7 replies to this topic

[ambivalent]

While no seasoned investor, I have witnessed over the past couple of years some blatant underhand activity, corporate dishonesty and insider trading within the stock market. However, no acts were so contemptible as the events occurring recently at Unity Bio.

 

It was around three years I first stumbled upon Unity Biotech. As an Aubrey De Grey presentation moved onto a roll call on life-extending companies, De Grey passed through the microcaps, then with an elevated voice announced "Unity.... the billion dollar start-up". He complained at the, in hindsight, unsurprisingly cool market reaction to the less than stellar results of Phase 1 UBX0101, a proposed treatment for knee arthritis.

 

I began lightly tracking the stock in early 2020, the price was caught in ranges sometimes between 5 and 6 and moving up to 8 or 9, nothing really happened though. Then in August things changed: one week before Phase 2 announcements there was huge activity. As I recall, with around 10-20 times the average volume, the stock moved up to nearly double during the day, before falling back to 11-12 dollars late in the trading session. After hours data showed very high shorting levels, the gun smoke of a concealed ambush, frozen. As activity spiked, so too did interest - the unsurprising popular belief was that 'someone knows something': the illusionary power of a foment. With stocks light on trading volume, it isn't difficult to spin a narrative through self-matching trades. 

 

The following week, the company announced its flagship drug had failed and was to be abandoned. Funding, via a loan, not through a private placement, or the selling of shares on the market, had somehow been secured before the data-release: financing the company would have been a tough sell post-results. The company was moving on to eye-drugs, betting what remained of the ranch on UBX1325.

 

On the day of the announcement the share price collapsed 60-70% from something of a false price down to the mid 4s. Over the following few days the stock fell further to around $2.70, destined, seemingly, to stay in the doldrums until the company, which would dramatically cut staff twice over two years, could find a way to reignite market interest towards a discarded biotech in an industry always moving on.

 

Miraculously, far from stagnating over the following few months, the price climbed off the canvas, peaking just short of ten dollars. By January 2021 the stock achieved a higher price than one year earlier before the drug-fail. 

 

The kneejerk question might be 'why?' but perhaps it should be 'how?'. The why question seems underpinned with belief in the rational market, where prices increase on merit. The opportunity to offload stock at multiples higher than its true value, or indeed to sell borrowed stock through shorting at astronomical prices is perfectly rational, albeit immorally so when contrived. The how is, as discussed, through the matching of self-trades, while hoping the price sticks. Again not too tough in a weakly traded market without a resilient opposing force.

 

Despite the positive news in 2021 of a company rebuilding, the stock began its merciless and inevitable descent. In the mid 2s positive UBX1325 P1 results were announced, the price briefly spiked a dollar, but the momentum was killed. Note, the state of the company improved, yet no sustained bounce was permitted: the price had a destination in mind. The market cap continued with the occasional fool's rally of a short term price double. 

 

Unity early 2022, announced they would provide 12 and 24 week data on DME - no mention of 18 week data with the former to be provided 'mid 2022'. Mid-year arrived with the price driven down to 60 cents and held there for the best part of a couple of months. Certain patterns developed: if up several percent on the day, it would be brought down to dead 60 cents in the closing few minutes - a trivial task during a quietly traded closing few minutes. The closing price sets the opening one for the next day, the price impatient newly arrived sellers are fixed to. This appeared as complementary to the manipulation which drove the stock up to a value-irrational price of ten dollars. Not this time to set an overvalued price for a failing venture in order to sell overpriced shares, but rather to set an undervalued price for an improving company in order to accumulate cheap stock.

 

Then a couple of weeks ago things changed: the share price moved from 60 cents up to over a dollar back to short of 90 cents at the close of Thursday 11th.

 

After hours Unity announced they would the following day, before the opening of the market, present the phase 2 results of UBX1325 for both 12 and 18 week data, as well Q2 financials. This is a little odd and there are certainly significant consequences to ensuring there will be no intermediate trading session and to delaying 12 week readouts.

 

It is worth noting the company announced a month earlier it was presenting at some pretty inaccessible retina conference, the P1 data of UBX1325, days in advance, which enabled, coincidentally, a 20% pump and dump - the data was old, but was communicated in a manner which didn't discourage a reader from interpreting it to be fresh. 

 

Many companies announce when financials will be disclosed days in advance, Unity didn't, nor did they declare when the overdue P2 readouts would occur. Not too many companies would announce this way the night before, that results and financials were due the next day. The after hours disclosure guaranteed there would be no opportunity for investors to take a punt immediately before the online conference; it also made it likely more investors would tune in and so not miss the in-time results reveal and with it the subsequent market activity.

 

And of the preceding 5-day 50% climb, what was the reason? Well, on the surface it might appear an attempt to buy up stock pre-result, but this can be crude and perhaps not the most effective approach since it would likely have here the undesirable effect of drawing in buyers (see Aug2020, UBX0101) and it was very pumpy (some pre-market "gapping up" on Aug 8th), rather than controlled accumulation. Diligent investors observing, though, might be cautious having been conditioned over many previous transient doubling-ups, not least UBX0101, not to believe. I suspect the purpose was in fact to create a price-anchor. Most of us in our daily lives use relative rather than absolute pricing to discern value - almost all investors would struggle to put a value on a biotech, which leaves them especially susceptible to manipulation. 

