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Basically, Ampio Pharmaceuticals (NYSEMKT:AMPE) is a group of a few executives who sit around and try to think of new uses for drugs already made. And that’s worth $150 million? Hmmm. Anyone wanna get together and start a “new ideas for old drugs” business?

I was going to expose this very overvalued stock this week, but on Tuesday an author beat me to it and the stock took quite a tumble.

Major Holders

As I stated in the comments section of a bullish Ampio article, no biotech or hedge funds own any shares. The vast majority of shareholders are retail investors and also a few huge institutions that aren’t giving Ampio a second glance since they own a minuscule amount. As shown on Yahoo Finance, no institution or fund owns more than 1% of the outstanding shares. That isn't conclusive in itself, but it still says that health care stock experts are staying far away.

Ampio’s Pipeline

Ampio’s Pipleine can be found on the front page of their website ampiopharma.com. Its main pipeline that’s going through trials are the drugs: Zertane, Optina, Ampion and Vasaloc. If you do a search for any one of these on clinicaltrials.gov and fda.gov, nothing comes up. Without any info on these government sites, we have no clarity into what they're doing in the trials, i.e. number of patients, endpoints, dosing. The company website also provides no details. Most legitimate biotechnology companies will disclose this information.

Zertane

Zertane is its drug that's generating most of the hype. Zertane is supposed to cure premature ejaculation, and it’s the same as the existing generic drug tramadol. The original idea for turning tramadol into a premature ejaculation drug wasn’t even Ampio’s. It was Valeant Pharmaceutical’s (NYSE:VRX), but they cancelled further testing of the drug. As shown on page 54 of Valeant’s 10-k:

“In addition, prior to the merger, we cancelled the Phase 3 clinical trials that were underway in Europe for BVF-324 (the use of non-commercially available doses of tramadol for the treatment of premature ejaculation), due to slower-than-anticipated enrolment and a lack of commercial interest in the product, and recognized the contractual obligations related to the termination of these studies.”

Valeant decided to cancel the phase 3 trials due to “slower-than-anticipated enrollment and lack of commercial interest.” So this rag-tag group of 11 employees, with under $7 million in the bank, is supposed to be able to succeed in these areas where a $14 billion pharma company failed? Like they say, “dreams are free” – except for the shareholders.

Now, Ampio is buying the previous research of Valeant to help produce Zertane. It’s paying VRX $2 million for data, information and know-how relating to an oral rapid dissolve tablet (ODT) formulation of tramadol. Valeant is grateful to Ampio for allowing it to salvage a little bit of a return from its failed drug experiment. That $2 million fee is a big hit to Ampio’s tiny cash balance.

Alternative ideas to fight premature ejaculation other than tramadol (ideas came from this message board):

  • 60 mg of dapoxetine (improved my ejaculation time with Generic Priligy (Dapoxetine) 60 mg I went from 1 to 15 min and this is a great result for me.)
  • DXM (Dextromethorphan) is one of the most underrated pharmaceuticals, and likely a better idea then tramadol.

Management’s Dealings:

Ampio only has 11 employees. Reminds me of my report on IBIO when I pointed out that IBIO has only seven employees. The market cap of AMPE is currently five times that of IBIO.

Institutional Shareholder Services (ISS) rates Ampio’s management compensation as a high concern. As shown on Ampio’s latest form S-3 on page 5, it shows the amount of stock management currently owns, and the amount to be sold.

Selling Stockholder(1)

Number of

Shares of

Common Stock

Beneficially

Owned

Percentage

of Common

Stock

Beneficially

Owned(2)

Number of

Shares of

Common Stock

to be Sold

Number of

Shares of

Common Stock

Beneficially

Owned After

Offering

Percentage of

Common Stock

Beneficially

Owned

After

Offering(2)

David Bar-Or (3)

3,166,667

9.9

248,400

2,918,267

9.2

Raphael Bar-Or (4)

1,025,000

3.4

94,300

930,700

3.1

Bruce G. Miller (5)

1,500,000

5.0

138,000

1,362,000

4.5

Kristin Clift (6)

575,000

2.0

52,800

522,200

1.8

Wannell Crook (7)

1,100,000

3.7

101,200

998,800

3.4

James Winkler (8)

1,025,000

3.4

94,300

930,700

3.1

Michael Macaluso (9)

2,618,484

8.3

181,000

2,437,484

7.8

Richard B. Giles (10)

621,758

2.1

60,000

561,758

1.9

Philip H. Coelho (11)

379,545

1.3

30,000

349,545

1.2

Total

12,011,454

39.1

1,000,000

11,011,454

36.1

As shown above, insiders own 39.1% of the company. They are planning on selling a million shares total, which will change their ownership to 36.1%. Does a company that has essentially accomplished nothing so far, deserve to have over $5 million paid in stock sales to these nine executives and directors? If you are a shareholder, you have a double-whammy coming. First, Ampio will have to issue shares to replenish its cash balance, which otherwise will be depleted in one or two quarters, and second, the executives are going to sell a million shares for themselves.

David Bar-Or, the Chief Scientific Officer, and his son, Raphael Bar-Or own about 13% of the company. All it says in the reports is that Raphael Bar-Or is a “non-executive officer” of the company. I don’t know what his work entails, but he sure got hooked up nicely with the million shares.

The Founder and Chairman of Ampio, Michael Macaluso, bio here, was the President of Isolagen from 2001 to 2004. Vaughan Clift, the Chief Regulatory Officer of Ampio, as shown on Forbes, was the VP of Operations for Isolagen from 2002 to 2005. Isolagen faced lots of securities litigation and eventually went bankrupt.

“On August 1, 2005, Isolagen shocked the market by disclosing that the preliminary results from its clinical trial had not met all of the primary end points and that one of the two separate dermal studies had failed to demonstrate statistical significance. Accordingly, FDA approval would not be achieved as promised. As a result of this announcement, the company's stock price plummeted more than 45%, from $5.59 per share to $2.89 per share, on very high volume.“

The next step for Ampio will probably be something similar.

Donald B. Wingerter, Jr, CEO of Ampio Pharmaceuticals, also has had shady business dealings in the past. Here he lost a lawsuit from an unpaid loan. On page 14: “Upon the resolution of all the remaining claims, the final judgment shall reflect an award in favor of Gerber and against Wingerter, Greenhorn Ranch, and BodySelect, jointly and severally, on Gerber’s claims for breach of contract in the amount of $1,389,101.24 plus $685.03 per day from August 22, 2010 until the date of final judgment, and $294,301.11 plus $145.13 per day from April 10, 2010 until the date of final judgment.

Financials

For the quarter ended September 30, 2011, Ampio recorded a book value of $0.45 per share. The balance sheet included $7 million of cash, $8 million in long term assets, and $2 million in liabilities.

On the income statement, revenues have continued to be zero since the company had its reverse merger with DMI Life Sciences in March 2010. Losses average a little over $2 million per quarter.

On statement of cash flows, the consistent sale of stock has kept this company going. Last quarter there was a decrease of $1.381 million in cash, with an inflow of $194,000 from financing activities.

Ampio Pharma uses Fordham Financial as its offering placement agent which is the same investment bank as was used for Isolagen.

Fordham Financial clears through Legent Securities. These are two obscure, privately owned financial companies.

Conclusion

With all the new shares about to be dumped onto the market, the stock still has 50%-plus more to fall. Then as the pipeline drugs fail, I wouldn’t be surprised to see AMPE in penny-stock land within a year.

Disclosure: I am short AMPE.

Source: Retail Speculators Getting Amped On Ampio Pharmaceuticals