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SA Editor Douglas W. House
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Healthcare sector investor and analyst for over 20 years.
  • A Few Red Flags About Neoprobe and its Recent Posting 25 comments
    Jan 13, 2011 2:22 PM | about stocks: NAVB
    OK. In order to address the enthusiasm of a couple of bulls, I’ve
    looked a bit closer at MarketFinancial’s Neoprobe posting as well as
    the company’s information on its website and in its SEC docs. In
    short, my opinion hasn’t changed. This company is not an investment
    candidate for investors who know what they are doing. Let me list my
    observations:

    SEC Docs

    1. According to Neoprobe’s most recent 10-Q for their most recent
    fiscal quarter ending 9/30 (filed on 11/15/10), they have $2.6M in
    cash, $1.4M in AR, $2M of inventory and $376K of prepaids/other. Their
    total current assets = $6.3M. Their total current liabilities = $3.9M.
    Their working capital is, therefore, $2.4M (6.3 – 3.9).

    2. They burned $3.6 of cash in operations in the first 3 quarters of
    the FY for an average of $1.2M/qtr. At this burn rate, the company has
    2 quarters of cash left (2.4/1.2).

    3. According to the company’s 11/10/10 press release, the NDA for
    Lymphoseek will be filed sometime this year. The typical timeframe
    between submission and approval is optimistically 12-18 months,
    depending on the quality of the data and the completeness of the
    submission. The company also announced securing $1.2M in non-dilutive
    grant money for the Lymphoseek project. We’re just past the holidays
    so let’s continue the holiday cheer and be extremely generous and
    assume that the company submits it NDA by mid-year and gets its FDA
    approval by the middle of 2012. In this rosy scenario, they still run
    short of cash by the end of Q3 of this year (this includes the $1.2M
    in grant money). So you’re right, always_learning. It’s not a new
    company teetering on bankruptcy. It’s an older company teetering on
    backruptcy (although some additional financing should buy them some
    time, see note 8).

    4. The company spends ~$2.5M/qtr on R&D. They plan on continuing their
    research efforts on expanding the indications for Lymphoseek
    (NE03-09), pursuing clinical trials for the RIGScan CR system and for
    the potential commercialization of their ACT technology (Activated
    Cell Therapy). So, sorry to disappoint you ibejack, but it doesn’t
    look like their R&D expenses are going down. It appears to me that
    they going to increase. All of these initiatives will be very
    expensive.

    5. The company restructured its debt instruments with its primary
    investor, Platinum-Montaur Life Sciences, LLC. They now hold 10,000
    shares of Series B Convertible Preferred Stock. Montaur, at their
    discretion, may convert these shares into 32,700,000 common shares.
    There are currently ~80M shares outstanding so this represents a
    significant dilution risk (~41%).

    6. The company’s financing history contains an alphabet soup of
    various types of preferred and convertible preferred shares. In my
    experience, you see this type of financial “flamboyance” in cases
    where the company’s commercial potential is constrained or limited in
    some way. The company must continue to secure new funding or go out of business because they have not be able to realize enough commercial success to survive organically.

    7. The CEO, David Bupp, has a financial background. He has been at the
    helm since 1998. His expertise makes sense because of the company’s
    acute need of ongoing cash. Mr. Bupp knows how to raise money. If
    Lymphoseek gains FDA clearance, though, I wonder if he is the right
    guy to lead the commercialization. It’s a different skill set.

    8. In their Nov. 10 press release, the Company announced a shelf
    registration of up to $20M. My guess is that we’ll see something
    shortly on this. More equity dilution, unfortunately. In the same
    press release, they announced the completion of $6M of equity
    financing and up to $6.6M additional funding if all the warrants are
    exercised (I’m not sure if this is Montaur). I assume that this money
    will show up on their balance sheet for Q4.

    9. Combining their working capital of $2.4M and the $6M of new
    financing gives the Company $8.4M. Assuming a cash burn rate of
    $1.2M/qtr, they would have sufficient cash for 7 quarters (mid 2012)
    if they do not increase their R&D expenses.

