As the old adage goes; "Buy the rumor, sell the news." In the case of Advanced Cell Technology (ACTC), it was buy the rumor and sell the anticipation of the news. The stock went from a low of .0495 on June 16th to a high of .0881 on July 22nd, an increase of 78%. But that was just a dry run.
Part of the appreciation in the stock price could be the fact the company re-upped its stock purchase agreement with Lincoln Park Capital for an additional $30 million on July 3rd. The needed SPA was a bridge to allow time for the company to attract institutional investors for a larger capital raise to take the company into Phase II trials and fund additional research.
However, in addition to the capital raise, the market appeared to be anticipating the publication of interim trial results for ACTC's Phase I trial for age-related macular degeneration (or AMD for short) and Stargardt's macular degeneration (or SMD for short) using hESC -derived retinal pigment epithelium (RPE) cells. As the graph below reflects, the run began way before the Lincoln deal was announced and continued well afterwards.
It is very hard to time a trade just right and buy the low and sell the high but a move of this magnitude leaves room for error. Looking back on the last run, I bought on May 21st at .059 and sold on July 17th at .081, which represented a 37% realized profit while maintaining a smaller core position in the company in case the results were released. I have since repurchased the shares.
The stock has been in a slow drift downward as the market loses interest in the story. The market has a very limited attention span, which can be exploited by the astute investor. In the case of ACTC, the reporting of trial results isn't if, but when.
Fact From Fiction
Starting with the Lancet article, which was published after only two patients were treated, there has been "tantalizing" hints of visual acuity to quote the prior CEO, Gary Rabin. Mr. Rabin continuously added fuel to the speculation during his tenure at ACTC. On the second quarter 2012 conference call, he stated;
Across the patient population, we are consistently observing improvements in subjective and objective acuity results. We have observed an advancement including even after immune suppression is ended, we have observed clear biological signals in patients.
Third quarter of 2012 was more of the same, if not more so;
With such a compromised patient population, we did not approach our trials with the expectation of restoring significant amounts of their sight. But we were hoping to see some biological impact. We have however had evidence of both in many of our patients. Obviously our entire group of experts who are key opinion leaders in this field are very excited about what has been observed. This gives us encouragement that when we treat patients with greater visual acuity, we will see a significant disease impact.Across this patient population, we are consistently observing improvements in subjective and objective acuity results. We've observed advancement even after immune suppression is ended. We observe clearly biological signals in patients. All of this has happened like I said in these extraordinarily late stage patients with very limited visual acuity and with the low dosing of cells.
By the 2012 year ending quarter, Mr. Rabin seemed a little more reserved with his proclamations (the bold is mine);
At the same time, we continue to be encouraged with the functional data that we've been able to gather on some of our patients. Our surgeons have reported back to us that they are seeing evidence of varying degrees of engraftment, changes in visual acuity, color perception and light sensitivity across the patients treated so far.
On the first quarter 2013 call, the positive reinforcement continued from Mr. Rabin as the following indicates;
We have observed the persistence of visual acuity gains and the engraftment of the transplanted cells in both the SMD and the AMD patients, which is consistent with what was previously reported on earlier in the trials.
Many patients as you know have reported improvements in their every day lives some having their vision improved from being able to see hand motion only to being able to read parts of an eye chart as well as importantly developing better color recognition, contrast and a low light vision.
Second quarter of 2013, again more of the same;
trial investigators continue to be surprised and encouraged by the patients' reaction to the treatment, noting biological reactions such as engraftment of the RPE cells and improvements in patients' eyesight. The patients have seen improvements in their everyday lives. Some having their vision go from being able to see movements to being able to read parts of an eye chart as well as reporting better color recognition
And finally at the annual shareholder meeting in October 2013;
The data review that we concluded relating to the 29 or so patients that we treated to date showed surprisingly strong statistical results about the improvement in visual acuity that we've had especially - not only the eyes that were treated but also relative to the untreated eye. All of the Ophthalmic Advisory Board members, all, were impressed by the aggregate data showing acuity improvements as well as the deferential between the treated and untreated eye.
Much of what was said during the conference calls did not translate into tangible reality. There's been no lucrative China partnerships, no large pharma offers, no rolling Phase I cohorts into Phase II to expedite the trials, and no multiple blebs to increase the potential of efficacy, etc.
