Marc Chang's  Instablog

In response to part 1 of this instablog "christinaburger" published her own instablog to counter what I had to say about the "jadestone report".

Let me quote her instablog's introduction: 
"Regarding to the response by Marc Chang on his Instablog, we would like to guess the response is more quickly than ‘the company management team’. We could not stop guessing that Marc is hired by GURE to publish the positive report and response to any attack. It explains why Mr. Chang need to clarify if this is the company behavior, or individual. "

Now what???
On Sep 29, at 7:53 am I responded to the Jadestone internet report, not to “christinaberger” and at 10:31 am “christinaberger” reacted on my instablog. 
That clearly means "christinaberger" is now identified being Jadestone!

Christina spreads rumors about me being hired by GURE while any reader can learn from my SA Profile what I do in my daily life.
We cannot say the same about "christinaberger"! How about her SA Profile? Shouldn’t she include or add the jadeorstone website that was established just recently on Sep 15 with the purpose of incognito publishing hit-pieces against Chinese companies?
Why does her SA profile sate that she is an “Independent Planner Adviser” while her Jadestone website claims she's “A corporate investigator aimed at Chinese companies traded overseas”?

Please note that an investment fund has now forwarded a .pdf print of her instablogs, web-reports and both contradicting profiles to FINRA.

She wondered about my speedy answer while GURE needs more time:
-       it deserved my quick response because she intentionally misused data from Table 1 in my report to try to mislead investors.
-       I believe she was are very well aware that posting the JS report and instablog just before the Golden Week in China would make it difficult for GURE to timely respond to your allegations.
-       She knows that in GURE’s management team there is only one person who reads English fluently and that consequently more time would be needed for management to respond to your evil accusations.

Her next statement: 
"We hope more investors could see the real situation but not from the ‘inside information’ by the company itself. "
Is she trying to convince investors that you can learn more about a company by spying them from outside the walls of their factory properties?
How come she even didn’t know that factory 6 has 2 bromine extraction units and 2 brine pumps…..even after reading my report?

Further comments on her instablog statements:
Several GURE factories have 2 or more brine extraction towers and consequently the number of pumps used in her assumptions is wrong.
If she did read my report properly she would know that I was in contact with several suppliers of Bromine towers and extraction equipment.
Has it ever sunk in with her that Bromine Extraction Towers can be built not only in polyester standard modules but as well on demand, in concrete or stone, according the tender specifications of the buyer?

Did she see photo 60 in my web album?
With her 10 year presence in China and a “Professional local team” why didn’t she go to see this new factory 4 to “Expose the target and reveal its genuine value” as claimed on the JS website?

Didn’t she notice that in Table 4 of my report you can find the latest update of bromine content in brine for each factory?

She wanted me to provide you the proof that the underground brine in Laizhou Bay doesn’t occur in one big bubble? Have a look to the complexity of the regional tectonic map of Laizhou Bay in Shandong and the different areas with brine concentration and underground layers.

Christina, have you noticed that in my report I have given the names of the Government Officials that I met while you do not want to reveal the name of the local tax bureau officer?

Christina, I think you have now well enough exposed yourself to investors to let them understand your personality, what you are aiming for with your jadestone report! To me you have no credibility at all!

Yesterday, a poster on the Yahoo Message Board noted there is a new hit-piece against GURE posted on the web by Jadestone (hereafter called JS) on a newly created website www.jadeorstone.com with an IP information that does not link it to any company.

Reading this hit-piece for a couple of times I can only conclude that it is extremely flawed and fraudulent and that the sole purpose to produce this hit-piece is to enrich the writer or whoever has a short position in the stock and has ordered this hit-piece.

It is interesting and telling to note that JS intends to spread out this hit-piece at the time that China starts it’s Golden Week Holiday when GURE’s Management and Staff is out of office.

The management of Gulf Resources has taken notice of this new hit-piece and will react in their own way but as a listed company might need some time to publish their case.

With this instablog I would like to refute a number of arguments before this hit-piece finds a wider audience and the fraudulent perpetrators can inflict any unjust damage to the stock and mislead stockholders.