 

As such, I would suggest, when viewing a data readout, we draw on our personal history to gauge how much to expect a stock to increase with good results. If a stock-manipulating actor requires the price post-results to be bought at 30 bucks, then it is an easier sell if the price is set to 15 dollars the previous close rather than 10, say: "A 100% increase could happen, but 200%?" 

 

As mentioned earlier there was never an announced plan to release the 18 week data and the 12 week data was good, so no need to be shy. One thing is quite clear, though, the price suppression during June and July at 60 cents would not have been possible, or at least certainly troublesome to enforce, were the 12 week data released earlier. And if we are to believe the same actors are responsible for the 50-70% pre-results rise, then they are likely in possession of information the average investor isn't. So quite clearly, it was very useful to those actors holding down and accumulating stock at 60 cents for the known excellent 12 week UBX1325 P2 data to be held back for 6 weeks.

 

Moving on to Friday 12th. Two key events from the morning:

 

Fabulous 12 and 18 week UBX1325 Phase2 data on DME: "We are thrilled with the recent data announced in our BEHOLD Study in patients with DME". Endless congratulations from analyst after analyst - the mood, triumphant. 

 

An important financial statement: "As of June 30, 2022, UNITY had approximately $64.5 million in cash, cash equivalents and marketable securities, providing runway through Q1 2023"

 

Consider at this point the outlook of a current or prospective investor: the company has risen from the ashes with the previously largely discredited science reclaiming a significant standing in the biotech market. For the first time Unity has a highly successful phase 2 treatment and the potential to develop a drug far superior to the current standard of care. Financing is a near term problem but they have 6-8 months and are quite clearly in a stronger negotiating position, post Phase2, to find willing private backers or appeal directly to the market. The once billion dollar company, a couple of weeks before sat at 60 cents a share, valuing it at $40 million. The stock closed at 85 cents the previous day. 

 

As soon as the results are released, well before the bell, the price fluctuates between 80% and 120% up. Huge volumes are traded pre-market, though most likely manufactured. The volume pre-market was excessive, the overall figure during the day was 94 million around 25 million above the shares outstanding. The opening price of 1.83 rapidly descended with a closing price of 1.31. 

 

The weekend intervenes and with Monday an upgrade from the same broker which found a $5 price target last year, now upgrades to $8. Premarket significant volume again, the price opens 20% at $1.57, flirts with 10 cents higher, though closes 2 cents down at 1.29. The following day there was lower variance, the price struggled but finished up a cent off its high, up $0.08. 

 

Then came the after hours news: dilution - unspecified on price but to the tune of $25 million. The market responded between 3% and 6% down and from recollection behaved similarly the following morning. A drop but not too alarmist, the price opens at $1.25.

 

A brief pause at this juncture. The premarket actions following the joint P2 + financial releases, as well as the broker upgrade, were designed to create a false price, as the much lower closing price each day indicates. In that instance it manufactured excitement - to instigate a high price, only to quickly collapse it, induces investor regret - a contrived state of loss, and so to sell resistance, unlikely if the price is naturally formed. Now, in this instance the market seems to be assuaging concern by reacting weakly to the prospect of dilution. 

 

Given previous misleading activity it might seem reasonable that those controlling pre-market the price would wish to elevate fear, panic investors into selling at cheap prices, if the news was not too price-consequential - but the out of hours action serves to allay fears. The share price in fact closes at 97c, 40 cents down 29% on Wednesday 17th.

 

Then the dreaded news. Thursday 4 am, "an upsized underwritten public offering". The company announces mass dilution: 65 million shares at 70 cents, with 85 cents warrant. 

 

What's the discount value of the warrant? Well, 1 share without a warrant is worth less than one with, let's say 60 cents. Then share price annihilation follows: the stock is taken down in the 0.60s.

 

Rewind to Friday morning. The previous trading day the stock opened at $1.01 and closed at 85 cents. Unity states to investors the company, which had been recently valued at 40 million dollars, has as of June 30th $64.5 million cash and cash equivalents, enough to see it through Q1 2023. It declares stellar phase 2 results, the price is set to soar. The volumes during the next three trading sessions are 94 million, 27 million and 7 million - while typically residing in the mid to low hundreds of thousands. During these three days the lowest price the share traded was $1.19.

 

The company obviously had the financial arrangement in place for some time - so they understood on Friday morning they would crash the price to 60 cents on Thursday, as confident investors, a confidence they sold, bought in at well over double this destined price. 

 

There was no good investor timeline for such an egregious dilution at such a basement price, but there is a damage spectrum mapped onto the "whens" and the company chose the worst point on it. Had they announced Friday morning they would still have been selling out those patient, mostly beaten down, investors; however, the company would have prevented investors purchasing stock at a price they knew would soon be obliterated, seeing that investment at least halved within days. However, when a company chooses deliberately and unnecessarily to dilute at the worst imaginable price, it is certainly cynically consistent that they do so at the possible worst time - it serves to reinforce the view this was not some professional error of judgement. 

 

Had the company done so a month earlier, when the price was 60 cents, then 70 cent + warrant is more in keeping with an, albeit highly suspicious looking market price. But then imagine the scenario where the company-saving phase 2 results are announced and the share price does nothing, shackled by the impending public offering: who will buy at a buck 20, when there is to be a stock offering at an equivalent of 60 cents?

