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Nir Etkovitz
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Ph.D in the Faculty of Life Sciences, Bar Ilan University, Israel Post Doctorate, Weizmann Institute of Science, Israel Program Manager at Peerion ltd. publisher of 14 research articles in professional journals. Junior Staff, Instructor in Academic Courses. studies in Economics, Israel.... More
  • Behind The Short, Are Investors Of CytRx That Shallow?  22 comments
    Mar 14, 2014 3:02 PM | about stocks: CYTR

    I read Richard Pearson`s article on Seeking Alpha (NYSE:SA) and felt confused. I didn't read all the articles on SA addressing CytRx corporation (NASDAQ:CYTR), rather, I was reading about CytRx`s technology the company`s results, and all Richard Pearson said was that he thinks CytRx misled investors. Well, I think it is Richard Pearson who misled investors and not for the first time. I argue that the short position was taken three days before the publication, thus using SA as an "insider information" source promoting his position and his friends. As a PhD in biochemistry I am arguing that CytRx is undervalued with respect to its technology and pipeline of cancer treatment development. To the best of my knowledge the phases II results were nothing less then excellent, and, based on the recent approval for phase III, the FDA appears to agree with me.

    I would like to address Richard Pearson, starting from his statement in his article in SA "Behind The Scenes With Dream Team, CytRx And Galena". He stated: "My goal in submitting dummy articles to DTG was to determine the level of involvement of management of these companies in reviewing and editing articles." This is funny since I found a nice article about CytRx and GALE. This article was published in "The Street", relating to three companies: "3 Oncology Biotechs to Watch". In this article Richard Pearson wrote: "CytRx's approach to oncology is noteworthy to CytRx bulls because it potentially could entail lower risk. Not only is CytRx's aldoxorubicin essentially just an improved delivery mechanism for an existing chemotherapy drug, but this delivery mechanism itself has been proven by Abraxane, which also combined an existing chemotherapy drug with an albumin binding molecule. The drug is currently in a phase III trial for second line treatment of soft tissue sarcoma and a phase IIB trial as a second line treatment for glioblastoma multiforme." This is an extremely bullish approach, maybe even a pump article by Richard Pearson. As you can see, Richard Pearson has written very positive things about CytRx's drug and now he writes "Readers should keep in mind that drugs do not "pass" Phase 2 trials. It is the decision of the sponsor (ie. CytRx) whether or not to proceed to Phase 3. The FDA would certainly halt a study if it was deemed to be dangerous to the patients enrolled. But the FDA would not otherwise rule on effectiveness or stop a trial at Phase 2." Now I'm confused, on January 27th, 2014, as shown above, Richard Pearson stated that "the drug is currently in a phase III trial", so what is true and what is a lie? Well, in order to answer this question, I need to write about CytRx's platform.

    Aldoxorubicin is a tumor-targeted doxorubicin conjugate. This means doxorubicin is attached to an acid sensitive linker (EMCH). After administration Aldoxorubicin rapidly binds endogenous circulating albumin through the EMCH linker. The albumin delivers the drug via blood circulation to the tumor where it is released due to the tumor`s acidic environment(the linker is acid sensitive). This mechanism results in free doxorubicin at the site of the tumor. To make it simple, imagine a guided missile aiming tumors.

    Now back to Richard Pearson, and also addressing Adam Feuerstein: They claimed that the results are not conclusive and Pearson also stated in his article: " Feuerstein also notes that more than 60% of the patients enrolled in CytRx's aldox study were in India, Romania, Russia and Ukraine, implying that accuracy may not be as high as for a study which had been done primarily in the US and/or Western Europe". Well, they are saying that you can only conduct a trial in the USA. However, many of the known drugs were developed outside of USA. Are these drugs judged on where they were developed? Also, "For some reason patients in this trial had a 0% response rate for tumor shrinkage with the legacy drug doxorubicin. This is unusual in that dox is considered the standard treatment for sarcoma patients. A 0% response in this control arm provided a very strong (apparent) boost for CytRx's aldox." They mean to say that the results are fabricated. So let's have a look at the results: "Additional analysis determined hazard ratios for the primary endpoint of progression-free survival (NYSE:PFS) by both investigators at study sites and by a blinded radiology review performed at an independent central laboratory. The hazard ratio for investigator-read scans is 0.37 (95% confidence interval, range of 0.212 to 0.643) (p=0.0004), reflecting a 63% reduction in the risk of disease progression; and the hazard ratio for central lab scans is 0.59 (95% confidence interval, range of 0.36 to 0.96) (p=0.034), reflecting a 41% reduction in the risk of disease progression." I looked at the statistics and at the conclusions of the investigators and I am also taking into account the doctor and the FDA that checked the results. Do they all have less knowledge then Adam Feuerstein or Richard Pearson? The FDA`s recommendation was to approve "dosing patients with aldoxorubicin until disease progression in a planned pivotal, global Phase 3 clinical trial with aldoxorubicin as a second-line treatment for soft tissue sarcomas." The FDA based the approval on the success of the trial. They approved high doses of aldoxorubicin!!! Well, I think the FDA has more qualified employers then Adam Feuerstein or Richard Pearson.