Let me focus on one specific section of their report in which the writer also uses a few numbers that originate from my Article: “Gulf Resources Site Visit Indicates 2011 Guidance Is Overly Conservative”:

JS: “Capacity Checking Methodology – A Best-Case-Scenario Approach”

This section is covered in page 8 through 12

JS Claim 1:
Bromine processing towers come in several sizes - 500, 750, 900, and 1000 see note 5. Further he writes: we are assuming that GURE’s facilities are 750-types for the purposes of deriving their maximum potential processing capacity.
Refute:
According JS’s own footnote 5 a “750” tower would have a capacity of 750MT/Y.
But JS calculates further that each “750” tower can produce: 1300 M3/h x 24h x 26 days x 12 months x 0.000210 = 2044 MT of Bromine!
Conclusion:
JS contradicts itself and consequently uses such contradicting data to make its claim that SCHC overstates its Bromine production.

JS Claim 2:
On page 10 of the report and later on in the Table” Production Lines in GURE’s Different Factories” page 15 JS claims that they count 11 active Bromine extraction towers each using 1 brine pump with capacity 1300 M3/hour.
Refute:
The reality is (as I noticed personally during my site visits) that each Bromine extraction tower uses 2 brine feeding pumps and that some factories have multiple, and not only one, towers!
Each factory has its own production capacity characteristics and pump output capacities. For example, photo 19 shown in the Picasa web album shows a satellite view of Factory 6 with 2 bromine production units. This contradicts the JS claim which only counts 1 Bromine extraction unit. Both Bromine extraction units have their own pump with a capacity of +/-1350 M3 / hour!
Importantly, GURE’s Bromine factories have several brine pumps with a accumulated pump capacity for all factories that is ample enough to supply brine to the extraction towers to cover the brine needs for total technical maximum extraction capacity of 43300MT Bromine / Year.  During 2010 Factory 9 was commissioned with an extra Bromine extraction capacity of 3000 MT.
Conclusion:
The JS report production calculation method is overly simplistic and misleading showing that they fail to understand even the basic operational aspects. The Satellite view from Google Maps shows the report’s claims are fraudulent with the intention to bring down the value of our stock with the sole purpose to enrich themselves.

JS Claim 3:
Page 9 JS states that the average brine density in Shouguang’s brine reserves is 0.097kg/L and the average bromine concentration in the brine ranges from 170-204 g/m3. Further page 10: Discussions with local business owners revealed that as of 6 years ago, bromine concentration levels had been as high as 250-300 g/m3 but have recently reflected a continual decline to the levels listed above.
Refute:
In GURE’s 10-K and 10-Q reports (since 2007), as well as in their latest CC GURE has informed investors that the Bromine concentrations in the underground brine are now lower than in previous years. This problem does not only affect GURE but also other producers, especially those that are close to Laizhou 80 km to the east of GURE’s nearest plant. According local researchers this reduction in Bromine content might have been caused by seawater infiltration and freshwater infiltration in exposed open underground wells. The lower Bromine content in underground brine can especially be noticed in specific spots with older brine wells that are less deep.
One should understand that the underground brine in the Shouguang area is not present in the form of 1 huge underground lake. The brine occurs in multiple layers of different depth.  Some of GURE’s acquired properties had older wells and the company has drilled approximately 900 new wells during 2010 and 1418 new wells in Q2 2011. These wells are generally deeper (80 to 90 meter) and I can assure you that with the current total number of 7673 brine wells GURE has   an ample supply of Brine with a Bromine content of > 0.20 kg Bromine / MT of brine.
The local authorities are aware of this lower Bromine content and since 2007 they have asked the Shouguang Bromine Production Association to take steps to protect the resources and avoid over-exploitation. The underground Bromine resources in Shouguang County are far from depleted and GURES 10-K reports mention non-reserve mineralized Bromine resources of > 2 million MT.
GURE has also taken steps to consolidate their dominance as a producer of Bromine and has informed investors about their action plan for new Bromine Extraction plants in Suining, Daying County, Sichuan Province. The drilling of their exploration wells is proceeding smoothly and over the last 6 months they had collected brine samples from the area where they drill exploration wells. The samples collected showed Bromine concentrations up to +/- 1 g / Liter brine.
Conclusion: 
The JS report intends to overemphasize lower Bromine content in the Shouguang Brine without any consideration of specific local geological conditions and without any consideration of the company’s recent upgrades of brine wells. JS also omits any attention to GURE’s business plan to acquire smaller bromine properties as well their action plan for Bromine extraction in Sichuan Province.

