Anthera Pharmaceuticals (ANTH) investors may have forgotten its 2013 drug study scandal that set the scientific community spinning, as well as the Nasdaq delisting that it barely dodged again last month.
Caught in the shimmering biotech bubble, Anthera continues to get rewarded by the market as surely as the California biotech continues to destroy shareholder value. But, hey, at least detective work can uncover those deeds in its SEC filings and elsewhere. That’s what we’re here for.
Here, investors may find other viewpoints on this company working to develop and sell products for serious diseases associated with inflammation and autoimmune diseases.
So let’s look more closely into some issues this company faces:
(1) Caught up in the biotech bubble, which experts say may be on the verge of bursting.
(2) Burning millions and burn rate is expected to accelerate under further attempts to meet FDA approval; expect a potentially dilutive equity raise.
(3) Material weakness issues.
(4) One analyst downgrades stock, another analyst calls stock a sell/high risk.
(5)Unusual executive enrichment despite debilitating $309 million deficit.
*Stock Price Wrapped in Glistening Biotech Bubble Ready to Burst
According to a March 6 Bloomberg article “These Investors Think There’s a Biotech Bubble That’s About to Burst,” containing telling charts, the 269 biotech companies were primarily responsible for the Nasdaq’s gain over the last four years.
But “the end is coming,” according to one quoted expert.
Bloomberg continued: “Now there are signs that the biotech industry’s fortunes could change. One key measure of investor pessimism, the short interest ratio, has about doubled for the Nasdaq Biotechnology Index since 2013, according to data compiled by Bloomberg.”
Irrational exuberance infects the biotech arena. It’s really approaching the level TheStreetSweeper warned investors about in our article in August 2013, “The ExOne Company: Irrational Exuberance Obscures Black Clouds Building Around 3-D Printing.”
At one time, 3-D printing somehow worked its way into conversations at parties, at the local bar and grill, and around the dinner table. People couldn’t stop talking about it. Couldn’t resist investing in it. Though it was old technology, virtually everyone seemed convinced that 3-D was the next big thing. The talk just stopped.
And take a look at the ExOne and 3-D Systems (DDD) stock chart to see what happened during that miserable burst bubble.
For investors thinking this will surely be different, consider Sir John Templeton’s quote: “The four most dangerous words in investing are: ‘This time it’s different.’”
*Addicted To Cash Raises, Little Cushion Left
No investor wants to hear that a key company principal is raising money. But here it is in Anthera’s 10-Q:
“The Company’s planned principal operations are acquiring product and technology rights, raising capital and performing research and development activities.”
And we see that Anthera’s burning up about $6.5 million per quarter:
“Cash used in operating activities was approximately $19.4 million for the nine months ended September 30, 2014. The Company expects to continue to incur substantial losses and negative cash flows from operations over the next several years during its clinical development phase.”
Cash and cash equivalents equal about $14.6 million in September. So, here it is March, meaning at its cash burn rate, Anthera’s probably gone through about $13 million.
How’s it going to fund its next $6.5 million next quarter and the same or more the following quarter?
We see that it’s been raising capital and diluting shares like crazy – in 2010, 2011, 2012 and 2013:
“Since inception in 2004, the Company has funded its operations through equity offerings, private placements of convertible debt and debt financings.”
And here’s the tale of how that will likely happen, right here in the company’s 10-Q:
“We may also sell shares of stock pursuant to an ATM with Cowen under which we may from time to time offer and sell up to $25.0 million shares of our common stock, $15.6 million of which remained available to be sold as of September 30, 2014. Finally, we maintain effective shelf registration statements on Form S-3 with the SEC for the issuance and sale from time to time of up to approximately $75.2 million of our equity and debt securities.”
Besides, investors will see below that the executives want to make sure they squeeze out their multi-millions. That money’s got to come from someplace and we’re looking for another equity financing.
Material weaknesses related to accounting of warrant agreements, on top of the resignation in 2013 of the chief financial officer, have also hit Anthera investors.
“… our chief executive officer and principal accounting officer, have concluded that our financial disclosure controls and procedures were not effective as of December 31, 2013, due to the material weakness in our internal control . A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.
These problems led to restatements of consolidated financial statements for 2010, 2011, 2012 and the quarters from March 31, 2012 through Sept. 30, 2012.