    Richard Pearson`s allegations a regarding the electronic signature seem unpersuasive as it is easy to manipulate such signatures. This is not a proof, not even close. I didn't see any of the management selling their stock. The stock actually rose after the good result and the beginning of other trials. It's a nice story, but Richard Pearson has a position to sell, so he tells a "007 story" without a smoking gun. I hope the company will reply to this week`s allegations with a lawsuit.

    Is CytRx the only one? According to the article there is more than one or two, so why CytRx. Looking at Richard Pearson`s articles, most of them are short and match his position. Let us look at the article about Kandi Technologies Group Inc (NASDAQ:KNDI). Richard Pearson gave this stock a 4$ target, while, today, the stock is around 17$. Look at the same method, first he is long as he stated :"My last article was long, but the key points can be summarized as follows" but he has the same point for short: " Aggressive articles predicting a meteoric rise in the stock". Looking at this misleading article and others, I don't really understand SA approving his last article.

    Let's look ahead, CytRx has approximately 125M$. The market capitulation is around 225M. Therefore, the entire company pipeline is valued by 100M. I won`t go and value CytRx, I just state what Aegis recommended and published (January 23rd 2014) few days before Richard Pearson (January 27th 2014): "Aegis increased their price objective on shares of CytRx (NASDAQ:CYTR) from $9.00 to $12.00 in a research note issued on Thursday, American Banking & Market News reports. The firm currently has a "buy" rating on the stock. Aegis's target price suggests a potential upside of 66.20% from the company's current price." At that time, CytRx had a market cap of $297.1 million. If we take this recommendation to date, CytRx has 200% upside. I believe the potential is even higher.

    Disclosure: I am long CYTR.

    Stocks: CYTR
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Comments (22)
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  • wlingke
    , contributor
    Comments (6) | Send Message
     
    Excellent analysis.
    14 Mar 2014, 03:30 PM Reply Like
  • checkers12
    , contributor
    Comments (143) | Send Message
     
    beautiful...the reality is the drug is the drug...if it's as amazing as trials have shown, why are we arguing about some possible illegal promotion..the fundamentals are the fundamentals....RIDICU... undervalued. AND not a share sold by an insider after that 200 percent run!
    14 Mar 2014, 03:47 PM Reply Like
  • checkers12
    , contributor
    Comments (143) | Send Message
     
    and don't forget Pearson's great call on NEON...he's been right on the money every time - if you go long his shorts, and vice versa
    14 Mar 2014, 03:51 PM Reply Like
  • Nir Etkovitz
    , contributor
    Comments (23) | Send Message
     
    Author’s reply » I'm not finished with him. next week I will hopefully have a new blog on CYTR. don't forget, the GBM trail is a real game changer.
    14 Mar 2014, 04:32 PM Reply Like
  • raynix
    , contributor
    Comments (2) | Send Message
     
    Nir I appreciate the article not just because I agree with you but I wish someone had the balls to come out and say this was a planned scheme to put Pearsons article out yesterday because I know by watching cytrs stock price they had been shorting it for severaly days very hard and it would go down a lot right at the end of the trading day more than during the day. I knew the article was put out yesterday because they had shorted so many shares they were going to have to start buying some back today, which is what happened, They actually drove the price down a lot premarket to scare investors like myself so I bought 1k premarket at 3.75 knowing that they were going to have to start buying back before day was over, midday they tried to scare us again by sending it to the days low of 3.61 and I bought 3k shares at 3.65 and still have them. It did exactly what I said it would do it ended at a high for the day and I said on yahoo message board last night (raynix77) that the articles timing probably meant its time to buy back so they wanted others to get scared and sell so they could buy back cheaper, shorting stocks is evil, it is not loving thy neighbor as thyself as the Lord commanded us to do. To sell a stock that someone doesn't own is wrong it turns investing and the market into a gambling casino and hurts people intentionally all for the love of money. It should also be unlawful to put out articles promoting shorting a stock or for the author to be shorting it. Truly should only allow articles from people who hold no positions in the stocks and plan to hold none. Thank you for your article, in Pearsons article he suggested the company did wrong by not revealing it was a paid promotion. Well it was the promoting companies responsibility to reveal they were getting paid by cyrtx , hello hello they used that argument to try and deceive the reader and scare them to sell or talk them into shorting. I know to never give any credence to anything I ever read from Pearson even if he may be right some times because his tactics are evil, they hurt innocent investors.
    15 Mar 2014, 02:11 AM Reply Like
  • bulldog1
    , contributor
    Comments (4) | Send Message
     
    thanks for this article, you are a person objectively and without ulterior motives and instead as' Paerson
    14 Mar 2014, 03:56 PM Reply Like
  • vfc1955
    , contributor
    Comments (51) | Send Message
     
    Obrigado Nir,

     

    I increased my GALE position yesterday afternoon.

