OSL : Follow-up

Since my last post on OSL (ASX : OSL), I’ve had a few interesting reach-outs confirming my viewpoint on this company and also providing a bit more “colour”. I should note that all of this information is actually reasonably consistent with the discussion I had with Daniel Kenny (CEO) last week, with one exception and I will get to that in a minute.

The basic message I would like to get across is that this company isn’t going to get a CE Mark any time soon. OSL has had at least 4 memos from its Notified Body (NB) in relation to its CE Mark application. My understanding is that at least one of those memos points to significant product development issues that will likely require additional remedial work from the company, possibly including further animal studies. This is also consistent with my prior review of the literature around OSL’s work on P32 colloids (including from academic collaborators), where I have simply been unable to find the basic non-clinical data that would generally be required to support an effective regulatory application, in any jurisdiction. Examples include pre-clinical confirmatory studies that “delivery” (injection) of the “device” into the tumour mass doesn’t result in systemic dissipation of radioactivity, standard systemic dosimetry (required of all radioactive drug products), and basic efficacy studies in relevant tumour models.

I should note that although the company claims “efficacy” for the product, this – as far as I can see – has never been rigorously proven. Generally speaking (and consistent with my prior commentary) there isn’t a whole lot of data to show that P32 injections into a tumour have a terribly efficacious treatment profile anyhow. As far as I am concerned, OSL hasn’t served up any meaningful data or significant clinical studies. Certainly the types of banal ASX announcements that we have come to know and love from this company don’t constitute a meaningful degree of clinical evidence that the technology is of benefit to patients. My feeling is that the regulator will see it similarly, including the FDA. Even the 14th of December announcement regarding the company’s FDA IDE plans is fundamentally flawed – for example, the FDA would never “endorse” clinical endpoints or outcome measures.

Even if you believe that the product development is on track, and even if you think that a technology that was basically pioneered in the 1950s is exciting, there are three other things that should raise significant red flags :

1) In the lead up to a significant option exercise event for Martin Rogers, a number of closely related parties to the company and key members, including JK Nominees (Kim Hogan, Forrest Capital) and OLSB Unit Trust / Webinvest (Otto Buttula, also a Director of another Forrest Capital portfolio company, Imugene) became significant investors, with the expected commensurate stock price movement over that two month period. This rapid stock appreciation lead to the fulfillment of equity vesting conditions for Martin Rogers, co-founder and NED (who has led multiple projects with Forrest Capital). Frankly, irrespective of reality, the optics are not all that great.

2) While the stock price was going through a very nice upward trajectory, the company has received several communications from its notified body – with at least one of those communications likely to be indicative that the company doesn’t have a viable CE Mark pathway at this time. So not only was the “pump” happening, but there may (and I say may because unfortunately I have not been able to get the level of detail I would have liked regarding those NB memos) have also been a failure to disclose a materially adverse communication from a Notified Body, or at the very least, a communication that had a request for further information that could significantly challenge the company’s near-term progress.

3) While all of this is happening, shareholders are relying on a board that has ZERO independence – it’s basically Roger Aston and Martin Rogers – aka “The Rogers” (remember, we lost Neil Frazer last year). Not only that but there have been significant and concerning changes in the management team that have not been disclosed, such as the departure of the VP of Regulatory affairs, Aoifa Brogan, sometime around the second or third memo from the NB. In my opinion, if the company has a policy of announcing new arrivals to the management team, it should also provide explanation for departures too.

I said at the beginning of this post that the information I have is actually consistent with the discussion with the CEO except with respect to one material point. That point is very simple – and it’s a point of contention that warrants deep contemplation by OSL shareholders. The point of contention is whether or not you believe that if a communication is received from a regulatory authority (let’s loosely put BSI into that category, even though it is not strictly the case) that may contain information or a line of questioning indicating that a CE Mark would not be forthcoming anytime soon (while noting that timelines in public disclosures, no matter how “positively” framed, have slipped significantly) that there is a duty to disclose. I am firmly of the belief that as a Director of a public company, particularly one routinely sets stratospheric retail shareholder expectations, that there is a legal and ethical obligation to disclose materially adverse events in a product regulatory process. In my opinion, based on the information I have, including a discussion with the CEO, OSL has not done this. Even just considering the company’s public communications, OSL’s CE Mark process is significantly delayed without, as yet, a meaningful explanation as to why.

At the end of the day, I may be stringing together a bunch of unrelated events but I don’t think so. During a period when the stock price doubled, significantly due to closely “related” investor activity, the management team has had extensive requests for further information from it’s notified body (the character of which has not been disclosed) and, as a consequence, at least a three month delay in the CE Mark process. The “market”, despite its obvious enthusiasm for the company, has not been given the opportunity to fully evaluate the risk and performance of the company. The icing on the cake is that a Director of the company received significant vesting equity participation in the company – something that might not have happened had the company had been transparent about it’s progress with CE Marking.

It just seems a bit squiffy, doesn’t it?

4 thoughts on “OSL : Follow-up

  1. Happy New Year Chris, good wishes to your wife and children.

    You raise an interesting point in relation to disclosure. It seems very similar to the situation purported (in media) to occur with QRX. In my opinion the focus shifts from commercial science to a capital markets play that is likely to protect in situ investors by attracting new (and potentially poorly informed) investors. Gives the early and more informed players an out? I’m no expert on this, but it has been a valuable consideration for me and is a worthy discussion.

    The hyperbole around these propositions is, I believe, a useful indicator that the focus is no longer on the science. Another indicator is, perhaps, a lack of comprehensive, reported peer review. A third may be attempts at emotive manipulation of the market which is much easier now through social media. A fourth, much harder for many to assess, is lack of clear articulation in relation to methodology, including applying the appropriate statistical method to achieve robust analysis (alongside a genuine “search” for the counter-factual, or null hypothesis).

    Without careful consideration of all data, including communications, biotech is less investment and more like gambling. This has been interesting for me, thanks.

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

  3. Brilliant post. Great to see the truth come out. The closing off of the board and restricted NEDs makes one wonder what other secrets are lying hidden within this company. Their path to market has been questionable from the start, with the long delay, then the Aussie trial (shelved) then the US trial (delayed) then the CE mark focus (market fed BS)…

    Like

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