What has bothered me about the recent lowball tender offer by Astellas Pharma, Inc. on November 9, 2015, are the apparent statements by the executives of Advanced Cell Technology/Ocata Therapeutics, both past and present, compared with their actions. The Astellas and Ocata statements that $8.50 is a "fair" or "premium" price for this company is disingenuous at best. Of note, shareholders do not fault Astellas' attempt to pull off this coup, rather they fault the lack of fiduciary responsibility by CEO Paul Wotton and the Board of Directors. Included in this lack of fiduciary responsibility is the degree to which information about the company has been withheld from shareholders.
They have yet to share with us results of the UK RPE trial, yet the European Medicines Agency has awarded them Advanced Therapy Medicines Product for their cells.
Paul Wotton at the 2015 shareholders meeting said:
We have received Advanced Therapy Medical Status in Europe, and we are intent on requesting Breakthrough Status here in the USA with the FDA.
They have yet to share with us the results of the better vision cohort patients in the Phase I trial, which you will see in my next article lead trial investigator Dr. Steven Schwartz shared good results of same at a UC/Berkeley presentation to his colleagues in February 2014. Apparently Dr. Schwartz's colleagues have a right to know about these results, but shareholders do not.
They have yet to share with us the status of Special Protocol Assessment discussions with the FDA for AMD ongoing for almost a year, yet repeatedly telling us they are in close contact with the FDA on same.
They have yet to share with us the Tufts canine trials. You will see in my next article the only conclusion we can draw from this is that they are saving these results, known to very good from leaks, to benefit Astellas Pharma, Inc. shareholders after the buyout.
Shareholders cannot yet prove of course, but believe the company has intentionally put the above value-creating information on hold until this tender is completed, yet their Schedule 14D-9 states both companies will continue with "business as usual" until the merger is completed. Who for a minute believes that is happening?
I became a shareholder in Advanced Cell Technology because of their "definitive" statements, pre-reverse split/pre-uplist to Nasdaq, at $0.115 in January 2012. That of course would be $11.50 today post-reverse split and uplist. With the advancement and success of Ocata's RPE trials, confirmed by publications in the Lancet on two occasions, and advancement of many other programs in their pipeline, how does the company expect to convince me that my shares three years later are worth $3.00 less per share, and that in fact they are paying me a "premium" for same. Shareholders believe Paul Wotton has not managed this company well, as evidence in the ridiculous delay in his 2015 primary goal of "initiating Phase II of the RPE trial." Likewise, he did nothing to thwart the narrative of Mako Research's article on the company, thus driving the price down further, just before the agreed buyout at $8.50 a share.
These same executives have told us repeatedly that the value goes up "lgorithmically" in Phase II and that is when they would partner Ocata.
In a January 2013 interview by BigCat for Seeking Alpha Gary Rabin said:
We do not want to give up the golden goose in January of 2013 when we are so close to having Phase I done and starting Phase II. I have been clear that we do not want to partner the RPE program too early. We need to advance the ball through Phase I and start Phase II. This is when you see these big changes in valuations from the pharmaceutical companies.
We've seen too much promise in this therapy to just partner it out for a small upfront payment. It would be crazy. So, I recognize what that means for shareholders is that you could be holding the stock for a while before we announce a partnership agreement, but there are plenty of value-creating inflection points between now and then, so that's what we're focused on.
On August 7, 2013, Rabin said:
At the inflection point of value creation from the transition from Phase I to Phase II, and then from Phase II to Phase III, and then from Phase III to commercialization are enormous inflections one can value, logarithmic jumps, and I have made it clear on every conference call, that we are not going to enter into a joint venture with what looks like the golden goose just to get 10 million dollars in the door. This is a potential multi-billion dollar therapy.
Fast forward to April 3, 2014, when CFO, acting President/CEO Ted Myles perpetuated the same term golden goose commentary as Gary Rabin at the 3rd Stem Cell Partnering Conference:
We are building our clinical organization, really shifting the emphasis of the company from research, purely research, to development and still funding what we refer to as sort of the golden goose that's creating a lot of great technology in the research programs...