 

Again there would be rightly investor anger but there would have been no mass exploitation over those few days. No opportunity to sell the shares accumulated at 60 cents over several weeks at double or even treble the price.

 

The company did nothing but encourage investment with fabulous phase 2 results and the reassuring tone of 'runway through to Q1', while they were planning in a few days to set the price at 60 cents, through something akin to a second IPO, locking in a low ceiling on the price. 

 

What investor could possibly imagine the price would return to 60 cents? They have diluted at the rock bottom price, a price almost certainly manipulated down and undervalued* while receiving breakthrough news as the company presents data for a science-validating successful phase 2.

 

Why should they be cautious and wait? And even in the highly improbable circumstance Unity only knew the day before the announcement of those plans, why would such a terrible shareholder-value destroying deal be sanctioned when the company possesses the time and position to negotiate a better offering, publicly, privately or through dilution on the open market? The only shareholder not rejecting the proposal, was one to be sufficiently compensated by shares amassed at those prices.

 

It is staggering a company can behave in such a manner, I would hope there is a lawsuit but it won't be enough for many. It says much about regulation that a company believes it can behave with such barefaced cheek towards shareholder interest.

 

And this a company with a mission-statement tailored to encourage the altruistic investor, a company which willfully, immorally and unnecessarily destroyed said investors' holdings. The company oversaw those three days, where the share traded no less than double the price the board subsequently set, and so permitted an exploitable period of price distortion which could have been avoided with an earlier announcement.

 

Back to de Grey, a Unity supporter, whose revealed comments during the investigation promoted an anything goes mindset, one which appears to have been echoed by the board of Unity. It seems there are some twisted moral licensing pervading areas of the longevity community, or perhaps it is just unadulterated old fashioned greed.   

 

The obvious results-leak of both drugs two years apart might not have come from the top, but the oversight of this 3-day slaughter and robbery of a dilution, leaves accountability firmly with the CEO.

 

 

 

 

 

 

* (if the price two years earlier could be manipulated into being hundreds of percent overvalued, then an incentivized polar opposite would seem quite viable)

Edited by Mind, 01 September 2022 - 03:11 PM.

[Mind]

Thanks for the review of the price action. I was an early Unity stock investor. Lost money. I have bought stock in a handful of longevity start-ups in the last 20 years. They are all pretty much defunct, gone, or bankrupt. The track record for rejuvenation-based (public) companies is pretty awful.

[ambivalent]

Thanks for the reply Mind, 

 

Though its a review the moral-failure of a company which has asked for terms for surrender of the manipulatiors, from a position of absolute strength..

 

But this is just as legalised, if it is, investor theft. The science finally succeeds and investors are annihilated. I saw one investor comment, that after the 0101 fail he quit, but was going to buy back in. And this at a time when the company knew they were going to kill the price.

 

There is obviously a gamble in start-ups, and as you say, they often fail - now the company looks to turn the corner, a rare success in the pipeline, and that value gain is handed over to new investors.

 

To pull investors in as they did on Friday, knowing full well those investements were  to be ruined in a few days as those suppressing the price for months got out, who will doubtless be beneficiaries to the public offering.

 

 

 

 

Edited by ambivalent, 23 August 2022 - 07:25 PM.

[ambivalent]

Going all Tom Cruise on Jack Nicholson: 'Why the two dilution announcements?' - of course, declaring an upsized offering is suggestive of a decision undertaken after the initial  annoucnement (the previous day) - which is utterly implausible - when would this ever happen? And not just an infeasible quick change in strategy but one that is devestating to any shareholder still holding stock.

Edited by ambivalent, 23 August 2022 - 08:15 PM.

[ambivalent]

Further context:

 

As of the end of June, per the 10-Q, the NAV of the company, assets minus liabilities, was about 40 million dollars, this was coincidentally the market cap at the time, driven down from multiples higher on no bad news - it was 4 to 5 times more around the time of the successful phase 1 results, prompting a $5 broker price target. 

 

Unity had spent 60 million or so on R&D in the previous 6 quarters - from January 1st 2021. Much of the R&D spend prior to this would have been on UBX0101 and failed but obviously not all pre-2021 R&D atrophied - UBX1325 was developed, trials began before months earlier. For simplicity, though, it will be assumed the value of the company as per the end of June was NAV plus the value of the post 2021 research and development, mainly ubx1325, which would have taken up most of the R&D.

 

If the CEO had been asked by analysts or shareholders during the August broadcast, if that 60 million investment, of shareholder money had been well spent, the likely tone would have been a head shaking: "Are you nuts, of course, look at our stellar phase 2 results!". ,

 

R&D is a risky business as UBX0101 proved, for the research to be justified it must have an expectation of paying for itself, covering operating costs if the company has no income, and of course provide profit to investors, otherwise why hope to encoruage investment, if you can't gain on success, then when?

 

So that 60 million R&D spend - how should the CEO value it? Double it? Well, that would leave some profit but a chunk will have been taken up in operating costs. Say treble, which probably doubles the entire company spend over this period - the results were extremely good, much better than the standard of care. 

 

So if considering a public offering - bear in mind they had money for three quarters - how should they value the stock?

