The only true certainty in life is that history will repeat itself, just like that throaty little Shirley Bassey number. In case you haven’t noticed by now I really love what I do – mainly because when history repeats itself, especially the stupid kind, I am there and ready for sarcastic commentary. Like the deranged curator of a Python-esque anthology of Oz biotech incompetence.
In the 1963 release of “The Pink Panther”, the bumbling and awkward Inspector Clouseau (a truly memorable Peter Sellers performance) tries to catch the infamous jewel thief known as the “Phantom”. In the movie, the Phantom stealthily operates right under everyone’s nose, while Clouseau cluelessly goes about his business. Truthfully, the Alchemia (ASX : ACL) plot is not a whole lot less moronic in many ways.
Fast forward to 2015 we have a different kind of phantom character called “Panther biotechnology”. Not to be remotely confused with Cougar or Puma. If you thought some piece of sandgroper fabrication like Oncosil was the absolute bottom feeder of the global public healthcare technology market, think again. You haven’t met Panther. This is a company that burrows at the squiffy-end of the US public biopharma market. It loiters around the “Pink Sheets”, like a matted and diseased rat following a nuclear apocalypse, squirreling away a collection of flea-bitten assets that, when buried in deep underground tunnels, form the walls and ceilings of a cluttered and foul-smelling existence. However when fumigated, excavated and spread out in the sun for all to see, the treasure trove is little more than a few decaying apple cores, bits of tin-foil, the arm of a Barbie doll, and the odorous remnants of a used condom lubricated with VivaGel.
If ever there was a reason to simply pack up and walk away from Alchemia, to step aside and let it finally issue its last wheezy and emphysemic breath, it is the purported deal with the Panther of the Pink Sheets. This is a farce and a charade, and the management team should be embarrassed and ashamed for having “entered” into such a transaction, let alone announce it with the robustness that it has. In fact, it is astonishing to compare Panther’s rather assertive and “yeah we got the deal done, high-five me” press communication style to Alchemia’s muddled and incompetent announcement. Any shareholder that got a “bump” out of this deal should sell up and forget they ever owned a piece of this dreadful company. Alchemia is no longer just a little pile of ASX-listed fecal matter, it has now been sniffed out by the US biotech equivalent of a dung beetle, rolled up in a stinky ball and planted squarely into your self-managed superfund.
Firstly, this is not a deal. It is a contingent deal. At the very best it is an incredibly low-cost option amped as a “sale”, with the option essentially being the costs incurred within a 30 day period by the whittled down Alchemia subsidiary. Frankly, despite having read the announcement approximately 11 times, I have to admit I still don’t fully understand it. If someone could draw me a flowchart without too many loops or arrows pointing at itself that would be great, because the press release is like one big circular reference of conditionality. But however one might interpret the deal, it is basically just Panther going into a holding pattern while it tries to ascertain whether or not the addition of the HYACT intellectual property creates enough critical mass of detritus for it to move up the public company totem pole … or not.
Indeed, notwithstanding Alchemia’s irrelevant market cap, it finally tells the entire market that the asset value of HYACT is basically ZERO. Any company that agrees to these sort of economics is essentially admitting defeat. In my opinion (and we all know what that is worth) there was absolutely no justification for Alchemia to put itself into this situation, especially at this precarious time. Frankly, if they wanted to do this shitty deal, it should have just granted Panther a $300,000 (up-front) option for a 3 month exclusivity period. The fact that it didn’t – or couldn’t – tells you by induction that Panther doesn’t have any money either. In fact, that is not even a speculative comment, you can take a look for yourself at their latest 10Q filing.
Not only does Panther probably not have enough financial resources currently at hand to close the deal with Alchemia, it doesn’t appear to even have the financial resources to potentially pay Alchemia the “up to” $300,000 that may be due in the course of the announced deal structure. Moreover, the whole equity component of the deal (the $15m “worth”) is hilarious given the true junk status and market cap of the company. It is just so far beyond speculative it leaves me almost lost for words.
The net effect of all of this is twofold, and both are extremely dangerous for Alchemia directors and shareholders. The first effect is the communication of public evidence that Alchemia is, in all likelihood, no longer a going concern. If it was willing to enter into this deal, it probably means that it has hit a financial wall, possibly even beyond previous cash-constrained indications. Either that or the management team / board has completely lost the plot and is even dumber than I thought. I’m not even going to talk about the implications of the recent director turn-over (or the questionable value of an ex-Phosphagenics director joining up at the 11th hour as a “deal guy”), because it is simply too inflammatory.
[Long Tail Editor : Please note my correction regarding this last sentence – posted 2nd of July]
The second distinctly possible risk is that anyone who buys in on the news of this deal, and believe me, that is not a stupid as it sounds because some of the publicity is very assertive, actually puts themselves into pole position to be a plaintiff in a class action suit. To be clear, on the basis of publicly available regulatory filings on Panther, it is not at all evident to me that the directors of Alchemia exercised sufficient due diligence or duty of care in entering into this deal. Any shareholder that detrimentally relies on this deal as being indicative of Alchemia either being a going concern, or undergoing a robust value inflection, would very possibly have a valid claim against the company.
I am already aware of US litigation funds looking at several ASX-listed healthcare companies. I think they just picked up another target.