    10. The market for Lymphoseek is ~$370M according to Tripoint Global
    Research. This is quite small. In their revenue projection
    spreadsheet, they list revenue of only $76/dose which is Neoprobe's take from a projected $150/dose customer price (further analysis later on). No product achieves 100% market share so the upside for the product looks modest. The company currently generates ~$2.5M of revenue/quarter. Lymphoseek is an extension of their current radiotracing franchise. It’s apparently able to increase a surgeon’s ability to identify cancerous lymph tissues but it still looks like a
    small niche business to me. One telling data point is the number of
    clinical trial participants. Usually the number of Phase III subjects
    is in the high hundreds or even thousands (depending on the product). Lymphoseek’s (NEO3-05) Phase III only consisted of 136 patients. This signals a small market opportunity (lymph only).

    11. Neoprobe’s other product opportunities are a LONG way off. Years away.

    12. In summary, small medium term niche market opportunity +
    substantial cash requirements + eroding ability of secure favorable
    financing terms + very long term new business opportunities =
    anemic stock price. This one ain’t goin’ to be a winner. I think
    there is an excellent chance that this company will have to merge with
    another in order to survive long enough to have a shot at their other
    products. If they can continue to go solo to the well of new financing
    and get their bucket filled, they will have to be world-class fund
    raisers.

    The MarketFinancial Posting

    The reason I think that this posting has the odor of a “P&D” is the
    way it’s written. Specifically:

    1. The first line states “the 40 trillion US market….”. I certainly
    hope that this is a typo. 40 trillion is larger than global GDP. It
    should be “billion”. I can’t say much for the author’s eye for detail.

    2. The next paragraph states that the company has 2 diagnostic drugs
    in clinical trials representing potential sales of $3B and $450M,
    respectively. Where did these numbers come from? The Lymphoseek market
    is supposed to be $370M. What’s the product for the $3B market? I don’t have a
    clue. This is the pumping part, to be sure. The 2 clinical trials
    pertain to the same product, Lymphoseek. The Lymph trial is NEO3-05
    and the expanded trial is NEO3-09. And it’s not a drug, it’s a
    radioimaging agent. The other products they are pursuing, the RIGScan
    CR system and the ACT technology are not in clinical trials yet. The
    $3B figure is a complete fabrication. And should the Lymphoseek market
    opportunity not match Tripoint’s figure of $370M? With this level of
    inconsistency the author has lost all credibility in my view.

    3. The author then states that Tripoint Research and WBB Securities
    rate the stock a “buy”. Who? These are obscure firms to be sure. That
    doesn’t mean they don’t do a good job, though, but the “buy” rating
    would have more weight if a major institution issued the rating.
    Psychologists call this credentialing. WBB Securities is a small
    brokerage in San Diego that focuses on low-priced stocks. Based on a
    long checkered history, this is a dangerous area for retail investors.
    Again, WBB may be a stellar firm, but I would research them thoroughly
    if I were considering any transactions based on their recommendations.

    4. The next section lists 3 unrelated medical companies that have
    enjoyed recent stock appreciation based on the market potential of
    future products. Here again, the pump is running hard and fast. These
    companies don’t have ANYTHING to do with Neoprobe. The author is
    trying to associate Neoprobe with these other firms based on spurious
    criteria in order to convey a synergistic or associative effect. If it
    happened to these companies, it will happen to Neoprobe! Psychologists
    love this kind of manipulation.

    5. Moving on the next section, we see where the company is positioning
    itself for an AMEX listing. Well, OK. If you exclude the ETF’s, the
    AMEX is full of all sorts of "less than investment grade" companies. A listing on the NASDAQ or NYSE would, again, have more credibility. I’ve been trading for ~12
    years and I think I’ve deployed my money in an AMEX company only once.
    There’s just not much there. And besides, according to the posting, a
    company must have minimum shareholder equity of $4M. Neoprobe only has
    $1.1M. They should meet this requirement with their recent $6M
    financing, but their ongoing losses will continue unabated. These are
    subtracted from the equity as “accumulated deficit”. Maintaining the
    minimum listing requirement may be hard for them to do.