 

Well, 40 million NAV. Plus let's say 120 million or 180 million for UBX1325. Share price equivalent: $2.40 and $3.20.

 

What if that 60 million invested is only worth 90 million, around the total spent, so no present success for investors. Share price? $1.95

 

OK how about just the 60 million paid out on R&D. They could sell the R&D for what they put: in 60 million Share price - $1.50. 

 

60 cents, the price the stock had been held at for 6 weeks or so represented a marker cap of 40 million, as mentioned, equivalent to the NAV as per June 30th.

 

Immediately after the results for three days the stock price traded between 1.20 and 1.80. The previous day it closed at 85 cents.

 

Why wouldn't investors want to buy in at this price, even though the pre-market activity looked a bit suspicious?

 

When the CEO made the public offering announcement, of 70 cents plus and 85 cent warrant, crashing the share price, he implicitly valued the company at less or around 40 million dollars. Those 70 million shares making up the market cap prior to the dilution, would now be worth 35 million dollars.

 

When setting the public offering, selling off a portion of the company owned by investors, to other investors in order to raise capital, not imminently needed but soon to be planned for - the CEO valued that successful $60 million invested by shareholders primarily in UBX1325 research at zero, or less than zero. 

 

If the shares including warrants were all sold tomorrow at a combined average of 77 cents then the original investors would now own roughly 1/3rd of the company that was recently theirs and so two thirds of that celebrated successful research on UBX325 would be in the hands of new money, two thirds of the matured value of that initial, supposedly fruitful, $60 million shareholder investment, will have been sold off for less than $10 million.  

 

The CEO must be held to account and investigated, for the destruction of shareholder value. Not content with this act of fidudicial debauchery, it is clear the CEO consented to clearing the way for investors to buy at multiple levels higher than the price would be set in a few day, by him - a price unimagined to the rational investor as the CEO would have understood, given the closing price before the best news in the company's history was 85 cents. The CEO just let investors pile in.

 

Now why would the CEO do this - why wait 3 days and rip off investors. Announce the destructive offering 3 days after, 3 days before, on the day itself - the same money comes into the company. Well, one thing is for certain there was plenty of money made in delaying, money made out of investors choosing to invest in the company based on the research they had produced, the excitement and confidence the CEO, scientists and the analysts sold.

 

That was their reward for trusting in the company. It is perfectly clear investors were willing to pay for millions of shares way above the offering price and the company has plenty of time to dilute on the open market if needed and could have done so during this apparently frenzied period. The volume may have been in part artificial, but nevertheless would have required buyers of millions of shares, for those who presumably exited after buying in at 60 cents for the previous two months, as well as most likely shorting over those days.

 

I didn't see it initially, but it was the same sting as two years ealier. Well not quite, but to borrow from Twain: History doesn't repeat but it rhymes. 

 

A week or so before the obviously then company-known UBX0101 fail annoucement, the stock was pumped up on huge volume and shorted before  Unity announced its price-crushing news. 

 

In that respect it was identical with UBX1325 - the price was again pumped on massive volume days before the company announced its price crushing news.

 

However, two years earlier, the pump was based on something artificial, the implication of good news, but was killed by the reality of a drug fail.

 

This time it was inverted, the pump was based on the reality  - and preceded the release days, before - of a big drug success but was killed on something artificial, the company's valuation of that drug. 

 

The days before the release of the UBX0101 the market priced in success, investors bought heavily into a drug that was already binned  - its value was zero and known by some to be zero when the stock practically doubled in price on huge volume just before the UBX0101 announcement.

 

This time investors bought heavily into the stock pricing on the value of an extremely successful phase 2 drug which the company subsequently made zero through setting a huge stock offering price equivalent to the net asset value of the company.

 

Just like two years earlier, while the sting was on, the company knew they would soon the drug at zero - they would make a public offering valuing the company at its net-asset value as per a month ealier. The first time the Unity destroyed investor value through poor judgement or experimental design, this time with UBX1325 they got it right and then sold off a huge chunk of the drug's success for nothing or next to nothing.

 

Why would a CEO do this? There's usually only one reason, the second is incompetence and it sure isn't a case of mistaken fiducial duty - to watch as investors piled it at 3 times the price you will set it to a few days, an imminent and obvious trap that could have been avoided with a CEO's responsible timing of a reckless announcement. Of course, why expect such incongruity in CEO-responsibilty, the actions are at least compatible. 

Edited by ambivalent, 13 September 2022 - 04:19 PM.

[ambivalent]

Well, the final installment I had missed off and only spotted lately when looking through the SEC filings. It is consistent with the company's brazen arrogance and contempt towards investor investment over this period - they have made no effort to hide any of this.

 

They announce on the Tuesday after hours with no mention of a price, a 25 million public offering. Then on Wednsday 17th, after hours, an upsized public offering at a stock crashing price for 42 million, excluding funds raised through potential exercising warrants. Note too, the following.

 

"A prospectus supplement and accompanying prospectus relating to the offering will be filed with the SEC and will be available on the SEC’s website located at www.sec.gov. Copies of the prospectus supplement and accompanying prospectus relating to this offering, when available, may be obtained from: SVB Securities LLC, Attention: Syndicate Department, 53 State Street, 40th Floor, Boston, MA 02109, by telephone at (800) 808-7525, ext. 6105, or by email at syndicate@svbsecurities.com; Cantor Fitzgerald & Co., "  

 

So you can ring for a prospectus, or there is an address to obtain it from, but only when available. 