JS Claim 4:
Page 11 of the report JS claims “Our sources revealed insider knowledge that GURE has no more than 5 true operating production facilities” 
Refute:
The report doesn’t give any clear indication about such “Sources” neither gives names of those insiders……..
Conclusion: 
This claim is horrendous and purely meant to inflict more damage.

JS Claim 5:
Page 10: “Given these findings, our team believes that GURE’s 2010 production has been overstated by a MINIMUM of 54%; based on more realistic calculations, we estimate that GURE’s reported production is more likely overstated by 275% - 350%.
Refute:
Such assumptions are based on accumulated false claims as noted above.
Conclusion: 
On September 20 and 27^th  GURE has provided certification by multiple authorities which confirms that in 2010 their production was > 30,000 MT and that SCHC with its 9 Extraction Factories was the dominant producer of Bromine in Shandong Province. Especially the Shandong Province Light Industry Association has a responsibility to govern production of crude salt and Bromine in accordance with the Chinese Government Policy and Guidelines. By law, the collection of data and statistics is also part of their responsibility.

JS Claim 6: 
In the competitor comparison methodology page11 JS refers to an interview with the Shangdong Haihua sales manager (Third-party company report) to say  China Shandong Haihua has 14 production units producing 10,000MT.
Refute: 
This claim makes reference to an argument in a previous hit-piece report by Glaucus  to which GURE already responded: on Dec.10, 2010 Haihua provided the Company a letter of certification with its corporate seal, …..
To use the competitor’s number of production lines and total tonnage produced as a basis of comparison doesn’t make any sense as each competitor uses production lines of different capacities, in different working conditions. Over more the production numbers from competitors shown in the table produced by JS may not be updated and eventually do not include the Tonnage of Bromine used in production of their own chemicals. Last but not least, did JS check if other producers’ production claims are correct? 
Conclusion: 
The table Competitor Comparison Methodology as produced by JS is intentionally misleading.

Overall Conclusion:
Considering the low quality of this JS report and the obvious intentions of the writer, I am convinced that the other sections of the report were made with the exactly the same spirit….and not worth any further attention!

Unqualified and thereby misleading reports like these based on an obvious lack of basic understanding coupled with the hope to gain from a short interest position is exactly why the share price of GURE is so low. Undeniably, the share price at this level is a result of all this fear mongering by shorts, making misrepresenting statements while ironically claiming misrepresentation. At the end, as always, it will be the fundamentals that will prevail.

No, it’s far from over, it has only just begun!

Don’t be surprised if CADX becomes a takeover target for BMS somewhere next year.

 Let’s analyze a bit the negative statements which were made last week in The Street and Seeking Alpha:

 Part 1:

AF: When is a drug approval reason to sell a stock? Answer: When the drug's approval was widely expected.

My comments:

So from now on AF has set a new rule related to FDA approvals: “Buy on the rumor, sell on the news”? This is utterly nonsense, and there is no reason trying to lure in the small number of retail holders to sell their shares: Close to 100% of the shares are held by Institutional Shareholders, Mutual Funds and Insiders. And the Nasdaq report of Oct. 15^th shows 19.3% shares held short.

Most of the shorts are clearly institutional or hedge funds that believe they can play the same game as they did with SOMX, POZN etc… .

So, AF and his cronies are clearly choosing the side of the 19.3% institutional shorts but forgot that there is very little retail “Soft money” to scare out of their shares.

Part 2:

AF: “The company planning to market the approved drug faces significant challenges convincing doctors or hospitals to buy it”

My comments:

Really? Dear AF, God of the bio-stocks, have you listened to the CC and learned that Ted Schroeder announced that within 2 days following the FDA approval of OFIRMEV 130 hospital sales specialists with an average of 10 years of hospital sales experience accepted employment offers with CADX.

Ted correctly called it “A vote of confidence in Ofirmev” and I say that it also shows confidence in the company’s team and team culture.

The speed of decision making and cumulative experience of such sales team means more to me than the rants of AF.