    6. Next, let’s take a look at Tripoint’s revenue projections. They
    forecast $6.8M of revenue for Lymphoseek in 2011 before they even
    achieve FDA clearance. They also add $2.5M in “other” which is non-US
    markets and off label uses. This is a laughable forecast. They won’t
    even have clearance to sell the product until 2012 at the earliest.
    They also include “head and neck” in the 2012 revenue numbers but it’s
    extremely doubtful that they will have clearance by then. And look at
    the “other” category for 2012: $9.5M?? At $76/dose, this represents
    125,000 procedures. This is ludicrous. The Phase III trial only
    contained 136 patients. Currently, Neoprobe has very little exposure
    to the international markets. It takes a lot of time and effort to
    establish a product ex-US. Even with a flawless launch there is no way
    they will even begin to approach this number of procedures.

    7. Insider buying. You want to see substantial open market purchases
    by “C-level” executives. Mr. Bupp looks like the only one buying a
    large amount of shares. Since he loaned the company money at an
    earlier time, I would check to see if the company is repaying him with
    stock or has loaned him the money to buy shares. I didn’t have time to
    research this. The purchases by the directors look like window dressing to
    me. Stock option exercises don’t have any predictive value.

    8. Technically, the stock behavior does look good. There has been more buying than selling over the recent weeks. The "promotional" activity appears to be working.

    So there you have it, bulls. There are too many inconsistencies for me
    so I’ll pass on this one. I hope that I have shed a bit of light as to
    why. The biotech area is, in my opinion, the most difficult area to
    consistently make money in. It’s a bear. Tread carefully.

    Themes: bulletin board, micro cap, biotech Stocks: NAVB
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Comments (25)
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  • shortkiller
    , contributor
    Comment (1) | Send Message
     
    u r a total bashing fool. get a life!!!
    13 Jan 2011, 11:36 PM Reply Like
  • ddbuyerhere@yahoo.com
    , contributor
    Comments (169) | Send Message
     
    It appears that the author did little due diligence on this company before penning his fallacies.

     

    1) Neoprobe finished the last quarter with $8+ million in cash.
    2) They expect to complete their last FDA trial in Feb 2011 and have publicly stated their intention to return to profitability in 2011/2012, now that the cash burn is diminishing.
    3)The FDA's own website publishes a study revealing that the typical NDA approval period is 9 to 12 months. Neoprobe conducted an extensive series of pre-NDA meetings to streamline this process, and Neoprobe's CEO has stated that an accelerated review period as short as 6-months could be possible.
    4) Neoprobe has publicly stated and filed with the SEC their intent to use a partner for their RIGS program, so their R&D expenses will cease with this upcoming trial completion. ACT is not in development.
    5) The company is the brand leader in Gamma detection device sales, with stable, annual sales in excess of $10 million and gross margins of 69%. This stable income covers all operating expenses and provides free cash flow to partially support their drug pipeline research. Any suggestion of bankruptcy is both inaccurate and negligent.
    6) Neoprobe has no debt and because of their positive, operational cashflow they have no need for debt, or any need to raise any capital.
    7) The company recognizes that it is transforming and has recently hired additional execs from the biotech industry to implement its strategic goals.
    8) The market potential for Lymphoseek was recently raised to $465 million based on increased market share and additional uses for general lymphatic mapping (as suggested by the FDA).
    9) Management and analysts have raised per dose prices for Lymphoseek from $150 up to $300-$400, based on competing products and recent superiority data revealed in clinical trials.
    10) Total patients tested in Lymphoseek trials exceeds 500+.
    11) Neoprobe has a second drug (RIGScan/CR) that completed Phase III clinical trials with an estimated $3 billion in market potential.
    12) Using comparable companies with comparable circumstances to value emerging biotechs is a common practice by analysts.
    13) Neoprobe has three analysts currently following the company. 12) Neoprobe has shareholder equity well in excess of the $4M required under Standard #3 for listing on the NYSE-AMEX.
    13) There is no minimum listing requirement to maintain AMEX listing, there is only a minimum requirement to attain listing.
    14) Neoprobe has contracted with Cardinal Health, the largest radiopharmaceutical distributor in the country to market Lymphoseek and is considering options for international distribution. Cardinal Health is actively expanding into international markets via acquisitions.
    15) Insider buying has been steady by the majority of executives and board members in recent years (not just the CEO as the author states). www.secform4.com/insid...
    16) The stock is up 800% in the past several years on anticipation of completion of the clinical programs and FDA approval of their first drug, Lymphoseek.
    17) With the exception of professional investment seminars the company does little promotional work to speak of, so the author's insinuation of "promotional activity" by Neoprobe is inaccurate.