 

On Friday 19th, they release the following prospectus supplement - I can't see a timestamp, but I'd guess its after hours. 

 

https://ir.unitybiot.../node/8846/html

 

Note:  "The underwriters expect to deliver the shares of common stock and common warrants being offered hereby to purchasers on or about August 22, 2022."

 

So its Friday, and the prospectus supplement is released.

 

And on Monday we have:

 

https://ir.unitybiot.../node/8851/html

 

"The Company estimates that the net proceeds from the Offering are approximately $41.8 million, after deducting underwriting discounts and commissions and estimated offering expenses payable by the Company."

 

"The Offering closed on August 22, 2022 and was made pursuant to a prospectus supplement and related prospectus filed with the Securities"

 

Some public offering - a pure farce. An address and telephone number for a prospectus, which probably would only have been available on the Monday, the day the offering has closes.

 

So here is the timeline:

 

Friday 12th August AM:

 

The company announces stellar phase two results and financials with reassuring indication of 'runway through Q1'. The price had closed Thursday at 85 cents and opens at $1.80.

 

Throughout Friday, Monday and Tuesday very high volumes are traded with the share price never falling below $1.20.

 

After hours Tuesday an unpriced 25 million offering announced. Price closed around 90 odd cents on Wednesday. After hours on Wednesday a huge price destroying upsized offering announced 70 cents, plus 85 cents offering. Price crashed to 60 + cents, destined to fall to 4-0 cents in the following weeks.

 

The after hours announcement provides a phone number and address to acquire prospectus. On Friday the prospectus supplement is relased and submitted to the SEC. On Monday the offering is closed. 

 

Now it is not remotely credible that the investments weren't already in hand - it was a done deal. Not only does this appear a derelection of duty, the public were never able to buy these shares - they were sold off on the cheap: there was no competition on price and quite clearly a much higher price could have been charged if funds were raised that easily, and quite clearly investors were justified in valuing the company higher. It looks every bit like a private placement, rather than a public offering.

 

But that if the terms of the offering were known and agreed to by the investing party(s) and it seems impossible the 42 million was just fronted overnight with no due diligence on price or the company, the timeline seems planned, then they would have had price sensitive information to exploit the market when it was, due to this price hijacking "public offering",  over priced by up to hundreds of percent - it is now 1 third of the minimum value the share was traded at over that three day period.

 

Everything about this company's activities need to be investigated, this CEO watched as investors piled in on the back of the long awaited successful announcements, knowing their investments would be destroyed in a matter of days.

 

The price movement and actions of the company are clearly consistent with the wilful destruction of investor value, and patterns of market activity quite consistent with those of insider trading. Those activities do not constitute proof, and so CEO and the board need to be cleared of those implicit allegations, explain why the CEO was obligated through his fiduciary duty to trigger such devestation and investigated by the SEC.

 

He has as far as I am aware made no apology over the clearly unneccessary and devestating timing of those crushing capital raising announcements.  

Edited by ambivalent, 30 September 2022 - 04:06 PM.

[ambivalent]

With this company and CEO one is in a perpetual state of wonderinghow the current situation might be gamed to exploit investors - figure out what exactly you're missing. 

 

The farce, though, has most certainly continued. I made reference in previous posts to the appalling dilution in both its timing and valuation. The CEO permitted the market to be pumped up before collapsing with a "public offering" no one could have imagined. The offering initially raised 45 million @75 cents with the option of warrants at 85 cents respectively. The offering valued the company at approximately its NAV (assets - liabilities) of around a month earlier in other words it valued its celebrated research at zero. This amounted to the theft of the research owned by investors  

 

Things have become more logically absurd, the question remains as to the purpose. Last week the stock reversed split, a state generated by the CEO while the stock was comfortably above 1 dollar until he collapsed the price. But given the effect of that offering, the reverse split was inevitable in order to avoid delisting. There is negative connotation to reverse splits because it is precipitated on the back of a decline in share price, but of themselves they are theoretically harmless, and are in fact helpful since the prospect of delisting has been averted. The company simply issues new shares for old ones. In this case 10-1. There is no change in the value of the holding or the market cap.

 

This was less than a week ago and since then the stock price has collapsed by just short of 40%. As of the close of 24th October the current market cap is $35 million. The value of that $45 million investment (+85 cents warrants - now $8.50 after split) has been reduced to 15 million + said warrants. The share price needs to increase by 200 % for that investment to break even just two months after the offering with no negative company news, and only modest positve one of phase 2 enrollement completion.

 

This looks extremely disturbing. The public offering was a private one in reality, it was a done deal as I've mentioned in earlier posts. Why on earth would those investors buying 75 cent shares (pre split price) with 85 cent warrants, not be buying up shares at 25 cents (current split price $2.50)? Why is there no resistance?  This rather looks too much as though, which I suspected, the actors taking up the offering were tied into the manipulation and exploitation of the share price. 