Those material weakness issues continue today:
“Based on this evaluation, our chief executive officer and principal accounting officer concluded that our disclosure controls and procedures were not effective as of September 30, 2014 at the reasonable assurance level due to a material weakness that we identified as of December 31, 2013 that has not been fully remediated.”
Such issues certainly weaken investor confidence and unaddressed, could conceivably increase Nasdaq delisting threats.
Citi slapped the stock on Nov. 17, 2014 with a “sell/high risk,” a $1 price target and noted issues with the drug, competition and anticipated dilution.
Citi stated it’s “not attributing any value to blisibimod (A-623) for lupus given the efficacy is modest and it is not clear if the drug will be differentiated from Benlysta which has had lackluster sales to date.”
Citi detailed several risks ahead and called the program “risky.”
“Recent ph2 PEARL SC Study data showed a relatively modest treatment benefit in a subset of severe pts, but missed the primary endpoint in all patients,” wrote Citi analyst Yaron Werber, M.D.
The two other key risks noted include: “(2) the company is facing significant dilution from required capital to complete clinical development and (3) the lupus markets are very competitive and there are many drugs in development for this indication.”
According to Bloomberg data, Dr. Werber covers 27 stocks and gives only Anthera a “sell” rating.
Also, Zacks downgraded the stock on Feb. 12, 2015 from outperform to neutral, with a $3.90 price target.
*Investors May Become Paupers, But Don’t Worry About Execs – Over $1,000 Per Hour Can Buy Tons Of Ramen Noodles
We’ve saved the best for last. When the stock flitters down – likely before, or even if it’s after, the bubble bursts – rest assured executives will not be found driving their old beater to the local food bank.
Look at the compensation of the three top executives:
This works out to CEO Paul Truex making about $1,652 per hour to preside over a company whose deficit spending has decreased shareholders’ stake – to the tune of $309 million.
To get the big picture, let’s throw in compensation for the former CFO ($776,998) and the finance vice president ($778,512).
So, what did all five top executives get in 2013? Just $6.8 million!
That figure – more than double the previous year - does include bonuses. While most average employees might be given a performance improvement plan if they achieved only half their goals, these executives were handed bonuses of ~$46,000 to ~$156,000, even though the board “determined 55% of the 2013 corporate goals had been achieved.”
Even the non-employee directors were pulling in better-than-decent money for attending a few meetings. Top-earner Sanford Zweifach received cash and options worth $122,484. Chairman Christopher Henney received $107,838.
So, assuming Mr. Zweifach attended all seven board meetings, he received the equivalent of $17,497 per meeting.
If each meeting lasted 8 hours, these two directors made more per hour than even the CEO. Mr. Zweifach pulled down $2,187 per hour. Chairman Henney straggled in at a mere $1,925 per hour.
So, the five officers and seven directors received cash and stock worth $7.3 million.
We’ll simply quote the company filing to show how executive enrichment compares to company revenue:
“To date, we have not generated any revenue.”
”We do not expect to generate revenue unless or until we obtain regulatory approval of and commercialize our product candidates or in-license additional products that generate revenue”
Now, keeping in mind that executive compensation doubled in 2013, let’s put everything into perspective with the year-end stock prices shown in Anthera’s presentation:
This takes into account the 1:8 reverse stock split of July 12, 2013, after its 2010 IPO at $7 - an attempt to prop up its $0.51 stock price and the earlier Nasdaq delisting threat.
We look to the analyst/doctor’s assessment that Anthera’s product, blisibimod for lupus, is valueless, and we agree that the stock is virtually the same - worth maybe $1.
This biotech has an attitude like a California beach bum: Balancing on the frothy biotech bubble aboard a 200 percent stock spike, happily running through cash, sidestepping Nasdaq delisting threats, surfing alongside material weaknesses, offering ridiculous executive compensation and attracting a wave of negativity.
We believe Anthera’s screaming stock will ultimately leave investors screaming as they swim for the exits.
* Important Disclosure: The owners of TheStreetSweeper hold a short position in ANTH and stand to profit on any future declines in the stock price.
Editor's Note: As a matter of policy, TheStreetSweeper prohibits members of its editorial team from taking financial positions in the companies that they cover. To contact Sonya Colberg, the author of this story, please send an email to [email protected].