Alchemia has a VAST problem

It was only two years ago that Alchemia (ASX : ACL) informed us, with great fanfare and celebration, of the collaboration with AstraZeneca involving the VAST program. It was a pretty exciting story, especially for an early-stage platform technology. R&D cost offsets, potential milestones/royalties.

Big potential, heady stuff.

Two years on, we have seen the company’s fortunes considerably diminished. As I have discussed previously, this is a company that needed rapid intervention and a proper strategy to create/retain shareholder value (I believe the term I used was “all over the place”). By necessity this means that the leadership team needed a refresh. I can imagine that for Tracie Ramsdale it has been a traumatic and stressful time, and I am very sympathetic, however she was one of several key people (possibly including Chairman, Tim Hughes) who was no longer able to demonstrate their suitability to govern the company.

Nothwithstanding any emotional attachment to the “baby” one creates, when a company takes on investors and – in particular – goes public, founders exchange their exclusivity of control for the opportunity of wealth creation. It’s very simple. As such, the emotional news pieces floating about in the media are a populist perspective, not the reality of business. Indeed, if more founders and boards of ASX companies understood that lack of performance equates to personal vulnerability, they would perform much more robustly and in the interests of shareholders, instead of the decade-long gravy trains that are all too common (especially in biotech). Sandon’s activist interference with ACL reminds us that corporate governance is still one of the weakest aspects of ASX small-cap companies. As such, I have been watching the saga unfold with considerable interest, including the “deal” with Panther and the appointment of Ken Poutakidis as a nominee director.

Ken joined the Board on the 26th of June. Remember this date, it is important. I’ll get back to it in a minute.

Something truly messy – and perhaps ultimately destructive – has happened to Alchemia. On the 3rd of July, the company announced the assignment of the VAST technology to a private limited company disclosed as VAST Bioscience Pty Ltd. I had noted a bit of media noise around this but had initially assumed that it was the outcome of Sandon’s “pressure” for an effective asset restructure. Even the slightly smug soundbites from Professor Peter Andrews AO (a founder of Alchemia and one of Queensland’s scientific heavy-hitters) didn’t change my initial perception. Having done a management buy-out myself in a prior life, I know how founders cling to their technologies, especially when they seem to be languishing about. I should also note that the VAST platform never really struck me as being “the jewel in the crown”.

Nonetheless, I thought it would be interesting to learn a bit more about VAST Bioscience, so I purchased the ASIC documentation for the company. I had expected to find a team of private investors/shareholders as stated in the ASX disclosure last Friday, perhaps with Peter Andrews loitering about as a shareholder. By the way, an announcement like an asset disposal on a Friday always piques my attention, because no good news goes out on a Friday.

What I found was a lot more interesting than I had expected. Let’s start with the director registry:

VAST Bio's director and secretary registry. Note that I have masked home addresses and birth details. Although this information can be obtained from public domain sources, I don't feel it is my person position to assist in the violation of an individual's privacy. Source : ASIC

VAST Bio’s director and secretary registry. Note that I have masked home addresses and birth details. Although this information can be obtained from public domain sources, I don’t feel it is my person position to assist in the violation of an individual’s privacy. Source : ASIC

So, surprise surprise, Peter Andrews is a director. I suppose that’s not too exciting, I had half expected it (I bet you he becomes the Chairman). Mark Smythe, also a director, is one of the original scientific brains behind the VAST technology (an academic). Richard Marsden looks like a US-based financing/consulting guy (hopefully someone that wasn’t introduced to the company via Evolution Partners) and Anders Fransson is a Brisbane lawyer with a fairly entrepreneurial track-record.

Ho hum.

Onto the shareholder registry:

VAST Bio's shareholder structure upon formation (Source : ASIC)

VAST Bio’s shareholder structure upon formation (Source : ASIC)

Wow! WOW!

Can you believe it? Wim Meutermans – Alchemia’s VP of Drug Discovery, a member of the Alchemia Management team is in on the deal. Peter Andrews is obviously using his family trust “Dusty Bjilks Lane” but everyone else has a 20% share of VAST Bioscience in their own name. Presumably also since both Dr. Meutermans and his chartered accountant share a 4066 Toowong postal code and live a couple of kms away from either, and presumably since Dr. Meutermans would notionally be the best qualified person to lead the company ahead (and is not a director), we will eventually see him emerge from all of this as the new CEO?

Hey – has he even resigned from Alchemia yet??? I haven’t seen an announcement. If not, why not?

The issue is that the date of the most recent ASIC shareholder paperwork for VAST Bioscience is the 23rd of June, 3 days before Ken Poutakidis joined the board of Alchemia. This strongly suggests that the deal was well-and-truly in play before Ken joined and that Sandon’s “appointment” didn’t have any impact on the decision-making of the company to assign the VAST asset to the NewCo. In my opinion, this is fairly strong evidence that Sandon would unlikely to have been an advocate of this deal. Indeed what activist investor who is trying to restructure a company and make some rational asset management decisions would want to see a “jewel in the crown” (according to Founder and then still company advisor – at least according to the company’s public materials – Peter Andrews) disappear out the back door for a mere $100k, a few waived transaction expenses, and a bunch of biodollars.