     

    All of this information can be verified through DD links provided at the following website. We welcome anyone to visit the site and do their own research on Neoprobe.

     

    advancedduediligence.b.../

     

    ddbuyerhere@yahoo.com
    14 Jan 2011, 09:46 AM Reply Like
  • ibejack
    , contributor
    Comments (62) | Send Message
     
    lol, I knew someone was about to rip this piece of work apart, good job DD...
    14 Jan 2011, 10:13 AM Reply Like
  • LaLeev1
    , contributor
    Comment (1) | Send Message
     
    Left out Lymphoseek was accepted for a peer reviewed journal and in the editing process.
    14 Jan 2011, 10:28 AM Reply Like
  • SA Editor Douglas W. House
    , contributor
    Comments (646) | Send Message
     
    Author’s reply » That's encouraging news. Do you know what journal?
    14 Jan 2011, 12:04 PM Reply Like
  • ibejack
    , contributor
    Comments (62) | Send Message
     
    Encouraging news huh?

     

    You just did a 16 half truth hatchet job on this stock "for the little guys" and now your encouraged...what about the little guys?
    14 Jan 2011, 12:06 PM Reply Like
  • SA Editor Douglas W. House
    , contributor
    Comments (646) | Send Message
     
    Author’s reply » Well, it's good to see that my post generated some spirited responses. I believe that the greatest value in a forum like SeekingAlpha is the thorough vetting of potential investing ideas. It's important to see where the potential risks are in any investment before deploying one's hard-earned money. I'll review dd's response and post my results when finished. I'll readily admit any mistakes in my analysis if proven wrong. Some of the best investing advice I ever received is to keep the emotions (as much as humanly possible) out of the decision-making process. That's my intent here. I have no plans to take a long or short position in Neoprobe.
    14 Jan 2011, 12:17 PM Reply Like
  • ibejack
    , contributor
    Comments (62) | Send Message
     
    It's interesting...it's like you call someone's mother a "hag" and then act surprised that they react the way they do. You think I am taking this too serious? Well you implied that Neoprobe was on "teetering" on bankruptcy. How insane is that kind of statement. That should redacted immediatly.

     

    You can have good honest debate on the merits of any company but you know that's not what your piece was. You cherry picked info and implied things that had no factual basis. If I was the "little guy" I would be avoiding you.
    14 Jan 2011, 01:14 PM Reply Like
  • mc'riley
    , contributor
    Comment (1) | Send Message
     
    "8. Technically, the stock behavior does look good. There has been more buying than selling over the recent weeks. The "promotional" activity appears to be working."
    lol.... so is your investing advice to buy stocks that have more sellers than buyers? Let me know how that works out for you.
    14 Jan 2011, 01:59 PM Reply Like
  • SA Editor Douglas W. House
    , contributor
    Comments (646) | Send Message
     
    Author’s reply » No, mc'riley. Neoprobe is thinly traded. Its 90-day average volume is only ~254,000 shares/day. Its 10-day average volume is ~420,000. You can see that it doesn't take much buying to impact the stock price. This modest volume is well within the means of many individual investors. This is why institutions, by and large, avoid thinly traded issues. It's next to impossible to build a meaningful position without driving the price up. And if you have a meaningful positon and want to exit? Well...lol.
    15 Jan 2011, 12:33 PM Reply Like
  • ozarkrunner
    , contributor
    Comments (4) | Send Message
     
