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: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.
Onto the shareholder registry: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.