Of all the company's which have managed to generate a large cult like following, perhaps no micro-cap stock has done as good of a job as the .07 cent stem cell company Advanced Cell Technology (ACTC.OB). Since the company's inception in the mid 90's as an animal cloning company, Advanced Cell Technology has managed to dilute its current number of outstanding shares to a whopping 2,560,000,000 since its original IPO. Needless to say, it has not been a profitable ride for long-term shareholders thus far. Rather, it appears that shareholders have been hit time and time again with dilutions, and questionable actions by management, which whether purposeful or accidental, has not reflected well on the company. Interestingly enough however, Advanced Cell Technology has continued to attract new shareholders, many of whom unfortunately develop large emotional stakes in the company and are forced to watch their shares devalued every time the company decides to do a new round of dilution. All the while as retail investors pay for their shares on the open market, Advanced Cell Technology executives have graciously granted themselves large stock option awards and bonuses, and have then gone on to sell their shares back to retail investors on the open market. The story of Advanced Cell Technology appears to be a painful one for public investors so far, but in this article I would like to suggest that this could just be the beginning.
Insider Selling Transactions Reported 2 Years Late
Advanced Cell Technology's CEO Gary Rabin is not only CEO, but also the company's chairman of the board, and previously in the past was in addition to these two roles the CFO as well. This would have all been fine if Mr. Rabin was fulfilling his insider transaction reporting obligations at least, but this year on April 15th a bombshell was dropped when a Form 4 was issued disclosing that Mr. Rabin had previously failed to report 27 insider sales transactions of his company's stock dating as far back as 2/7/2011. When asked about this issue in a recent conference call Mr. Rabin responded with the following:
"Look, as you all know, I have been working to get this company cleaned up for the 2+ years that I have been here and this is obviously very frustrating. What I will say is that the independent members of the board are conducting a review regarding the circumstances surrounding this, as well as our internal training policies and procedures. After they have completed that review, we'll make any disclosures deemed necessary. I can't really say anything else about that now."
In my interpretation of this statement, it appears that Mr. Rabin may be rationalizing his past un-reported insider selling as acceptable to him because his job as CEO for the past two years has been, "frustrating". Mr. Rabin states that independent members of the board, which he is chairman of, will be "conducting a review of the circumstances surrounding this, as well as our internal training policies and procedures" but the bottom line is that Mr. Rabin previously worked in the finance and securities industry for 5 years and should in my opinion know better than anyone in the company about the expectations of insider SEC reporting. Likewise, I am sure there are plenty of other qualified people around who would be willing to be frustrated for Mr. Rabin's salary, bonuses and stock awards. The following are the CEO's hiring terms taken from an 8K filed with the SEC:
The Company will pay Mr. Rabin a base salary of $500,000 per year, through December 31, 2011, which amount shall increase at the end of each year of the Rabin Agreement, by an amount determined by the board, but by not less than 5% per year.
The Company agreed to pay Mr. Rabin a retention bonus of $41,667 within 10 days of the Rabin Agreement.
The Company shall pay Mr. Rabin an annual incentive bonus, which will be calculated by reference to the 10-day volume weighted average price of the company's common stock, as set forth theirein.
The Company shall pay Mr. Rabin a performance bonus in amount (not less than $100,000 per year) to be determined by the Compensation Committee of the Board of Directors.
The Company agreed to issue to Mr. Rabin, upon execution of the Rabin Agreement, (I) 10,000,000 shares of common stock, (ii) an option to purchase 10,000,000 shares of common stock with an exercise price equal to fair market value on the date of grant, (III) an option to purchase 5,000,000 shares of common stock with an exercise price of $0.30, and (iv) an option to purchase 5,000,000 shares of common stock with an exercise price of $0.45. The options will vest, and the shares will no longer be subject to the Company's right to repurchase for aggregate consideration of $1.00, in equal installments on the last day of each calendar quarter commencing on July 1, 2011 and ending on December 31, 2013.
On 8/12 of this month Advanced Cell Technology issued a PRE 14A with the SEC stating its plans to schedule a vote to increase the company's authorized outstanding shares by another 1,000,000,000, which could bring the outstanding share count to 3,750,000,000. Also in this filing the company is asking shareholders to enable it to increase the planned reverse-split ratio to as high as 1 for 100. For loyal shareholders of Advanced Cell Technology I can't imagine this not being upsetting news, especially since it was stated by company management in an interview that the company was looking to do a partnership deal this year which could have provided a large cash infusion. In a recent interview from this June CEO Gary Rabin states:
"I have made it clear that doing a partnership with some big pharma is an important objective for us for this year, and there are a lot of different potential places that could happen."