Frankly, this outcome almost makes Sandon Capital look stupid.

But I keep asking myself this – surely this can’t be the advisory outcome of a “sophisticated” firm like Evolution Partners? I also wonder if a bit more digging would yield a relationship between Richard Marsden and Evolution? I sure hope not. Even in the December notice to shareholders, the 9-figure potential of the AstraZeneca relationship (now presumably also assigned to VAST Bioscience as part of that massive $100k payment), was still being flouted as a driver for doing things properly with the technology. Is this the outcome that shareholders would expect? Or did the involved management simply use company resources to conduct a 3rd party asset analysis/valuation in order to build the business case for their own opportunity?

If it is in fact true that Alchemia’s management team, with the clear support of Tracie Ramsdale (she is even the nominated NED for IR contact on the assignment ASX announcement, which I thought was a bit odd) and Alchemia’s dysfunctional board, have simply back-doored one of the few remaining assets of value in the company, possibly even in direct reaction to  the marauding behaviour an activist investor, then Alchemia’s shareholders have been truly shafted. I am sorry for that strong language, but it is the only way to describe it. If this were true, it would be a shocking example of the lack of corporate governance and shareholder accountability at this company, and it puts Tracie very much in personal peril.

But Wim Meutermans also deserves to be held to account. Three days before a change in director (an activist nominee no less) he was complicit in establishing a vehicle to take an asset out of a public company that he was still designated, in the eyes of public shareholders, as a member of the “management team” and a responsible individual in the company. The Corporations Act imposes duties on directors as well as ‘officers of a corporation’ (under s 9 ‘officers of a corporation’ include company executives who hold senior positions below board level). Directors have a fiduciary duty to act in good faith in the best interests of the company but also according to section 181(1)(a) of the Corporations Act, there is a similarly worded statutory duty on officers, almost certainly applicable to Dr. Meutermans.

When the ASX disclosure of the assignment was made, there was reference to a syndicate of high net-worth individuals. There was no reference to Peter Andrews, a founder and luminary scientific advisor to the company. Although this is already somewhat inflammatory and very likely to exacerbate shareholder distrust, it is probably not unlawful. There was certainly no mention of the involvement of an officer of the company, specifically Wim Meutermans (“responsible for all the small molecule drug discovery projects within Alchemia” and only one of three individuals designated as executive management of the company, no less). In short, this disclosure to shareholders was incomplete, misleading and did not articulate the full extent and nature of the transaction. The disclosure absolutely did not make it clear that the transaction was, in-effect, a management led spin-out of an asset, rather than the arms-length transaction implied by the release.

Alchemia shareholders, you got screwed.

 

Photo Cred: Me, somewhere near Osprey Reef in the Coral Sea.

17 thoughts on “Alchemia has a VAST problem

  1. You got it – one of the posts where someone is doing background research:

    Well well well

    Wim Meutermans, PhD
    Vice President – Drug Discovery
    Dr Wim Meutermans joined Alchemia in April 2000 and as Vice President – Drug Discovery is responsible for all the small moleclue drug discovery projects within Alchemia.
    Wim has over 20 years experience in all non-clinical aspects of drug discovery, managing multiple discovery programs in diverse therapeutic indications, including Alchemia’s ACL16907 which was taken to full preclinical assessment. Wim is also one of the key inventors of the VAST small molecule discovery platform. He is responsible for managing Alchemia’s small molecule drug discovery efforts in the field of oncology, respiratory disease, metabolic disorders and pain. He is co-inventor on 12 patents and has published extensively. Prior to his appointment with Alchemia he was employed at the Centre for Drug Design as Senior Research Officer to manage academic and industry sponsored drug discovery projects. Wim obtained a PhD from the Katholieke Universiteit Leuven in Belgium.

    Like

  2. and my letter to Alchemia:

    Dear Mr Hughes, Mr Poutakidis and Ms Pilcher,

    I have been a shareholder in Alchemia since May 2007.

    I refer to the announcement of 3rd July, 2015 – Alchemia Announces the Assignment of VAST Technology.

    I understand one of the three key management staff of Alchemia, Wim Meutermans, is also a founding and major shareholder in the company, VAST Biosciences P/L, which has been assigned the VAST Technology. Further I understand that Mr. Meutermans was and is being paid by Alchemia for his part in developing the VAST technology.

    Given the responsibility of Directors/Key Management to ensure that a company does not act in a manner ‘contrary to the interests of its members’ I would appreciate some evidence as to why this is not the case in this matter, particularly in light of the 23rd April, 2013 announcement anticipating “up to $240m in milestones, plus R&D expenses and royalties” from a collaboration with AstraZeneca. It would appear that the minimal upfront payment of $100k, with potential royalties in future would seem to be a pathetic return on the investment made by Alchemia in the VAST Technology to date.

    Regards

    Ian S

    Like

    • Ah, sorry I couldn’t read that on HotCopper, Ian. There seemed to have been a bunch of moderated posts and as a non-account holder (with some weird user experience, because HC seems to still know it is me when I visit the site) I couldn’t seem to scroll through the thread link you send me.

