Lisata Therapeutics Inc (NASDAQ:CLBS)

nev

I was thinking about the controversy about the high price of medicines last night, and the oversimplifications being propagated by politicians like Trump and Sanders. They would like everyone to believe that the problem is simply the greed of pharmaceutical companies. As investors and traders, we understand that it is impossible for companies to be greedy. The mission of the BoD and executive suite is to maximize profits and therefore the returns for their shareholders, within the limits of what the law allows. When they fail to execute on that mission, they are fired. If politicians ask them to exercise pricing restraint in some undefined manner, they place executives in an impossible position. Who knows how much restraint is enough, and how much is too much? It becomes an invisible line that results in a public flogging in front of a congressional committee once it is overstepped. It's really the responsibility of politicians to create laws and policies that clearly regulate pharmaceutical pricing, if that is what they desire. The main problem with that sentence is the placement of the words "politicians" and "responsibility" in close proximity. Investors and traders also know that pharmaceutical companies are far from a bottomless hole into which patients' and payors' money is poured. We understand acutely what the inflows, outflows, and actual profits are because we own these companies. We don't own them because we have billions or even millions to throw around. We own them because we believe in them long-term, but few of us are getting rich by owning them. We seem to be the only ones who understand that reducing drug pricing indiscriminately will chill drug development, because no one will buy stock in pharmaceutical companies with no prospect of profits.

If the real drug developers aren't the problem, then who are? This brings me back to one of my favorite subjects, the enormous number of small pharmaceutical companies that I believe exist simply to provide a high longterm income for their executives. There is also a cottage industry of pseudoanalysts and promoters that this segment supports. Some people seem to believe that these companies don't account for much of the money that is spent on drug development, but CTI Therapeutics alone has spent over two billion dollars through its existence with almost nothing to show for it. Sure, they have had one drug approved ex-US, but it sells poorly and is widely perceived to be of minimal utility. If we add up all the CTI Therapeutics type companies that have been wasting drug development money and supporting that cottage industry of parasites over the last thirty years, I'm sure it adds up to hundreds of billions of dollars. These companies depend on unscrupulous and often illegal stock promotion schemes, misrepresentation of their pipeline and accomplishments, phony 10b5-1 trading plans, selective disclosure of information to privileged institutions, and even share price manipulation to continually access the public markets for more undeserved funding. Who has the power to put a stop to all this? The federal government, through the SEC, if they had the inclination to do so. Over the last ten years I haven't seen any change in the SEC's apparent policy of non-enforcement of their own regulations in this sector. No one seems to be calling for it either as it seems to be perceived as low-level victimless criminality, and most of the people who are aware of it prefer to attempt to simply profit from their understanding of it. However, I think if anyone wanted to draw the connections, they would find that all of the money funneled into these futile drug development endeavors ends up coming from patients and payors in the form of higher prices for approved pharmaceuticals. Why? Because the parasites siphon capital from a limited pool, thereby raising the cost of capital and therefore development costs for legitimate developers, thereby necessitating higher drug prices to maintain corporate profitability.

If anyone wanted a unique and extensive peek behind the curtain into the world of bad faith drug development and outright pharmaceutical scams, they would do well to follow BuyersStrike on Twitter and check out his website at https://buyersstrike.wordpress.com/ . If there were more guys like him out there, and if the SEC ever listened to them, the small cap sector would be a lot cleaner.

That belatedly brings be to Caladrius, formerly NeoStem, a company I believe belongs firmly in this category of bad faith drug developers. Far from the worst of them, but far from legitimate as well. They get to be the subject of my rant because now is when my feeling about the subject happened to crystallize. NeoStem's trick for staying alive is the purchase of cheap and shady stem cell therapy developers in all stock transactions. They then hype the new pipeline addition until the bump in their market cap is many times the cost of the acquisition, despite no progress having yet been made. This allows the original developer to sell their stock for a hefty profit, which NeoStem can use as a track record to induce future small developers to sell out to them in similar arrangements. In 2011 NeoStem acquired AmorCyte for AMR-001, which ultimately failed in 2014. After initially trying to pass their failure off as success by changing the trial endpoints after the trial was completed, NeoStem has simply stopped mentioning AMR-001. Of course, prior to that failure NeoStem had already sown the seeds of their rebirth via the acquisition of California Stem Cell for autologous melanoma immunotherapy Melapuldencel-T. The phase III trial of Melapuldencel-T was abruptly discontinued in January 2016, laying waste to NeoStem's share price once again. Never fear, however, there are always reverse splits to maintain a veneer of legitimacy and the stock underwent a 10:1 reverse split in July. This split follows similar 10:1 reverse splits in 2006, 2007, and 2013. Only legacy shareholders holding their tattered positions are the witnesses to the value that has been lost.

Caladrius's current clinical candidate is T regulatory cell therapy CLBS03 which was licensed from UCSF. I don't know the terms of this agreement, but I'd be willing to bet they involved payments to UCSF in the form of company stock. If you think academic institutions are any better than private ones when it comes to getting involved in this kind of chicanery, think again. Enrollment is ongoing in the second cohort of a phase II trial of CLBS03 for recent onset type I diabetes in adolescents. This trial will fail or be discontinued, just like all of Caladrius's trials before it. The stock will eventually sink below a dollar and another reverse split will take place. Caladrius will purchase or license another cell therapy candidate cheaply with stock. Investors will directly or indirectly contribute millions more dollars that should have gone to companies with legitimate drug development programs.

One interesting footnote to this relates to Caldrius's most recent dilutive financing, which was conducted without an underwriter. The 6M tranche which was due in Q4 from a single investor has not been received, apparently due to "unexpected financial obstacles in Asia". I guess choosing to go direct to investors without a placement agent or underwriter was not money well-saved. It remains to be seen how this little drama plays out and how it affects Caladrius's future operations. But never fear, the opportunity to reaccess the capital markets is always there. Good luck investing in a company whose continuing operations can be threatened by a single investors welshing on a financing commitment.