This statement by Paul Wotton at the March 2015 Cowen and Company Investor Conference has bothered me greatly since the under-valued Astellas tender offer:
I've been lucky to move into the company as the CEO at a time when I think it's just about ready to break out.
I guess he meant about ready to break out for him, but certainly not for long, loyal shareholders who thought he had a fiduciary responsibility to them.
Paul Wotton said at the July 22, 2015, shareholders meeting:
For me, the milestone that I'm looking forward to most is the first cohort reporting in the dry AMD study, which should be before this time next year, because that really will be a key inflection point for this company and that will set us up well for starting off on a Phase III study in dry AMD.
We got the $30 million dollar financing in the book. That was important now because it gives us breathing room until we have access to capital and will take us through to the end of 2016, which is really good. It gives us a lot of breathing space to make sure we can make the right strategic decisions. We have increased the visibility of the company. I think compared with where we were when I came in last year, it's a much stronger company. I certainly sleep better at night now that we have something on the balance sheet and we can actually execute the programs that we want to execute.
Statements like these by CEO Wotton leave shareholders asking "Why have you rushed to partner Ocata when we are so close to the "logarithmic," "value-creating" events ACT/OCAT executives have spoken of repeatedly, and according to you, less than a year from fruition; having "access to capital that will take us through end of 2016?" These are the definitive statements that kept long shareholders invested, NOT Forward Looking/Safe Harbor cautionary statements. How are shareholders to ever believe any executive of any company, if they are allowed to contradict what they say with what they do, and then expect to have the Forward Looking/Safe Harbor statements protect them legally?
Paul Wotton has repeatedly used Regeneron as a comparison to the potential market value of Ocata Therapeutics:
November 11, 2014 Conference Call:
The ophthalmology market is a fast growing one with sales in the US alone approaching $12 billion dollars. For example, one product marketed by Regeneron for wet AMD is expected to exceed $1.7 billion a year in sales, and this is the third year on the market. We believe that our regenerative ophthalmology franchise is poised to deliver transformative new therapies for macular degeneration and other diseases of the eye.
December 2, 2014, Piper-Jaffray Investor Conference:
Lucentis by Roche Novartis and Eyelea by Regeneron are very successful therapies in that area. Obviously we would aspire to become a Regeneron type company in the future.
December 3-11, 2014, Jeffries, Cowen, Piper-Jaffray Road Show:
So we're developing products with potentially big markets. Now I'd like to think that at some point in the future this company could be like Regeneron. I certainly preach that in terms of market cap.
March 12, 2015 Conference Call:
Our focus on the ophthalmology space also continues to be supported by market dynamics as well. Our own market research has confirmed that our therapies, if approved, could treat substantial numbers of patients with dry AMD and Stargardt's disease where no meaningful therapy exists today. The ophthalmology market continues to grow rapidly with annual sales in the US alone approaching $12 billion dollars. One product, for example Eyelea, marketed by Regeneron for wet AMD, exceeded $1.7 billion in sales in 2014 in only its third year on the market. This highlights the extent of the AMD disorder, which is rapidly becoming an epidemic in this and other developed countries. It's critical for us to be able to offer our therapy to as many patients as possible in the shortest time possible, and we're getting ready to begin our Phase II program in dry AMD, and our pivotal trial program for Stargardt's following a recent productive meeting with the European Medicines Agency, or EMA. Our number one corporate objective for 2015 is the initiation of the next phase of our clinical trials.
Note Paul Wotton said their No. 1 objective in 2015 was "initiation of the next phase of our clinical trials" NOT to sell the company.
One only need review the Schedule 14D-9 to realize why current Ocata shareholders are so outraged and feel a complete lack of fiduciary responsibility by the CEO and BOD:
Why are we selling the company now?
Ocata's Board of Directors engaged in a careful process, and determined that this all-cash transaction with Astellas maximizes value for stockholders."