      Your letter is spot-on. Wim very likely behaved unlawfully unless he had already resigned from the company prior to establishing the vehicle and closing the deal (and this is possible, Alchemia is not that flash at its IR relations). But the BOARD of Alchemia almost certainly misled shareholders in that disclosure.

      It’s very disappointing.

      Thanks for sharing. Make sure you share my analysis with the folks on HC. For once, we probably have a common viewpoint. 🙂

      Like

      • Thanks – I and another poster have put a link to both this article and your last ACL post on HC. I only get wiser every day about the antics of small company directors and the complete lack of interest/teeth that ASIC displays. Really a disgrace to our investment community more associated with the non-governance of third world countries – oh, I forgot, that’s where we’re at!

        Like

      • I don’t agree with the 3rd world comment, but I do agree that both directors/officers and ASIC need to lift their game. If we enforced quality in our small-cap public companies, we would have a superior market.

        It’s only by being an activist that we can change this, and by demonstrating a commitment to quality. Thanks for sharing my post.

        Like

      • Honestly, I just don’t get it – the problem is that it’s not “big enough” to really get my knickers in a twist about. What I don’t understand is why the management team didn’t use Sandon as the stalking horse in that one. You’ve just had an activist investor hit you up and the buyer wants to change the deal terms. I realise that if your balance sheet isn’t strong, it’s not an ideal situation, but it’s not insurmountable either.

        I guess the main reason I didn’t comment on it was because I was not there at the negotiating table and I didn’t want to sound (unnecessarily) like a nob. Besides if you put it all into perspective with Panther and now VAST, you can see the company is basically screwed. It’s going to end up being a fund-controlled licensing vehicle with a big tax loss ($140m!!!!!) at the group level.

        Ca-ching…

        Like

      • Thanks for the thoughts! I’d love to see the T&Cs of the Dreddys deal, but of course that’s not going to happen. So much potential lost….guess it’s time to move on, but just wish someone was held to account.

        Cheers, IanS

        Like

      • Given where the company is at, if it had been me, I would have walked away from the relationship if at all possible. It would have been a much worse outcome for Reddy’s to have to stop distributing a product and deal with the channel issues resulting from that. But I suspect that the way the relationship evolved it was not possible anymore.

        Like

  3. Ms. Ramsdale reply to my email……

    Dear Ian,

    I am responding to your letter of 7th July 2015 regarding the assignment of the VAST technology. Following the failure of the phase III clinical trial, Alchemia was unable to continue to fund the development of the VAST technology or the HyACT platform. This was announced to our shareholders in the shareholder update in January. We engaged Evolution Life Sciences to assist us with a transaction on the VAST technology. Despite the potential promise of the technology, it is still in its early stages and has not yet reached the crucial value inflection point of getting a compound into clinical trials. As a result, the technology as it stands today has little value attributed to it. Any milestones from the Astra Zeneca deal are still some way off in the future and require input from the VAST scientists with knowledge of the intellectual property (the agreement is a collaboration) to maximise the chances of success. The group who took on the VAST technology are willing to invest in its continued development and pay a return to Alchemia by way of a royalty on net revenues. The royalties offered (5-10%) are standard in the industry for early stage discovery deals. For your information, there were no other offers received, despite a 6 month marketing effort by Evolution Life Sciences.

    I do not know what arrangements the acquirers have put in place for the VAST scientists but it is customary for them to be incentivised through the issue of shares or options. Alchemia offered similar employee incentive schemes to its scientists.

    I hope this helps to address your concerns.

    Kind regards,
    Tracie Ramsdale
    Non-executive director

    Like

    • it’s interesting, but also a bit sad. It illustrates very clearly the value of “biodollars”.

      Unfortunately it probably also means that if a shareholder wants to get very antsy, they could, because based on some of these comments the company really over-sold the value.

      Like

  4. and my response in turn:

    Dear Tracie

    Thanks for taking the time to respond to my email.

    Sadly it does little to reassure me that the actions being taken with regard to VAST are in the best interests of all shareholders, and it specifically does not address the involvement of Wim Meutermans (who is according to Alchemia’s website in the employ of Alchemia) in VAST Biosciencies P/L.

    Also of concern are:

    1. The lack of capitalisation of any value in VAST – seemingly a complete failure given the 2013 announcement referred to below.
    2. The terms and conditions of the agreement with Dr Reddys which appear to leave Alchemia in the position of potentially losing any revenue from what should be a highly profitable drug
    3. The apparent mismanagement of the P3 Clinical Trial for HA-Irinotecan where the Russian results seemed to derail a highly promising and successful development. I have been informed by people who are regularly carrying out such trials that it is well known that results from countries such as Russia are at best dubious and possibly much worse, with such a trial source only being considered as a last resort as a result.

    Sadly I suspect the many small shareholders who have lost their capital investing in Alchemia over the years will be unable to take any significant action against those responsible.

    Regards

    Like

  5. Pingback: ACL : Live and Let Die? | The Long Tail

  6. Pingback: No more Alchemistry…. | The Long Tail

  7. Pingback: Happy New Year – 2016 | The Long Tail

Say something useful (or at least interesting)...

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s