     

    based on your article I will buy CYTR next week.
    14 Mar 2014, 04:26 PM Reply Like
  • Nick Zheng
    , contributor
    Comments (189) | Send Message
     
    make senses. All try to manipulate the stock price. I do not see much difference among all analysts, pumpers, dumpers, journalists, columnists. It is up to the investors to judge by themselves. For biotech stocks, only the drugs that matter. If the company misleads the investors by fraudulent data, then it is a fraud. All others are noises.
    14 Mar 2014, 04:27 PM Reply Like
  • Nir Etkovitz
    , contributor
    Comments (23) | Send Message
     
    Author’s reply » I agree, I'm looking foreword for their next result.
    14 Mar 2014, 04:34 PM Reply Like
  • vanebfbc
    , contributor
    Comments (109) | Send Message
     
    Great article. I have no position in CYTR but a small portion in GALE. What I have observed from both Pearson and Feuerstein's arguments is that the recent bear attacks seem to focus on anything but the fundamentals, the science behind which these biotech companies generate money from. While I commend their effort to balance market views, I can't help but feel sad about their attempt to sabotage development and sale of new drugs. Aldoxorubicin (CYTR) and Abstral (GALE) are both promising drugs to fight cancer (reduce pain for Abstral), but because of the turmoil, some patients may not live long enough before they receive prescription. I hope the next report can clear things up a bit, and thank you again for sharing your thoughts about Pearson't article.
    14 Mar 2014, 05:44 PM Reply Like
  • michaelh116
    , contributor
    Comments (2) | Send Message
     
    Great to state the facts!!
    14 Mar 2014, 05:47 PM Reply Like
  • ifti99
    , contributor
    Comment (1) | Send Message
     
    Well, I have no position in this stock but it is an interesting story. The problem with your article is that it does not address Pearson's main point, which is, "Did CYTR commit security fraud"? If his allegations are true (that CYTR put out articles without disclosing that these were paid stock touters), it would seem that CYTR is going to have a huge problem on their hands. At the very least, a $86MM problem plus whatever the SEC does. Again, I have no position at all in this stock at this time.
    14 Mar 2014, 06:14 PM Reply Like
  • godwinpeak
    , contributor
    Comments (75) | Send Message
     
    Pearson's article provided a link to SEC enforcement actions involving the situation here - stock touters paid a fee that failed to disclose the compensation. Interestingly, the SEC article made clear that the law only applies to paid touters, not to corporations who paid the touters, i.e. no vicarious or indirect liability. Here is the excerpt from Pearson's own cited authority: "There is nothing illegal about companies paying fees to touters. The law requires the touters have to disclose ... The laws do not cover the companies themselves who make the payments."

     

    Astonishingly, after admitting that he is no lawyer or securities regulator, Pearson then makes the grand leap of faith and conclusion that CYTR's entire $86M proceeds of its follow-on secondary, underwritten by Oppenheimer and Jeffries at $6.50 share, may be subject to forfeiture. How believable is that? Does that remedy follow his cited authority, or does that remedy instill fear in CYTR longs so that they sell shares and profit Pearson's own disclosed short position in CYTR stock?
    15 Mar 2014, 01:37 AM Reply Like
  • Nir Etkovitz
    , contributor
    Comments (23) | Send Message
     
    Author’s reply » I think it's not clear if something really happen. It will take years and a lot of lawyers until we really know. I don't think you fly to meet somebody for 300-500$...when you get 500$ from Sk...think about it...
    15 Mar 2014, 02:02 AM Reply Like
  • BF777
    , contributor
    Comments (8) | Send Message
     
    I really like the science at cytrx, and I think it has a reasonable chance of success, so I begrudgingly sold half my position. I watched Gale fall for the last two months with the relentless negative postings about lawsuits and short thesis articles, so I expect the same to happen with Cytrx. Also with world events ie: Russia, small biotech may be in for a rough patch. Then there's the possibility that the allegations are true, and what implications that would have on the price. It a tough spot to be in as a share holder. Hopefully this gets resolved soon and OS data for the phase 2 trial comes back positive at the end of the year. If that happens, then the price will sky rocket.
    14 Mar 2014, 06:16 PM Reply Like
  • Pendlorian
    , contributor
    Comments (3) | Send Message
     