Whether a partnership deal will happen for Advanced Cell Technology this year is still not known. Regardless the company has shown its cards as to where it stands in terms of the possibility of further diluting shareholders.
Are results being sensationalized?
While Advanced Cell Technology's stem cell treatment could well turn out to be effective, the company in my opinion has gone out of its way to overhype its study results. In 2006 a paper published by Advanced Cell Technology's Chief Scientific Officer Dr. Robert Lanza insinuated that he and his team were able to harvest a single cell from a human embryo and then go on to grow stem cells from this single cell without destroying the embryo. The original paper generated so much excitement based on the idea that these embryos were unharmed that the results were talked about in numerous media outlets. This would have all been great if it wasn't discovered that the embryos were in-fact destroyed which was not made clear in the original paper. Once this was realized, Nature magazine which had originally publicized these results had to issue two clarifications regarding the truth of the study. Dr. Lanza claims that the original Nature paper was only meant to show proof of principle and that the company later perfected its technique.
If this one incident were the only case of sensationalism I believed to be occurring with Advanced Cell Technology than I could justify not focusing on it. However this summer on May 15th a bombshell was dropped when Reuters news reporter Sharon Begley issued a news story in which she stated that Dr. Robert Lanza told her that a patient in one of Advanced Cell Technology's clinical trials experienced a vision improvement from 20/400 to 20/40. This type of information should not be told in passing to anyone, let alone news reporters and should be considered as confidential information until made public by the company. When CEO Gary Rabin was asked about this incident Mr. Rabin stated the following:
"The reporter is one that Dr. Lanza and the company have known for over a decade. I think they had a rambling conversation, some things on the record, some things off, and some things not for publication. I think she probably missed that there was something that was not for publication. Unfortunately the way it arose was a throw away last sentence in an article not even really about that subject. So obviously, that was not the way that we wanted to have that information released."
Regardless of how this information was released, it certainly generated a lot of excitement which was reflected by a temporary rise in the company's share price. Yet whether or not these results are likely to be replicated again was put under question in Gary Rabin's response to his opinion on the news release. When asked about the 20/400 results in an interview Mr. Rabin stated:
"Well, I don't think you can read that much into it, because I think this guy was a very unusual 20/400 candidate. You know, what happens is after the RPE cells die, the photoreceptors die. They die a very slow death. This patient, I think it's safe to say, had his photoreceptors for some reason remain dormant rather than dead for much longer than a lot of the other patients. So it was really remarkable. We don't expect to see the average patient going from blind to driver's license test. We're replacing the RPE cells. We're not replacing the infrastructure of the eye."
A large percentage of Advanced Cell Technology's shareholders have high hopes riding on their investments in the company and I do not expect this article to be received by shareholders lightly and without backlash. I still do however feel that it is necessary to shed light on all of the issues at hand. Judging by the past actions discussed in this article it is my opinion that Advanced Cell Technology is not a good long investment at this current time. While the company's stem cell therapy could well go on to prove to be effective, managements large insider selling, which was not reported in anywhere close to a timely basis, is an enormous red flag in my opinion. Likewise, in considering that the company has just requested to increase its reverse-split ratio to as high as 1 for 100 shares and has requested an amendment to possibly increase its outstanding shares by another one billion, I cannot rationalize why investors should still hold on to their shares at this time. More often than not after a company performs a reverse-split its share price drops. In terms of the company's product I will be the first to agree that it addresses a major medical need and could go on to be a blockbuster product if it makes it past FDA clinical trials, but there is a difference between a good product and a good investment. Regardless of Advanced Cell Technology's stem cell products potential I feel that longs should consider selling their shares and if they so choose to do so re-invest long in the company after it has completed its possible reverse-split and potential billion share dilution.
Sad, but the article is telling true and authentic facts. I´m staying tuned, if this article might cause Gary to a comment. In most parts of the world a salary like his would be unethical. I wouldn´t wonder, if he retires from his frustrating job and gets an huge lump sum settlement. We are condemned to believe - and right now it´s a hard time.
Nothing we don't already know. If there were not all these issues it would not be a .06 stock. As long as you view this "investment" as a lottery ticket that plays everyday the market is open and don't put more than 5% of your assets in it you are OK here.
While Advanced Cell Technology's stem cell treatment could well turn out to be effective, the company in my opinion has gone out of its way to overhype its study results.
Look who took lessons from ACTC PR firm-Longs should sell-that's a sensational title!
He's an overhyped "author" calling the kettle black!