 

There may be an aspect of this investment which is not real. It provides a price reference point, but private placements have been used cynically to create false price anchors. I would guess the NAV of the company is probably around twice the current market cap. Then the add incredibly successful R&D spend of 60 million just to the market cap would create a company value of 3.5 to 4 times its current market cap. But if assumed the R&D was valued at double or treble its spend, otherwise what would be the point of investing in research, then you're looking at a multiples higher still. Yet here it is at $35 million. Now, those investing $45 million should if they're honest investors provide some insurance against further investor theft - but those guys have already legally purchased, basically, stolen from investor research. So what if there is more? The CEO sells off more stock at a share price now not equal to the NAV but half of it, in order to raise 'more funds for expanded research or some BS' etc.

 

This may of course be further manipulation to buy up cheap stock before a pump but the price is clearly crazy on any basic logical assessment of value - but overpriced if the CEO will once again destroy investor value.

 

No doubt at all the CEO's actions have worked perfectly with those manipulating the stock, as has been mentioned previously. The CEO sold out investors buying on the back of those phase 2 results over the three days which followed. Any of those investors who bought and still hold will be sitting on a minimum of an 80% loss.

 

This is so far wrongly priced, one has to fear what the CEO will be doing in the future to justify the price in advance.     

  

 

 

[ambivalent]

This is so far wrongly priced, one has to fear what the CEO will be doing in the future to justify the price in advance.     

 

Well, this was a darkly prescient and prophetic statement, though I struggled absorbing the scale of sting the day after this prediction.  

 

There was no company related rationale embedded in the fear, rather it resulted resulting from observing the dovetaling between the CEO's actions and stock price behaviour through the repeated destruction of shareholder value. The price had been crashed for a reason and that reason would be revealed, as I feared, through the CEO, who for days would have been impatiently pacing up and down at the price meet point. 

 

At the beginning of this thread I mentioned witnessing some pretty underhand activity in the stock market during the previous couple of years, but nothing to compare to Unity. Well, I need to reframe: I have witnessed ghastly acts by Unity for some time, but nothing to scale to yesterday's demolition. And so the worst I've witnessed on the stock market.

 

Yesterday, the CEO of Unity Biotech, Anivran Ghosh, sold around 60% of the company to an investor for nothing, I kid you not, for plus or minus nothing. Sixty percent of the stake every investor held in the company was given away, 60% of the highly impressive drug UB1325 each investor owned on Monday, was given away for nothing to an investment group on Tuesday.

 

https://fintel.io/do...r-26-19291-9637

 

I sense there is doubt, but it is perfectly true. It is staggering, but nevertheless completely true. What is more remarkable, there is little attempt to cover any of this up, leaving no room for doubt, which would seem to have appeal to certain mindsets - cue the sociopathic/CEO stereotype. Anivran Ghosh, the CEO, has brazenly and repeatedly ripped off investors in plain sight.

 

Yesterday, the company issued 20 million shares at a covnenient $2.50, the cited closing price on Monday 24th - as I said, no attempt to mask any of this - for a total investment of 50 million dollars. This price had been crashed down from 4 dollars a week earlier - this is the reverse split price - so this in fact was 40 cents down to 25 cents in old money. The reverse split has zero theoretical impact on market cap, it is no more than exchanging 10 old shares for one new share at ten times the value. Absolutely no reason for the price to alter once multiplied up - but as with the trick of stock price manipulation, causes are either generated or awaited with the sole purpose of creating an effect, which obviously happened here. 

 

So how did the CEO sell 60% of the company, of investors holdings, for nothing yesterday? Here's how:

 

The counterintuitve nature of investment through dilution creates what I would label an "equity rebate". The investment group paid 50 million dollars for just under 60% of the company but that 50 million dollars isn't directed out of the company as would be the case if an owner were to sell their holding. This $50 million, raised through dilution, belongs to the company, and so added to the market cap. Therfore, the investing group owns 60% of the $50 million they have just paid into the company.

          

Then there is the 45 million of funds raised in the August dilution, at a then pre-reverse split price of 75 cents ($7.50 r-split converted), three times the price shares were sold at yesterday.  It is worth noting that the CEO yesterday printed 150% more shares than were previously outstanding, citing the market price as a bench mark for this unnecessary, excessive dilution, which followed on from the 40% price collapse after the reverse split Ghosh intitiated, which should have no implicit material impact on the company except the positive one of avoiding delisting. It of course was timed to perfection. The dilution didn't precede the split, weeks ago, or follow the next day, a few trading days were allowed to bring the price down.

 

And yet in August when setting the diliution price the CEO completely ignores the preceding few days surge in share price, following real news, not a cosmetic split share swap, in fact the best in the company's history. Instead at that time, incredibly, Ghosh opted to take a price below the (85 cents ($8.50)) closing price prior to the phase 2 news release of UB1325, issuing instead 90% more shares at a price of 75 cents ($7.50). And if that price offer weren't destructive enough, the CEO shamlessly throws in a warrant too for 85 cents, limiting the price further. The CEO quite clearly demonstrated on Tuesday that he would and could take in the previous days ticker as a price point for masssive dilution. So, Ghosh could have easily adapted the public offering to the market valutation, where retail investors were buying intensely for three days between $1.20 ($12) and $1.80 ($18) which represented very reasonable market capitalisations of $80 to $120 million, respectively, for a company with a NAV of 40 million and a highly promising, science validating, drug which had been costly to research while clearly demonstrating a far better than standard of care treatment. 

