What No One Is Saying About Paramount Biosciences: 3 Case Histories And 4 Companies To Avoid
December 18, 2012 | 11 commentsby: Elias Simpson | includes: CHTP, CNDO, CRME, GNTAQ.PK, KERX, TLON.OB, VTUS Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. (More...)
Either you know the history behind a Paramount company, or you don't. That seems to be the rule in the market. Paramount is owned by Lindsay Rosenwald, and is involved with financing and founding biotechnology companies. Those who know the reputation are likely to steer clear of Paramount.
This article aims to share my research on the companies of Lindsay Rosenwald and Paramount Biosciences, while telling some of the darker stories of Rosenwald's companies that are largely untold. It will also apply the research to four questionable Paramount companies getting press in biotechnology stock trading: Ventrus Biosciences Inc. (VTUS), a company whose drug has failed at phase III trials for Iferanseran, and will soon see phase III results for Diltiazem; Chelsea Therapeutics Inc. (CHTP), whose drug Droxidopa has been rejected by the FDA and may soon begin phase III trials anew; Keryx Pharmaceuticals (KERX), with a recent phase III failure and more phase III results due soon; and Coronado Biosciences LLC (CNDO), whose drug is in early development
These are stocks whose prices will never reach what analysts say they might (a success like Paramount's Cougar Biosciences was an exception). The three examples that are soon to follow are more the rule for a Paramount company. First, the company will usually adopt a pre-existing drug, known to be effective by someone, somewhere, for something. The drug's promise is then lauded by the company itself, and often by analysts. Eventually, the data disappoints investors. Those who stay on board, hoping for a turnaround, are subjected to both dilution through stock issuance and bad financing deals. Investors should conduct background research on all biotech companies, and those associated with Paramount should be viewed with the utmost skepticism.
Let us begin with a list of things owned by Lindsay Rosenwald, most of which pertain to this research investigation. I quote the website for Cougar Biotechnology:
Dr. Rosenwald is the Chairman and Chief Executive of the Paramount Capital group of companies. The Paramount Capital group of companies specializes in asset management, investment banking, venture capital and direct investing within the biotechnology and life-sciences industry. Paramount Capital Asset Management, Inc. manages investor assets through domestic and offshore hedge funds, as well as private equity. Paramount Capital Inc., a NASD member broker dealer, specializes in conducting private placement offerings for public and private development stage biotechnology companies. Paramount Capital Investments, LLC is a venture capital organization that takes a controlling interest in public and private companies, including start-ups and distressed turn-around companies.
You'll have to do a little reading of your own if you'd like to know more about his background. I recommend looking into deepcapture.com and their story on the Dendreon (DNDN) scandal. Included in the story "Michael Milken, 60,000 Deaths, and the Story of Dendreon" by Mark Mitchell, is the corruption behind certain hedge funds. Millenium, Perspective, Visium, and SAC, some of the most prominent biotechnology investment funds, were involved in the DNDN scandal, which included insider trading, pump and dump schemes, and corruption of the FDA, all mixed into one. It's all in the story. These firms take advantage of retail investors. Mitchell describes Rosenwald as "a trader working for a man who once managed, along with his father-in-law, the dirtiest, Mafia-linked brokerage on Wall Street" (pg. 7).
To continue, allow me to quote the rest of the bio for Rosenwald from Cougar Biotechnology's site:
[...] Dr. Rosenwald has financed or founded Cypress Bioscience, Inc., Bradley Pharmaceuticals, Inc., Genta, Inc (GENTAQ), Repligen Corporation (RGEN), Discovery Laboratories, Inc. (DSCO), Avigen, Inc., Indevus Pharmaceuticals, Inc., Cardiome Pharma Corp., Keryx Biopharmaceuticals, Inc., Neose Technologies Inc., Cell Therapeutics, Inc. (CTIC), Biocryst Pharmaceuticals, Inc (BCRX), and Hudson Health Sciences, Inc.
Here, I think that the biography could use some additional commentary, so I'll allow myself this: it seems unfair to mention only the successes of Paramount's portfolio when there are evident abysmal failures. The purpose of the following section is to shed light on some of its failures in producing effective drugs and maintaining investors' confidence and trust. Next, I will identify key patterns and persons within these companies; and finally, I will provide an analysis of Ventrus, Chelsea Therapeutics, Keryx, and Coronado Biosciences based on my findings and conclusions.
Three Examples Of Failed Paramount Companies
1. Genta (GNTAQ.PK)
To begin, Genta was founded in 1998. It is perhaps the most infamous of the Paramount companies. An obituary for the company was written by Jim Silverman from thestreet.com in October, after Genta filed for Chapter 7 bankruptcy liquidation. The article is called "Genta: 1998-2012". In it, Silverman issues a warning, specifically to shareholders of Cell Therapeutics Inc. (another Paramount company), that chronic clinical failure can lead to "crushing shareholder dilution." The first initiative was to develop the drug Procardia XL, a calcium channel blocker that is in high demand. The effort never resulted in production.
With Genasense, the outlook changed. According to Silverman, "Genta promoted Genasense relentlessly despite murky evidence of efficacy." Genta still applied for FDA approval, and was rejected. After phase III trials for leukemia treatments, and another FDA application and rejection, the drug was scrapped. Ray Warrell was Genta's CEO from 1999 onward. Warrell was remarkably optimistic about the drug, considering the disappointing data. After investments of $1.2 billion, and 100 quadrillion (literally) shares issued (see Jim Silverman break it down), the current market cap is below $2 million.
http://seekingalpha.com/article/...-4-companies-to-avoid?source=kizur |
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