Regeneus’ Mushroom Shareholders

One of the things I really dislike about the dynamic of the ASX is the false attribution of “quality” to the existence of any kind of analyst coverage. At least when one of the usual personalities like Smith, Sinatra, Stanton or Storey (I fondly think of them as the “S”-men) posts coverage you know, transparently, they are sell-side analysts producing material to market equities on behalf of their brokerages. I don’t always agree with the content, but the materials are professional and the disclosure of commercial interest is more than adequate. I also genuinely believe these guys try to put some back-up into their marketing claims. Certainly, if you read their materials often enough you can find some of the warning signs alongside the puff.

But what I don’t really like is the growth in the use of “analyst for hire” firms like Edison and when I read the recent turd published on Regeneus (ASX : RGS) I felt compelled to comment. I talk to a lot of ASX biotech/pharma CEOs and they feel very pressured to use these firms as a way of pandering to the information demands of retail shareholders. One CEO recently commented that they had received criticism from some of their more rabid shareholders for not having firms like Edison and Van Leeuwenhoeck Research listed on their website for coverage, perhaps not fully appreciating the expense and perceptual issues with institutional investors in doing so.

Going back to Edison’s coverage of RGS, all I can say is what a crock. I’m not going to pick on the individual analysts for being clueless and financially illiterate, rather I take the position that such a report gets “sign-off” at an organisational level and that, in my view, means the responsibility for quality is a corporate responsibility. In reading this report, I couldn’t find one quantitative or analytical premise that withstands any kind of critical review. The revenue model is bollocks, the valuation target completely unjustified not only in absolute terms, but in consideration of the material changes in RGS business prospects in the past 6 months.

As for the headline of “two new deals” this year, obviously no investor guidance in the form of analyst report could be discordant with prior management disclosures. But are we supposed to honestly believe that signing a distribution or marketing partnership agreement represents a commercial inflection sufficient to support a $100m+ prospective valuation? It’s all particularly offensive if you think how marginally capitalised this company is and the fact that any kind of ongoing product development is utterly dependent on an under-performing management team raising onward financing for a fairly baseless product pipeline (so probabilities are therefore wildly optimistic and valuation scenarios are not effectively moderated by the conditional probability of future financing events). Anyone that has ever done a biotech deal would also look at the envisaged economic interest scenarios with ridicule.

But the very worst thing about this “research” is that it obviously assumes that RGS shareholders are just fundamentally morons. It’s bad enough that this is nothing better than a paid advert thinly disguised as a market and financial analysis, but the actual content itself is just mere puff. If I were the RGS management team and I had commissioned this piece of detritus, I would want my money back.

If I were a shareholder (which I am not) I would be aghast.

For all you small cap ASX bioscience CEOs out there thinking about this as a shareholder engagement strategy, please exercise caution. By all  means invest in “research” as an investor relations tool if you are swimming in so much cash you can justify it, but if you do, own the process and don’t be complicit in serving up manure like this. Your shareholders are people, not fungi.


Credit for the feature image: I have “borrowed” some of the graphic content from “Madigan’s Mushrooms“.

7 thoughts on “Regeneus’ Mushroom Shareholders

  1. I guess the first thing we must read in an analyst report is the first line in the disclaimer. In this case, it says:

    DISCLAIMER Copyright 2015
    Edison Investment Research Limited. All rights reserved. This report has been commissioned by

    A paid-for report isn’t necessarily worthless; it just requires us to focus more on the interesting facts and less on the rosy projections.

    I have never understood why a truly good stock analyst would remain a stock analyst forever. Surely if someone could consistently spot hidden gems, why wouldn’t they invest in those stocks and in no time become independently wealthy and quit their job?


  2. I’m going to refrain from analysing your analysis of the analysts.

    I’m not an analyst but what struck me were:
    1. The risks were grossly under-estimated. For example the probability of success when going from FIH in a cancer vaccine trial to commercialisation is far lower than 15%. A 5% POS if you’ve got solid preclinical data seems more realistic. Maybe lower given the failure of the MAGEA-3 program.
    2. The timelines were wildly optimistic. They are a miniscule company, with no track record of success, and with no multi-national industry muscle to to accelerate commercialisation. And they’re going to be profitable by 2016/2017?


  3. Ahhh, the Van Leeuwenhoeck Institute Research, a favourite of Hotcopper Anteo sh’s to quote from to boost their morale.
    ‘The Van Leeuwenhoeck Institute’ seems to be an insitute of one.
    It started doing research notes in April buy somehow still doesn’t have the sophistication to publish them on their own website.They instead publish their notes on which is a Godaddy site , best known for it’s hosting of malware.
    Their own website is mediocre indeed
    It’s made by Godaddy website builder, has been online for a few months only.It has nothing in the way of proper bona fides, such as a biography page of its “team of analysts” with so called 30 years of biotech experience, a official physical address nor a privacy policy.
    The New York address is a virtual address and not a physical one.

    Of course the researcher will claim he is independent .He supports this by noting that he insists on money up front, so he is not compromised.
    He then fails to mention that he gets all his information about the client fed to him from the client.
    Nasdaq have a warning to be wary of such micro cap stocks that promote ‘biased recommendations”,
    but not ASX


  4. “Underperforming management team”? The CEO (Martin) and former CEO (now CSO, Vesey) were just handed very large cash bonuses AND options for their stellar performance. Current shareholders and potential future (lifeline) investors should be thankful the board….nay, “executive remuneration committee”, saw fit to ignore their own criteria for executive rewards and bonuses (right there in the report) and go with its opposite. A contrarian mgmt approach. Investors who gave RGS $3 mil late 2014 just before the enlightening ABC coverage should be happy the money was not just left on the table for things like commercial development. Much better in the pockets of those responsible for its outstanding value delivery to shareholders.
    Building on that middle finger to investors, spruiking (yet again) vacuous paid for “analyst coverage” to investors as if their IQ equals the current share price (11.5…cents, not $) further demonstrates the outstanding management at play.
    Interesting self admiring arrogance, never mind whingeing investors strategy. Grown from the same source as mushrooms and their mkt cap. Certain their shareholders find that comforting and Martin, Vesey and hangers on (board) can look forward to a standing ovation at their AGM. Shares in the small cap selling torches and pitchforks at the door set for big gains.


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