I spent much of the weekend thinking about this post and exactly what I would say about Actinogen (ASX : ACW). It’s a tough one because the things I really want to say don’t have a linguistic composition suitable for a G-rated public forum.
But I will do my best to exercise restraint…
Let’s start by looking back not even one year at Actinogen. According to its 2014 report to shareholders, the company had the following active “projects:”
1) A cancer stem cell project (p18)
2) An antibiotic project (p19)
3) A bioethanol project (p20)
4) A Tamiflu precursor (p20)
5) A salt-tolerant actinomycete project (p20)
Wow. That is a lot of “stuff”. They are not even called products, they are called “projects”. Sounds like a good use of shareholder capital (not).
Sure, it all purportedly relates to their actinobacteria screening technology but those are a lot of different places to spend time and money. The company reported that it was in financially good shape following a small recapitalisation (p22). This report makes plenty of positive forward-looking statements about its various programs, making you believe that the technology behind the name is well and truly heading in the right direction. This report is released to shareholders mid-October 2014. The date of annual report authorisation by the board is the 1st of August, 2014 (necessarily) but it is not released until mid-Oct, despite the fact that financial statements / 4E are released 1st of August.
By the end of August we already have a disclosure about the intention to acquire Corticrine Limited (wow, that was fast!). The same day, it is announced that Martin Rogers has joined the board, along with a fairly tasty stock-based compensation plan with some frankly commercially irrelevant vesting triggers. I should note that the December Rule 3.19A.1 disclosure (Director’s interest) indicates that Mr. Rogers now owns close to 40 million shares in Actinogen either directly (in name) or via trusts.
I note that the current outstanding equity is about 490 million shares.
So this is not a minor stake by any metric, nor is it an in-line level of compensation, in my opinion. By way of comparison, I note that the prior executive chairman, Brendon de Kauwe, “stepped down” with a “mere” 4.5m shares under ownership. We’re talking almost a 10x difference here. No wonder he is always smiling in his mugshot.
It is also intriguing to note that the vesting triggers on the incentive (loan-funded) shares for Mr. Rogers were achieved by the beginning of January 2015 in the 10 days following an ASX trading query. The ASX questioned whether there had been any disclosure issues based on unusual trading patterns (the answer was no) but there seemed to be no consideration of any possible correlation between the timing of share trading anomalies and the lead-up to the JP Morgan healthcare conference in San Francisco (a January institution in our industry). It would be entirely normal, even for a public company, to share the standard “public domain deck” in advance of a meeting with analysts and investors and anyhow, the acquisition of Corticrine was already in the public domain. In fact, you can’t get a meeting at JP Morgan unless it is in the calendar by basically Thanksgiving (early Dec the previous year) and you certainly don’t get a meeting with a decent analyst unless you have some briefing materials in advance.
Yet no deck is released to the public until the 9th of January, 2015 (a few days before JP Morgan) which then, over the week of JP Morgan, drove the stock price high enough that the vesting conditions were met.
Ladies and gentlemen, I call this a Martin Rogers special. It’s impressive and it is tasty. It is also by now a fairly extensively tested strategy. If the “Rogers Special” were a cocktail that you could order from a classy, high-end Sydney waterfront bar, it would have a recipe something like this:
- Take a defunct or highly struggling public company with weak leadership or a product development strategy that looks like a “mad woman’s custard.”
- Find an asset somewhere, ideally far away but at the very least with marketable academic credentials. Don’t worry too much whether the technology is actually very good or not.
- Buy it or reverse merge it.
- Take a big chunk of stock in the process, making sure any vesting terms are front-end loaded and don’t require a whole lot of effort to accomplish (i.e. starting a clinical trial, not completing a clinical trial – or something pointless like a low-bar trading target).
- Flush out the detritus (in the case of Actinogen, a LOT of detritus).
- Bring in some “fresh” board blood (i.e. your mates) and surround yourself with a lot of geezers with excellent scientific credentials and an interest in making money (and who will mostly just point at each other during an analyst call, but in that affable sort of gentleman academic way that everyone loves).
- Make slick powerpoint, go on an investor roadshow – preferably in the US. Make sure you announce your travel schedule to the whole world.
- Call up your usual buddies (i.e. Forrest Capital) and do a placement.
- Vigorously shake, add some lemon zest and a pink umbrella.
Last Friday when I read about the $10m Actinogen placement, I thought to myself “yep, there goes the cycle again”. What a load of bollocks. I’m not even going to be gentle with this company. The Actinogen “Xanamem” story is bullshit and here is why:
1) We have known since late 90’s about the intersection between cortisol and hippocampal atrophy / cognition. Seminal work that was done at top neurological science institutes like MNI has remained scientifically meaningful for almost 20 years. Contrary to implications in Actiogen marketing propaganda, this is not a new concept. The target may be more recent but the concept is, frankly, old.
2) It may in fact be true that UE2343 (11β-HSD1 inhibitor – aka “Xanamem”) actually does work. That’s not actually the most important issue, believe it or not. The scientific pedigree is not too bad and I do tend to trust things that have been funded by the Wellcome Trust. Wellcome’s diligence is pretty top-notch although I should note that the only grant funding I have been able to find in relation to this program was a fairly modest £432,000 (two small grants), which is hardly the ringing endorsement implied on the Actiogen website, is it? Notwithstanding the fact that an initial Phase I study appears to have completed enrollment in mid-2013 (albeit a physician-sponsored study), we have still not seen any published data. Now there could be many non-nefarious reasons for this, but it was a tiny safety study and I find it astounding that a public company acquisition / placement could take place without any peer-review of clinical data.