Part 3:

AF: "For now, the stock faces investor skepticism about the launch – most recent drug launches have been disappointing – and a financing overhang. These issues may mute the usual post-approval stock rise and provide an inexpensive entry point, in our view," said Canaccord Genuity analyst Adam Cutler.
Many investors anticipate Cadence having similar difficulties as Cumberland Pharmaceuticals has had gaining hospital acceptance for its intravenous NSAID pain reliever Caldolor.”

My comments:

Really? Many Investors? Adam Cutler? Who is many? Do you want us retail shareholders to follow that herd?

Adam Cutler expressing his “skepticism about the launch” asked at the CC:
“Just wondering, if you can talk a little bit about some of the competitive dynamics in the marketplace and I think there are a lot of investors who have looked at the sales trajectory of Caldolor, for instance and wondered why OFIRMEV could or should do better. And so, I think there are some reasons, but I’m wondering if you could just remind us and kind of give us your perspective on that?”

And here some extracts of the answer by CADX management at the CC:

From Scott Byrd:
The economic value of products in today’s environment are evaluated in the context of their therapeutic equivalent, the other options that hospitals have to use. For Caldolor, that product is ketorolac. It’s a very well established and entrenched NSAIDs. Physicians and hospitals have a lot of experience with that product.
And it’s our view that physicians just don’t believe that there’s clinical data that offers any differentiating efficacy or safety from ketorolac and remember, this is a product that also carries a black box warning. And that’s something that, again in the context of having to make a decision to bring a new product on to one’s formulary, they are going to evaluate very carefully at a price differential that’s eight to nine times the generic with little differentiation.
I don’t think it’s really a surprise that there’s been a struggle to penetrate the formulary process there.
The reason, of course, that we feel comfortable with the approach that we’re taking in OFIRMEV is because, as I mentioned in the last couple of questions, OFIRMEV is highly differentiated from the current products on the market. It’s a non-opioid, non- NSAIDs, carries no black box warning. We think that will position it quite well to meet unmet needs in the hospitals and be able to allow hospitals and physicians to treat patients where they might otherwise not be able to with the available therapies today.
And certainly the benefit/risk ratio or assessment of OFIRMEV is one that we think provides quite a different opportunity for physicians to consider treating patients across the spectrum of different surgical procedures and that’s something that we believe will have strong support from physicians on. And in our interactions previously through the market research, we’ve gained some confidence that the formulary process will be a positive one for OFIRMEV.
We believe that OFIRMEV stands alone in its value proposition and that will be the primary reason for a differential launch. However, we have shared multiple times our excitement and really our -- how thrilled we are with the hospital sales team that we’ve been able to build to help launch OFIRMEV. And I think that’s also a differential factor that will help us with the launch of this product.
Again, I’ll just remind you that we’re going to have a substantially higher number of folks promoting this product than that launched Caldolor and maybe even more importantly, these are folks that have arguably some of the highest average experience in hospital sales of most any other sales force out there at 10 years average sales experience. So these are folks that understand these hospitals extremely well. They’re very well-versed in the hospital formulary process and negotiating through the unique needs of pharmacy, administration, physicians and nurses. And I think that experience as well will certainly benefit us relative to some of the recent launches.

Ted Schroeder:
Adam, and I would add that one of the unusual things that we have available to us to benchmark is that we have the performance of IV acetaminophen in Europe in markets where often there are multiple NSAIDs available. And in every one of those markets, OFIRMEV continues to perform in a very robust way. In fact, as you know, IV acetaminophen, it’s not OFIRMEV in Europe.
But IV acetaminophen is the leading IV analgesic in Europe, maintains the dominant unit share and that’s true in countries that are -- where physicians predominantly prescribe NSAIDs, that’s true in countries like the U.K. where physicians predominately prescribe narcotics. In fact, in the U.K., a market that’s very similar to the U.S. where narcotics dominate, there are limited numbers of NSAIDs including diclofenac and ketorolac, but those are the only two available. IV acetaminophen commands a 35% market share of the IV analgesic units in the United Kingdom.
I’m just pointing out that the physician adoption of the product in markets that mirror the U.S. or in markets that are heavily dominated by NSAIDs seems to be unaffected. It’s the benefits that Scott has outlined of the drug that physicians find compelling for the opportunity to deliver better pain control with reduced opioid consumption.