    I learned some time ago to track what management does. Notice that Cardinal Health has inserted several players onto Neoprobe's board. In fact the former President of their radiopharma. division retired (at 55 years of age) and slid over to our board. For what reason? It was stated by David Bupp to help guide Lymphoseek through to approval. Personally, I believe that I'll follow what a company like Cardinal is interested in rather than some outsider who thinks that they know more about this company in a few weeks than Cardinal learned in several years of direct dealing with them.
    By the way, you will find that most of the long time holders who have immersed themselves in learning about Neop. don't dislike the few negative comments that we get as much as the potential for a buy out for $10 or less.
    If you want to really go to the heart of this company learn what you can about RIGscan. I noticed from your blog that you really don't understand this company. I don't know if Rigs is worth $3 billion. With the U.S. thrown in it is probably greater. To the point, this company was founded on RIGS and still will revolve around that drug. How often does the FDA say that a drug does work but still turns it down (because survival data was needed) only to come back several years later and tell the company that they want them to reactivate this same drug as a partial Phase 3 because of additional data recently presented to them. This company is more than probes and Lymphoseek potential. It is about the drug that will save 10's of thousands of lives a year that was forced to be sidelined. Now the company is being justified and is moving back to the route that it was originally on 19 years ago. What is really fun is to stand back and observe how much infrastructure has been put in place over that time. Think of how many doctors have been already trained in lymphatic mapping and already use the probes. And now that we have the probe (think Gilette razor), all we need to do is furnish the drug (the razor blades). Tell me what happens to sales if we receive the drug of choice designation as Lymphoseek is aiming for over the next several weeks? Currently we about break even due to our probe sales. However, name another small biotech. that holds 2 Phase 3 drugs and cost less than $2.50 a share? I can't think of a better place to put my money than a company that has a double shot at hitting the bullseye by going from the brake even point when making $10 million in sales to the potential of making $300 million in sales on Lymphoseek which is the minor of the two drugs.
    14 Jan 2011, 05:55 PM Reply Like
  • SA Editor Douglas W. House
    , contributor
    Comments (646) | Send Message
     
    Author’s reply » Good comments, User. I'll incorporate your info my reassessment of the company (I'm not finished yet). The beauty of the market is the near-infinite number of ways one can approach it for investments and make money. My approach works for me but most assuredly would be different for others. My issue with this whole thing is not with the good folks at Neoprobe. It is with the way TheMarketFinancial positioned them. What is published fact contradicts much of what they stated in their 1/12 posting. I'll post additional info shortly. By all means, scrutinize it and highlight any areas that you think I've erred. I'll gladly admit to any mistakes.
    15 Jan 2011, 12:42 PM Reply Like
  • 1JJWEBB
    , contributor
    Comments (6) | Send Message
     
    I just wonder why you would even waste your time posting if you don't intend to go long or short. At our board we talk about the good and the bad, the positive and negative, But I am pretty sure we all have a stake in this little gem.
    14 Jan 2011, 07:52 PM Reply Like
  • 1JJWEBB
    , contributor
    Comments (6) | Send Message
     
    I forgot to mention I watch out for the little guy also. That's why I have guided a 100 or so little guys into this one and I haven't have one mad at me for doing it
    14 Jan 2011, 07:58 PM Reply Like
  • SA Editor Douglas W. House
    , contributor
    Comments (646) | Send Message
     
    Author’s reply » Believe me, WEBB, I wish you nothing but the best. My issue is with TheMarketFinancial's hype. Sadly, the stock market has a long history of this type of behavior. That's why I'm contributing a contrarian view on their analysis. At the end of the day, if you believe ANY investment is worthwhile, go for it. There's a lot of money to be made in areas that others fear to tread.
    15 Jan 2011, 12:48 PM Reply Like
  • larry luv
    , contributor
    Comments (130) | Send Message
     
    A hatchet job on NEOP gone awfully wrong for the author of this article..
    It is out of Neoprobe's hands if outside entities want to promote NEOP.
    That still doesnt diminish what the Company really has going for them
    A Device and Drug Company with Billion+ dollar potential..
    15 Jan 2011, 12:03 AM Reply Like
  • SA Editor Douglas W. House
    , contributor
    Comments (646) | Send Message
     
    Author’s reply » Indeed, Larry. As I stated above, my issue is with TheMarketFinancial. If Seeking Alpha wants to build a strong brand the contributors should a high degree of credibility. This will be acheived by the self-policing nature of participants' debates on the information. Those contributors who demonstrate analytical rigor and accuracy over time will have the greatest number of followers. Those who don't should fall by the wayside. I'll offer a tip for you. For any posting that catches your eye, record the stock's symbol, the closing price the day of the posting and the market's close. Track these over the subsequent 12 months. Record the prices every month or quarter. This will be very enlightening.
    15 Jan 2011, 01:04 PM Reply Like
  • larry luv
    , contributor
    Comments (130) | Send Message
     
