBT changed its name from "Synthetic Blood International", it announced its Phase II plans for Oxycte, with Phase I trials starting many years before then. During the touting and hype of Oxycyte back then, OXBT went from a (split-adjusted) stock price of $44 up to a high of $222 per share. Despite dozens of press releases and positive-sounding announcements (and equity dilution), OXBT fell dramatically back to $24 in early 2006.
Apparently the FDA did not like the Phase I data, as "The project was placed on hold, based upon a decision by the Food and Drug Administration not to allow a clinical trial with the perfluorocarbon (PFC) Oxycyte to be performed within the United States." And "A revised statement of work was also submitted, effectively changing the project from a human clinical trial to an animal study." While this FDA halt on more U.S. trials has been lifted in early 2014, keep in mind this was after OXBT guided that Phase II trials would start in early 2009, even after it had already been delayed in 2008. Furthermore, such minor questions as "How much?", "When?", "Where?", "With whom?" are all still not precisely answered.
OXBT has over a decade of "over-promise, under-deliver".
I called management and spoke with their IR representative, who would not connect me with management directly. The IR representative was unfamiliar with the substantial business elements that I had questions about.
In conclusion, I feel that investors in OXBT may not have read the terms of the contract for this new licensing agreement, and may only be focused on paid research coverage that could be temporarily keeping the stock up while insiders liquidate per the recent S-3 and S-8 filings. Simdax is certainly is a new thing for OXBT, but it is not NEW to the world and has been investigated by Abbott, who has far more resources and determined it was not commercial. At the same time, the stock is being aggressively hyped by paid promoters (though I do not know exactly what is going on there), and an S-3 registration statement will allow the largest shareholder to sell stock as soon as it becomes effective any day now, increasing the supply of stock in the market and likely weighing on the price.
Investors need to be extremely cautious and ask critical questions of the company, with all of these elements lining up to make me think OXBT needs to be flushed from the market: STRONG SELL
Disclosure: The author is short OXBT. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: Please see full disclaimer at http://www.pumpstopper.com/disclaimer.html.
Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.