3) Clinical development to date has been minuscule. We are talking about short duration safety studies in healthy patients. This is, of course, the starting point for developing any new drug but if you think about what Actinogen is proposing to do – that is tackle early onset mild cognitive impairment, then we are talking about putting a patient on a drug for a very long time. Therefore what has been done to date is the absolute tip of the iceberg of a very long and painful journey.
4) While we understand quite a lot about the role of cortisol, the HPA axis and the regulatory functions of glucocorticoids, it is an absolute minefield from a clinical development vantage. We still don’t really fully understand what basal cortisol really means, there are a huge number of ways to modulate cortisol levels (pharmacologic and otherwise) and the idea that you would suppress cortisol, even with a possibly safe (and fairly specific) target like 11β-HSD1, is not for the faint hearted. The exclusion criteria for patients would likely be very complex and broad (possibly even anyone with a BMI outside of normal range) and there could be significant risks in managing certain classes of patients, such as diabetics (remembering that cortisol counteracts insulin). Therefore there is a very big difference between testing on a few healthy volunteers and actually evaluating the patient population that this drug is ultimately intended to treat.
5) Speaking of inclusion/exclusion criteria, although there is a correlation between circulating (plasma) and CSF cortisol levels, a true basal level of cortisol relevant to understanding the impact of cortisol on hippocampal function would probably have to come from a lumbar puncture. My understanding is that in all of the currently planned Phase I/II studies this is an optional exercise and therefore any data gathered is likely to be less robust. This is done because a “spinal tap” (the medical procedure, not the rock sensation) tends to put off clinical volunteers because it isn’t a whole lot of fun.
5) As mentioned above, we already have two decades of experience with pharmacologic manipulation of cortisol. That’s right – TWO DECADES. If pharmaceutical companies really thought that this was going to be a big deal, then they would have made it a success by now. We know of about a dozen drugs (and about a dozen more non-“drug” approaches from meditation and dancing, to hugging animals and drinking green tea – even a good shag helps) that dramatically lower cortisol levels – drugs such as mitotane, aminoglutethimide, metyrapone, trilostane and ketoconazole, all of which are well understood. Of course, many of these drugs are also pretty nasty but something like mifepristone has been extensively studied for long-term use in patients with Cushing’s Syndrome and although its mechanism is somewhat complex, it is generally considered safe. I should add that mifepristone is an approved drug.
6) Incidentally, mifepristone (which has been administered to literally millions of people) was studied in the late 90’s in both pre-clinical models (of the type that Actinogen talks about) and small clinical pilots and found to be effective at lowering cortisol and improving cognitive function. Why has it not progressed? Because there are real and valid concerns about the long-term pharmacologic manipulation of cortisol in otherwise healthy patients (we are not talking about something severe like Cushing’s Syndrome here, we are talking about a 50-year old guy who occasionally forgets his mother-in-law’s name), the cost of what might be a 30+ year drug regimen, the lack of specificity of what early mild cognitive impairment means (is it plaque-driven, is it vascular, both?) – oh, and the fact that there would be no market protection strategy for mifepristone if it proved effective.
7) The basic safety studies that Actinogen intends to conduct are not going to tell us a whole lot more than we already know about “Xanamem” – or the potential clinical value of cortisol modulation in dementia. Even the planned duration of dosing isn’t enough for the next study, based on the understood biology of this mechanism of action, to get an effective read-out (and the read-out itself is not very “industry standard” either). The PROPER studies that need to be done, including much more sophisticated baseline cortisol establishment in the target patient population (i.e. biomarker work), and patient monitoring are way out of the league of the $10m raised in the last placement. I even contend – perhaps unkindly – that this is money wasted because it isn’t going to achieve a valuation inflection point. If the round was massively oversubscribed, they should have raised more if they are serious about this drug.
8) My biggest gripe – and this will be an obvious statement – is why the hell are they going after Alzheimer’s with this drug??? Beautiful research has shown that the drug target might be very interesting in Cushing’s Syndrome, which still has a need for better clinical solutions. Cortisol manipulation could be interesting for wound healing (relatively easy to quantify an outcome, short studies). In short, to validate the mechanism of action and efficacy of the drug, there are far more straightforward diseases to target than Alzheimer’s. Frankly, to get this drug approved and reimbursed is going to involve a hugely long, expensive outcome study that might even take decades to produce sufficient data to move policy makers. Of course, Actinogen doesn’t care about this – this is just about making some noise, a bit of money and maybe, just maybe, flipping the company at some stage (but probably not, I will bet you a good steak dinner that in 2 years it’s just another ASX zombie).
My final comment is this. Investors need to understand – and this is NEVER responsibly disclosed as a risk factor by a company like Actinogen – is that of the entire universe of drugs that have been studied for Alzheimer’s over the last decade, for a couple of hundred clinical candidates, the failure rate has been 99.6%.
What does this mean?
It means that if it were a good company with a good drug and a management team and financial strategy dedicated to patient outcomes, the probability of success would be 0.4%
With Actinogen, it is lower in my opinion.
Oh, and one more thing. I was mightily abused by several Regeneus and Cynata shareholders who were incensed that I was saying bad things about a company that was obviously trying to cure serious diseases, including diseases very close to their personal family situations. In all seriousness it made me feel a like a bit of a schmuck. In this case, pretty much everyone gets Alzheimer’s in the limit, so I am not too worried about offending anyone this time (maybe just everyone!). That, of course, is the problem with our dramatic modern accomplishment of extending human lifespan – even though the “ticker” may still be going and the second hip replacement is rock-solid, the brain does eventually turn to mush. Sadly, it happens sooner in some than others.
The good news is that if you purchased this equity because you wanted to invest in the future of your brain health, you don’t actually have to own Actinogen stock. Just go and have sex with someone (or yourself if you are one of those guys still on HotCopper at 1am) and drink a nice cup of green tea afterwards.
You’ll feel much better.
…. ah, and there goes the kettle …