    Nothing more to say. You did the same thing you are accusing Market Financial of doing.You did your Due Diligence and came up with the conclusion that Market Financial was misleading investors...
    Then you post an article misleading investors. lol
    too funny' Now you are backing away from your negative comments about NEOP and I am looking forward to you apologizing and taking a position in the Company..
    16 Jan 2011, 08:49 AM Reply Like
  • SA Editor Douglas W. House
    , contributor
    Comments (646) | Send Message
     
    Author’s reply » Well, no, Larry. I don't plan on taking a position in NEOP. And I haven't backed off my observations. Please read my second post. This company is way beyond an acceptable risk profile for me. For others, though, it is apparently doable. Far enough. To each his own. As I said in an earlier comment, if you are interested in any company and see a posting on it, pro or con, record the date of the posting, the stock's closing price on that day, the market close and why you do or do not a favorable view of the stock. Track the price over the next 12 months. This will be very educational.
    17 Jan 2011, 10:59 AM Reply Like
  • ibejack
    , contributor
    Comments (62) | Send Message
     
    Using your stated premise...that your upset with "TheMarketFinancial".

     

    Don't you think you should have done more DD on this company before you post something like the above. I think by now you realize that about 80% of the above is flat out wrong or misleading. Do you see the irony in this? Your mad at TMF for posting wrong info therefore you do the same to Neoprobe?

     

    You don't come out this looking good...
    15 Jan 2011, 03:15 PM Reply Like
  • SA Editor Douglas W. House
    , contributor
    Comments (646) | Send Message
     
    Author’s reply » Fair comments, ibejack. My initial comments were based on a more superficial perusal of the posting. I saw some mistakes and I felt compelled to air them. I've posted a follow up article on my blog. Check it out. I assure you, my accuracy rate is quite high. Where'd you get the 80% error rate?
    15 Jan 2011, 11:40 PM Reply Like
  • ibejack
    , contributor
    Comments (62) | Send Message
     
    I think we all know you are taking a position here...I would love to be able to verify this. lol

     

    Too risky...2 drugs phase 3 with one of the nearing NDA. In all the trials lymphoseek performed much better then existing competing drugs. RIGS is a ways down the road. Plus we all know (now!) how solid the probe business is for NEOP. doesn't sound very risky to me.

     

    I hope you don't take a position because it would not speak very highly of NEOP with you as a tout
    19 Jan 2011, 03:14 PM Reply Like
  • BuyersStrikeWP
    , contributor
    Comments (133) | Send Message
     
    Do a little more digging into Platinum...I think you are correct that their very presence is a huge risk to the common shareholder.

     

    buyersstrike.wordpress.../
    25 Feb 2011, 10:50 AM Reply Like
  • larry luv
    , contributor
    Comments (130) | Send Message
     
    I think you will find very few Saints' on Wall Street so we start from there.
    NEOP is NOT a pump and dump fake Company-
    They are the Leaders in Gamma Devices and their Clinical Trials for Lymphoseek is not being sponsored by Doctors and Hospitals run by Platininu/Montaur.Lol.. The Stat Significant results they are getting with Lymphoseek is not fake data rigged by Platinum/Montaur.
    I think you get my point.
    So with Neoprobe,we are talking about a real company with real products..
    If It wasnt for Montaur, Neoprobe would be up shit's creek right now and Dilution of Massive Proportions would have occured with all the debt Neoprobe 'use to' have until Montaur saved the day..,
    .Even borderline shady characters at Platinum can still make legit money in a legit Company like Neoprobe...
    The Jealous one's who have seen Neoprobe Skyrocket fro 1.00 to 4.50 are whining now.
    26 Feb 2011, 10:00 AM Reply Like
  • SA Editor Douglas W. House
    , contributor
    Comments (646) | Send Message
     
    Author’s reply » Larry, I don't recall anyone stating that PM is crooked. It's just that they hold a gigantic call option on the common shares. If the shares continue to appreciate then one must expect them to exercise at least some of their holdings at some point.
    26 Feb 2011, 04:02 PM Reply Like
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