Part 4:

AF: “The challenge for Cadence is cracking U.S. hospital formularies, which can be a slow process.

 My comment: This topic was also answered in the CC

Charles Duncan – JMP Securities
Okay, Scott. And since I’ve got you, perhaps, you’ve been, I can ask you, you’ve been pretty busy it seems like for the last few months working with or prospective customers. Do you know or do you believe that there are P&T committee meetings that can be had over the course of the first couple of quarters that could enable decisions in the first half of next year?

Scott Byrd:
Of course. Yeah. I mean, there’s already we’re aware of some institutions that have begun the process. So, certainly we expect that there will be hospitals making decisions over the next couple of quarters. Again, what we’ve talked about previously is that most hospitals will move through their structured processes, it will be a six to nine months process for most institutions. But we’re absolutely anticipating that some institutions are going to be moving much, much more quickly. And as I think we shared on our last call, it’s our intent to provide some guidance on that at a later point in time and then provide you updates on our performance along the way.

Eric Schmidt - Cowen and Company:
Good morning. It sounds like you have a plethora of pharmacoeconomic data to share these P&T committees. Is there anything else that you can imagine they’re going to need to see before you gain formulary clearance?

Scott Byrd:
Well, I think, it’s going to be a pretty straightforward process. We’ve spent a lot of time engaging pharmacists, physicians that are members of P&T committees, doing a lot of research with, if you will, mark P&T committees early on and as we’ve gone through that process, we continue to hear very, very consistent feedback. And Ted’s comments were really spot on in his opening remarks.
The primary data and evidence that the formulary committees were expecting them to use are the clinical data. And the reason that I really focus on that is because this is really the first time they’ve had in decades to have a truly new class of IV analgesic to put on their formulary and fill of these unmet needs that they’ve been struggling with.
So that’s really going to be the compelling decision for pharmacies. To the extent that they do want to have some discussion around the economics we feel comfortable that we’ve got sufficient data to provide there…..

Irina Rivkind – Duncan Williams:
Hi. Thanks for taking the call. I wanted to explore the formulary profiling a little bit more that you guys have done. I was just wondering if you’ve earned -- just about general hospital scheduling, or if you actually talked to them a little bit about the product and got some indication of willingness to put it on the formulary.

Scott Byrd:
“In a pre-approval situation, we weren’t able to talk specifically about the product. We focus mostly on the processes of the hospital as they make formulary decisions. We did gain a lot of insights into differences from hospital–to-hospital, not only in just the overall formulary process, but the formulary process as it applies to the treatment of acute pain.
And of course there’s a lot of variability from institution to institution and that insights is really going to be pivotal for us as we initiate the launch. So we have, at least in about 900 to 1,000 accounts, very, very deep insights into the structure of their processes, the key members that are involved in the decision-making…..
“The insights we have about willingness to adopt the product come exclusively from market research and we’ve done a lot of market research over the years and it’s remarkably consistent from study to study both here and in Europe. And so the U.S. physician’s perception of efficacy and the utility of OFIRMEV are nearly identical to that European physician’s assessment of its utility.”
“And with that profile we have a number of studies that show that physicians are willing to indicate or indicate that they would place 70% of their postsurgical patients on IV acetaminophen to manage postsurgical pain. That’s a remarkable statistic. It tracks very nicely to the current European use, which is 80% of postsurgical patients receive some doses of IV acetaminophen in the postsurgical setting.”
So it’s a product that physicians well understand, it’s the leading combination for treating outpatient pain is a combination of acetaminophen and a narcotic. There are 14.4 billion outpatient doses of outpatient narcotics, 75% of those doses are in combination with acetaminophen. And so physicians already recognize the utility of an acetaminophen narcotic combination. In the hospital when patients are unable to take medication by mouth, they now have the opportunity to deliver that same effective approach that they use every day in their hospitalized patients.

Irina Rivkind – Duncan Williams:
Great. And, can you provide a little color as to what your reps will be doing while the formulary decisions are underway? Are they going to be talking to physicians on the floors or what are -- what are they going to be doing?