Of course, we now know Mr. Rabin was selling a large portion of his holdings in ACTC without reporting it to the SEC and is under investigation. I know I am beating the proverbial dead horse but the point is most of our expectations come from Mr. Rabin and somewhere within all the hyperbole over the past couple of years lies the truth.
During an interview with Robert Lanza, ACTC's Chief Science Officer, it was disclosed that one of the patients went from 20/400 to 20/40. Dr. Lanza's comment appears at the end of the article in a rather nonchalant fashion, but it was big news.
By the following day, the company felt compelled to make the following statement:
Advanced Cell Technology, Inc.("ACT"; ACTC), a leader in the field of regenerative medicine, today confirmed that the vision of a patient enrolled in a clinical investigation of the company's retinal pigment epithelial (RPE) cells derived from human embryonic stem cells (hESCs) has improved from 20/400 to 20/40 following treatment.
Regardless of how consistent or inconsistent efficacy results have been, this level of visual acuity can not be taken lightly.
Searching For Corroboration
As I've stated in prior articles, ACTC has a unique shareholder base even by penny stock standards. It's a very active group to put it mildly. Since the beginning of the trials, the search was on to find patients that were enrolled in the study. Once it was disclosed a patient went from 20/400 to 20/40 those efforts were intensified. The sleuthing paid off when investors uncovered at least two patients at opposite ends of the efficacy spectrum.
I'll start with the patient commonly known as the "cowboy". The cowboy was found from posts on Facebook by the man's son who chronicled the improvements from the point of the surgery over an extended period of time. Based on the posts, it was speculated by investors the man was the "20/40" patient who was inadvertently disclosed by Dr. Lanza.
During an interview in a little known online publication, the identity of the patient appeared to be confirmed by Matt Vincent, Director of Business Development at ACTC;
"We treated about thirty patients in this way," says Matthew Vincent. "In over half of them, including Billy Whitfield, we observed an improvement in vision, modest for some and spectacular for others."
The second patient that was identified was a Stargardt's patient who has written a blog about her experiences. Unfortunately, the results for the patient, Maurie Hill, wasn't as encouraging as reflected in her last years blog.
What To Expect
I expect the data to be highly varied with some patients experiencing little or no change and others experiencing varied degrees of functional improvement with the cowboy being an outlier. With the exception of those whose mantra is "the blind will see," I expect the market in general believes likewise.
For a Phase I trial for an incurable disease, this would be a very favorable result and, based on the data, should lead to a well designed Phase II trial that will further refine the protocol and expected outcomes. As stated by many of the experts, evaluating efficacy in the eyes is challenging. I expect the placebo effect (improvement in the untreated eye) to be significant. Determining the appropriate end-points will be key to the success of the therapy.
Anyone who has been following ACTC closely is aware of all of the information provided here (and a large number admittedly know much more). However, on the eve of the long awaited publication, I think it is appropriate to provide a recap of how we got here. Expectations are high.
But it doesn't take a home run for ACTC to get the next leg up. The home run will likely come much later. Assuming the results are as expected, the sharing of information in a formal, peer reviewed journal, will do. I have read where the Lancet article was highly criticized. For very good reason, the same can be said for prior management. This isn't just about Phase I interim data, it's about ACTC reestablishing credibility and moving forward and upward.
Even if the market expects positive results, confirmation of those results will reduce uncertainty and should have a positive impact on the stock. The reporting of results will also broaden ACTC's exposure to new potential investors who will be learning the story for the first time.
Before I paint to rosy a picture, it should be remembered that ACTC is planning a capital raise, share increase, reverse split and up-list. There's no guarantee the results will be published before these events will happen, though I highly suspect that is the plan. The company has shareholder approval to implement the split until the end of September. Time is getting short. Regardless, even if the results are released prior to dilution, it's coming. So, as the adage goes, buy the rumor, sell the news.
Disclosure: Nothing in this article constitutes investment advice or any recommendation with respect to a particular security. Investing in developmental-stage biotechs is highly speculative and risky. The road to commercialization is long, and full of peaks and valleys. Take profits when offered, and most importantly, diversify.
Disclosure: The author is long ACTC.
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.
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.