 

One of the most sickening aspects of this scandal over the past few months has been to witness the incredible cheerful CEO, receiving congratulations after congratualtions from the fawning media knowing that over the next three days prospective and current investors watching this, reading the data, researching the sceince, taking as confirmation from CEO, science officer and analysts excitement of the promising drug, would be buying in at a price that he was set to destroy within a few days, they would lose 50-70% of their investment almost immediately and progressively more over the weeks if still holding, then catastrophically in a couple of months. He smiled, celebrated and laughed as investors were walking into a trap of his design and making. Utterly staggering. A better demonstration of amoral behaviour is hard to come by. 

 

Back to the 60% Unity Bio giveaway:

 

Of the 45 million raised through dilution in mid August, based on an average burn of 15 million/quarter iirc, over the previous 6 quarters, assume there is around 35 million left. This gives a slightly false impression since the company already had enough cash to provide 'runway through quarter 1 2023' and I suspect a bit further, based on historic burn rate. But for ease of reasoning the cash burn over the last couple of months is taken from the $45 million. 

 

So, the investment group Cowen, own, in equity, 60% of the $50 million they paid in plus 60% of the $35 million left from the August dilution, which is pretty much dead on $50 million. Bingo. Clever, huh? So now what do they have for free? 

 

Well, let's define the value of the company - not the capricious market valuation - but the fair value of the company immediately after the Phase 2 results were announced. So this would be the NAV value, which was around 40 million at the end of June and the revised value of the pipeline and science/technology, in light of the phase 2 success. Let's call the total X and assume little has changed since then.

 

So the $50 million paid into Unity yesterday bought them:

 

0.60 (X + 35 million + 50 million) = 0.6X + 51 million. In other words they have just acquired 60% of the company for zero net investment. I write it, but I scarcely believe it.

 

Here's another way to express this: on Monday, the market cap was 35 million, this represented, as mentioned, an estimate of the remainding value of the 45 miilion they raised in August, so the rest of the company, the company as it exists without that cash, as it largely existed the day of the phase 2 announcement has a market value of zero. Every share Ghosh prints at this price, he values the company minus the 35 million cash at zero. The reason why the 45 million was there and then the 50 million was to buy a stake in that company value (of X) and he has sold it off to those investors for zero value.

 

It is in fact worse than this for those shareholders who owning the stock or who bought in on the leading days up to the first dilution. Yes, surprsingly worse.

 

The entire investment community who owned a stake in the company the day before the dilution announcement, now own around a little over 22% of the company. So in just over a couple of months the CEO has evicted the prior shareholder base from almost 80% of the company and handed into to institutions. And what have shareholders been paid as compensation? Well, roughly 22% of the raised $95 million - maybe $21 million. This is around ten million less than the NAV of the company at the end of June, just over a month before the first dilution. 

 

So the reason those prior investors were there, the science, for some specifically UBX1325, has been taken away from them and sold for less than zero, they were not even paid the full NAV of the share price. Investors who bankrolled the company, funded the research over the previous 6 quarters to the tune of 90 million (it goes back furher obviously), who paid the staff and the CEO's salary have had 80% of the portion of the pipeline they funded, removed from their ownership and given away for free.    

 

An investment group who will have paid nothing towards the research have literally stolen it, or I should say the CEO took from investors, handing it over for zero. The true value of the that 60% might be reasonably be expected $120 million, given the R&D investment and success of the drug at this stage. That's a giveaway estimate of the value Ghosh removed from investors and funnelled to Clwen 

 

It is truly beyond belief, it's hard to imagine a more criminal act on the stock market. An investment group has picked up on the results and thought 'Impressive research, I'll take that for zero, thanks for funding'. 

 

As mentioned there was no company reason to expect yesterday's events to happen. The company were likely funded for another year, maybe more, and the share price was one third of the "public offering" price of 10 weeks ago (which was one in name only), that was in turn half the price of the traded price in the days following the P2 announcement, preceding the dilution. How could the CEO justify selling shares at one third of the price of dilution price he egregiously set two months earlier, when the company was far better financed? He not only printed shares at one third of the price, but also three times as many. I guess if one shameless act, there why not another?

 

The share price collapses by 40% in 4 days and the CEO who has no immediate needs for funds instantly increases the shares outstanding by 150% at a price which valued the company at half its NAV at, unsurpisingly, a dramatically low all time price. If 20 million shares at $2.50 doesn't look like a prior arrangement, then what does? What's the alternative, they ring up on the day and offer 50 million @ 2.5 after the price collapse and the CEO, says "yeah OK"? The prospectus was soon out too, covering up the heinous act, suggesting this was all proper and above board.  

 

Here are some of the implications for investors who held prior to the dilution: 

 

An investor buying in after the P2 announcement at $1.50 ($15 post split) a share, did so on a market cap of 100 million.  GIven the market cap is $85 million at $2.50 ($0.25 pre split) for the stock to rise back to that investment point of $1.50/$15 the company will need to be valued at $510 million. Suppose the CEO had decided to raise 95 million at the share price of $1.50 pre split, when this investor bought in, which very clearly was supported by retail investors, with good reason (I estimated a $3 price). Diluting at $1.50 ($15 pot split) would still represent a terrible price, during the previous 6 quarters alone R&D was 60 million prinicpally on UB1325. Given the NAV of $40 million, the $1.50 price would value the research at 60 million - this would mean selling off half of the value of the company owned by shareholders valuing the research at R&D cost (excluding operational costs too), with no reward for shareholders who have funded the $60 million R&D plus 30 million additonal costs over the previous 6 quarters. So a pretty terrible dea, no one could have been of any doubt watching the CEO, science officer and journalists that the research was a huge success - so investors should expect a market represented return of investment.