It should be pointed out that the above statement is from a "Townhall Meeting" Ocata Executives held with their employees. Shareholders want to know, where is their Townhall Meeting to discuss "maximizing value for stockholders?
In the Schedule 14D-9 CEO Wotton writes:
To All Our New Astellas Colleagues
On behalf of my colleagues here at Ocata, I would like to say how proud we are to be joining the Astellas group and to working together as we continue to create the future of medicine.
I read this and asked myself, isn't this premature, already addressing Astellas as his "New Colleagues?
How could Paul Wotton really expect shareholders to be happy with this offer, when so many are under water at this price. It is laughable that Astellas claims to be paying a "premium" for the company? Why would they not desire to reward shareholders for literally helping them "keep the lights on and the water cooler in place" with possibly a share deal to become owners of Astellas Pharma, Inc. shares. Many loyal, long shareholders in Ocata would have been happy to remain invested in the science, if Astellas offered a fair deal? The only answer I can come up with is that Paul Wotton and Ted Myles have both been with the company for a very short term compared to most of these long shareholders, and have so little regard for same and plenty of "gifted" shares.
But then that is the subject of my article, just what are Forward Looking and Safe Harbor statements worth - not the paper they are printed on in my opinion in this case. I chuckle to see at the end of the above flowery, premature sharing with Ocata employees and his "new Astellas colleagues" their "Cautionary Statement Regarding Forward-Looking Statements."
A little research on my part revealed comments from Dykema on Forward Looking and Safe Harbor:
Under U.S. law, section 27A of the Securities Act of 1933, as amended, and section 21E of the Securities Exchange Act of 1934, as amended, businesses must comply to standards of communication that limit risk factors. These acts were put into place partially to protect investors from ambiguous language, preventing them from making a poorly informed investment decision based on speculative statements.
Further, the safe harbor requirement for "meaningful" cautionary statements calls for "substantive company-specific warnings based on a realistic description of the risks applicable to the particular circumstances." Thus, "cautionary statements must be substantive and tailored to the specific future projections, estimates or opinions in the [forward looking statements]…" The Court also noted that boilerplate does not meet "the statutory standard because by its nature it is general and ubiquitous, not tailored to the specific circumstances of a business operation, and not of useful quality.
As a threshold matter, companies should be judicious in their use of the forward looking statement disclaimer. It is not necessary and perhaps counterproductive to include the disclaimer in press releases that do not include a forward looking statement, such as simple announcements of employee hirings. Including a form of it in every press release as a matter of routine makes the use of the disclaimer look more like boilerplate than a meaningful, tailored warning of the risks that could cause actual results to differ materially from those in the forward-looking statements.
The cautionary language of the disclaimer should be reviewed and updated regularly. It should warn of specific, important risks, include a discussion of actual developments that are relevant to the risks and exclude risks that are true of any company.
It is dangerous merely to cut-and-paste or incorporate by reference cautionary language without a careful review of the specific forward looking statements intended to be covered by the cautionary language. Intervening events may have caused the language to have gone stale or misstate historical facts. Each use of the safe harbor provides an opportunity to reexamine the company's safe harbor disclosure, to add any new, specific and important risks that are relevant to the forward-looking statements being made, and to update the disclosure with any material developments in facts and circumstances that may have occurred.
How could anyone conclude that Ocata has used anything but "boilerplate" cautionary statements? They are the poster child of "general and ubiquitous, not tailored to the specific circumstances of a business operation" in my opinoin.
Herein lies my angst. Many of the statements by Ocata executives have been very definitive and not what I would define as speculative; and I believe do not deserve the blanket coverage of "Forward Looking/Safe Harbor" statements. I did not invest in ACT/OCAT based on "speculative statements;" rather I invested based on very definitive statements made by company executives repeatedly for 4 years now.
I have documented above regarding statements by the company executives about when they intended to partner for greater value, all the while telling us they had plenty of money available to them to take the trials to that point. I invested because of definitive statements made by Chief Scientific Officer Dr. Lanza himself, and Ocata Trial Investigators, that I will document in my next article.
Disclosure: I am/we are long OCAT.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.