Scott Byrd:
Yeah. I’d be happy to share some more about that. This is something where we’ve had conversations before around the -- how one launches a product in the hospital setting. And the answer to that is it will vary from hospital to hospital, of course. There are some institutions that have very specific rules and guidelines about the timing in which representatives can be inside the hospitals and promoting the product and we’re going to adhere to those expectations and guidelines with hospitals.
But all in all I am quite confident that our representatives will be able to advance both the formulary process and the pull-through for demand. In fact, these processes really go hand in hand and are part of the same conversation. So, I don’t really envision this, as others have discussed in other firms, that this is a two-step process where you can only discuss formulary for some period of time and then you move on to discussing the product’s use and pulling through on demand.
This is an approach that’s really is just part of a larger selling cycle. And the representatives are going to be selling the product in hospitals while they’re helping the physicians and pharmacists move OFIRMEV through the formulary process.

Part 5:

AF: Cadence is being penalized further because the company needs money to fund the Ofirmev commercial launch. Cadence closed the second quarter with $68 million in cash but now needs to pay $15 million to Bristol-Myers Squibbas part of the licensing deal for Ofirmev. [Bristol sells Ofirmev under a different brand name in Europe.]  Cadence also needs to hire a sales force to sell Ofirmev, which will likely cost around $45 million.

My comments:
Bill LaRue provided some useful information here:

“As of September 30, 2010 we held approximately $60 million in cash, cash equivalents and short-term investments.”
“In the sales and marketing area where the headcount was increased from 2 at the beginning of 2009 to 37 today”

My personal view:
From the CC we understood that part of the sales force was already hired and that they hire about 135 additional sales staff. 
Besides, there is plenty of information available from the CAFEPHARMA message boards about the cost of these staff, showing that the figure of $45 million to hire this sales force is completely overblown. I estimate the total additional costs for the sales team + peripheral costs at maximum $20 million per year.
Further, as Bill mentioned, they will bear the cost of some Ofirmev inventory, however, not a significant number. 
From the CC comments of Scott Byrd “But we’re absolutely anticipating that some institutions are going to be moving much, much more quickly” it’s easy to understand that CADX Management has no doubts at all that they’ll start selling early 2011 and that it will result in significant sales to early adopters.
I wouldn’t be astonished to see well over $200 million sales in 2011 as a lot of physicians are waiting for the product and efforts with the formulatory process are well underway!  
Consequently, I see no need at all for additional dilution of the stock!

Part 6:

AF: Bristol's version of Ofirmev brings in about $250 million in European sales annually, which proves a market for the drug does exist. Ofirmev pricing in the U.S. is expected to be higher than it is in Europe and the drug faces less competition from other non-opioid, injectable pain relievers. Canaccord's Cutler estimates Ofirmev can generate U.S. peak sales of $500 million.

My Comments:

CC info from Ted Schroeder:
In fact, in the U.K., a market that’s very similar to the U.S. where narcotics dominate, there are limited numbers of NSAIDs including diclofenac and ketorolac, but those are the only two available. IV acetaminophen commands a 35% market share of the IV analgesic units in the United Kingdom.
If that was translated into U.S. pricing and U.S. market opportunity that would be a product that would be in excess of $1.5 billion. (So I’m not giving guidance to that number…..)

CC info from Scott Byrd pointing to strong sales arguments that can help Ofirmev to become a blockbuster :
There are several studies out there that, as Ted mentioned that have demonstrated that there are opportunities to improve resource utilization with the reduction of opioids, with the reduction of PACU time, ambulation time, et cetera.
So, in that context the cost of PACU time to the extent that it’s been published, is around $250 per hour. So, even very modest reductions in the time in the PACU can have pretty substantial offsets in the cost to the hospital relative to the pricing that we’ve talked about previously. Similarly, we have talked a lot about the reduction in opioids and there is a plethora of data that have been published previously on the value of reducing opioids.
Much of this data has been in the context of the previously available therapies of course here in the U.S. like ketorolac and in those studies there was a reduction in cost for hospitals ranging, depending upon the surgical procedure and the patient type about $300 all the way up through $2000 per patient.
So, again without getting into the specifics of applying this to an individual hospital or individual patient, those give you some feel for the magnitude of the impact that has been published for OFIRMEV and then also some of the relative values that have been published in some other studies with the benefits that have been demonstrated for our product