    Nir,

     

    Well written. I am amazed at times how the emotional market quickly forgets the underlying fundamentals and the great work in the cure for cancer cytrx will produce. Capital was a concern and cytr cured that question. The FDA is king imho and should give pure clarity and solvency to anyone questioning the pipeline. I have never experienced a stock drop in half of it's secondary because of a few press releases. Jefferies certainly holds more weight than that. Can you create an article and have it posted to the yahoo cytr page for the masses to read rather than a blog that is read by a lesser number? We need further counters to the evils of profiteers in the wake of an innovation for such a great cause. I find it revolting that the shorts wish to profit from the hard work these scientists have discovered and enhanced. Short PLUG if you want or some other hyped stock, but not those with cause. Thank you again, I'd like to see management bring legalities to Pearson and "Adam F"
    15 Mar 2014, 01:34 AM Reply Like
  • Nir Etkovitz
    , contributor
    Comments (23) | Send Message
     
    Author’s reply » Thanks, I will try to publish, but, I really feel they won't publish it.
    15 Mar 2014, 02:06 AM Reply Like
  • cat1205
    , contributor
    Comments (10) | Send Message
     
    Great article.
    Facts its all important at the end.
    Thanks.
    15 Mar 2014, 03:37 PM Reply Like
  • sathkumara
    , contributor
    Comments (27) | Send Message
     
    You are focusing on trials and valuation and Aegis analyst comments. Why only pick him? Pearson focuses on lapse ethics of the mgmt. and potential breach of securities laws.
    I commend Pearson's work for exposing these elements. In the end it is healthy for the markets.
    Your comment it will take years and tons of lawyers to find out what happened? No it won't. SEC is more efficient than you think. Also you are not sure something really happened? He has given most of the evidence. They got the stock price up, without disclosing they paid for it, placed $86mm with the investors. Those are facts. More will unfold over the next few weeks.
    16 Mar 2014, 02:48 AM Reply Like
  • Nir Etkovitz
    , contributor
    Comments (23) | Send Message
     
    Author’s reply » You are taking every thing Pearson wrote as the final verdict. what he showed is some one that contact him, electronic things that any small child can produce to impress somebody. this is not a proof, this could be something else. do you think anybody will fly for 300$? SA gave him 500$ for is article...looking on his track and Adam also, sorry, I don't believe in the story.
    moreover, they toke out a lot of article of other companies. so they not really shore of anything. they let the story run but 3 days they are shorting the stock...
    16 Mar 2014, 06:18 AM Reply Like
  • bulldog1
    , contributor
    Comments (4) | Send Message
     
    Nir Etkovitz i want read another article soon....please
    18 Mar 2014, 10:05 PM Reply Like
  • Avi. Morax
    , contributor
    Comments (2) | Send Message
     
    Hello. This is the one year anniversary of your article! Great article. Glad someone with an education like yourself (PhD.) has the fortitude to write an article challenging the motive of Richard Pearson's public declaration of being short in CytRx. Pearson, and Feuerstein (a bachelor's degree in political science) have been in numerous lawsuits after writing articles about companies in an effort to short them for financial gain. They have no medical training whatsoever. Aldoxorubicin is currently in numerous clinical trials and aldoxorubicin is experiencing a serious interest from larger pharmaceutical companies. Currently Eli Lilly is working with CytRx using their gemcitabine. In addition Bristol Myers Squibb is working with aldoxorubicin and their drug. The FDA is working with all 3 companies, and has granted CytRx multiple Orphan Drug status for aldoxorubicin, a special protocol assessment and has extended dosing in trials with aldoxorubicin. The reality and facts speak for themselves - if investors do their due diligence they will see that recent SEC filings include some investors taking large positions in CytRx buying shares in the open market. Ultimately clinical drug trials should be evaluated by the medical community - physicians and scientists who have an ethical duty to do no harm, unlike the "quasi" financial authors Pearson and Feuerstein who use their influence to ultimately put out articles that benefit their own short positions. Bristol Myers Squibb, Eli Lilly and the FDA are currently working with CytRx and their compound - which you described above in understandable scientific terms. The FDA has a tremendous interest in aldoxorubicin and the proof is in their extending dosing, granting SPA, and allowing multiple trials while ganting multiple Orphan Drug Status for aldoxorubicin. Congrats on the one year anniversary of your article, obviously Bristol Myers Squibb, Eli Lilly and the FDA agree with you. Avi.Morax
    9 Mar, 01:08 AM Reply Like
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