 

A quick pause: imagine how an investor looking at the $1.50 price would have felt, what a fantastic investment opportunity. That investor now needs to see a 500% increase in share price to break even with over a $400 million increase in market cap. If the CEO had diluted at $1.50 and raised the $95 million that way, which obviously was possible, a 400 million increase in share price would have meant that investor would treble their investment. Now, the investor because of the appalling dilution will need that much market capitalisation added just to break even. This is a case study in the making.

 

The August dilution was a necessary stepping stone to arrive at yesterday's 60% company theft. There was no way to sell 20 million shares at $2.50 (200 million at 25 cents) without first killing the price when the stock traded between $1.20 ($12) and $1.80 ($18). Dilution at that price would have made it very hard to crash the price, the company would have likely risen higher and got away from the opportunity to manipulate to 25 cents ($2.50). If the share price had been $15 ($1.50) two days ago, the CEO couldn't sell 50 million dollars of shares at $2.5 (0.25) - there had to be a path laid. 

 

So that price range had to be destroyed, brought down to below 60 cents. Note the point of the warrant, without it the SP would have held up closer to 75 cents ($7.5), but with the warrant it is easier to push the price further down since 75 cents + an 85 cent ($8.50) warrant is a better deal then 75 cents without one. So for the short term the warrant is cosmetic, but it enables price suppression to drive the SP down and down. 

 

Eventually it arrives at 40 cents and stays. An absurd price, why was this being supported, it is below the NAV, and excluding any value on the pipeline? It's waiting for the final phase, the introduction of a plot device: the reverse split. 

 

If you look up reverse split, you'll see it is a big drama - "companies in distress", "a bad sign" etc. However, the reverse split isn't bad news in and of itself, obviously, its just a fair exchange of old for new so to avoid delisting and encourage investment and liquidity. But shares that generally reverse split are companies in decline - the price has been tumbling because the company hasn't been doing well, and that trend is likely to continue as with any falling company. Like its big tech split counterpart, the split has similar benefits of liquidity, and, apart form that, it is meaningless, but of course it is a sign the company has been doing well and so would be more expected to carry on climbing as the reverse split stock would to persist falling. 

 

But what Unity have done here is to create an effect to imply a cause. The company's decline in price since August has had nothing to do with the company being in trouble. It is only trading well below $1 and not around $3 because the company put it there through shareholder value destroying dilution. The company has money for a year and a highly promising drug. Unity was pushing upwards until three days into the resurgence the CEO crashed the share price.

 

So now you have the reverse split, which correlates with badly performing companies, but is obviously not causative. This is the cover, the smokescreen - the stock is crashing because of the reverse split and the share price crashes to a then pre split price of 25 cents, now $2.50 post split price, valuing the company at $35 million, around half the net asset value NAV (assets - liabilities).

 

And as soon as the price arrives the CEO is ready to helicopter drop the 150% extra printed shares at this clearly manufactured rock bottom price into the waiting investment group, where 60% of the company is sold for nothing, all while the CEO has zero need to raise cash, panicked or otherwise. 

 

It is all utterly astounding. It is broadly damning of our instiutions that these parties believe they will get away with it. This is silicon valley, nasdaq listed company.

 

Whether the company has finished with dilution time will tell - they could do more of the same at a dollar, further destroying investor value, since they are only receiving most of the money back when paying more. Ironically the price surged on high volume by over 20%, falling back by 10% on the day over half was given away for nothing. A look over there response if ever there was one - another example of creating an effect to imply a cause: "see the market loved it. Robbery, what robbery?". Most of those gains have been retraced today.

 

I suspect corrupt CEO's are making too much money for too many powerful people to ever expect to wind up in jail unless, presumably they occasionally step out of line. It is the Wild West, occasioanlly there is justice, just to reassure the town folk there is law in the land of the lawless.

 

It has been a breathtaking coup. Imagine a fictional company entirely owned by retail investors which turns up an amazing drug trial, then two months later institutions own 80% of the company having paid less than the assets minus liability value of the company to those investors for that 80% holding. And it appears there is no instituional infrastructure to stop this from happening - it relies on investors to prosecute the CEO with presumably little hope of evicting the institutions.

 

Capture the SEC. Capture the CEO. Capture the Investor. Quite stunning.  

 

To Ghosh I simply say, to encourage people to invest and then immediately destroy those investments, with little imminent chance of recovery, without any company cause to do so, with only one assumes some measure of personal gain, you will have damaged many people's lives in ways ranging from the minor setback to the extremely serious. 

 

A police officer was once asked what he thought of the government's attempt to remove fraud from the crime figures. He replied, "fraud can be murder in slow motion". 

 

Sleep well Anivran Ghosh, CEO of Unity Bio.

Edited by ambivalent, 27 October 2022 - 08:48 PM.