Athenex – Big trouble in little Chongqing

Not only is the factory in the wrong place, it’s not built yet

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November 20, 2019 – On the ground investigation of Athenex’s Chongqing factory show that the Athenex’s new API plant is not located in the Chongqing International Bio-City, and is still heavily under construction. This deception extends to Chinese press releases.

The site visits were conducted on the week ending November 15, 2019, several months after the announcement of its “completion” by Athenex.

  • The factory is not located in the Chongqing International Bio-City development, but some 25 miles away near Maliuzui toll station.
  • The building has no sealed road access nor car parking facilities; we were unable to ascertain whether basic utilities had been connected but this seems unlikely.
  • Everyone within the facility is still wearing hardhats, and the site is still full of heavy machinery, including cranes. Equipment has yet to be installed – company statements about validation testing in Q4 2019 are false.

ATNX site

The announcement by Athenex on September 23, 2019 claiming the facility to be complete and in the midst of a validation batch paints a pretty picture, which is completely false.

To be clear: there is no completed API Facility. This fraud mirrors the various sham businesses Athenex’s directors have orchestrated in the past.

On November 19, 2019 Athenex announced the title of their presentation at the San Antonio Breast Cancer Symposium. This is a blatant strategy to pump the price of their stock by changing the title of the presentation which has had no change in content to the one announced on September 23, 2019 (ironically, the same date Athenex’s Chongqing plant was allegedly “completed”), which was submitted in June 2019.

In summary:

  1. Abstracts were due by July 8, 2019.
  2. Athenex’s abstract title was announced on September 23, 2019
  3. Athenex changed their abstract title on November 19, 2019
  4. Athenex is not presenting in the Ongoing Clinical Trials category, and therefore cannot have had new information since July 8, 2019.

Athenex’s SABCS presentation is the same as the one announced on September 23. RBC analyst Kennen MacKay’s reiteration of an outperform on a “SABCS win” sounds ridiculous considering that this is the same data that prompted such an unremarkable title 2 months earlier caused the collapse of the stock.

Of course, when Athenex originally announced the presentation, the issues we highlighted in our reports had not yet been brought to light.

We continue to believe investors are being duped by Athenex management through virtually identical charades orchestrated at their previous failed ventures, such as Sino Forest.

We have annexed an extended summary of all of Viceroy’s findings, and all of our pictures of Athenex’s actual, unfinished, API plant.

Athenex – Independent Oraxol Review

Independent biotech consultants commissioned to report on Oraxol clinical data of belief Athenex will not receive New Drug Application from FDA.

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November 13, 2019 – Viceroy commissioned a report from a highly reputable, independent biotech consulting firm into the prospective New Drug Application (NDA) approval for Oraxol. We have appended the report in its entirety for our readers.

  • Consistent with previous expert opinions we have received in relation to Oraxol, this report concludes that “Oraxol will likely not secure approval following Athenex NDA submission in 1Q 2020.”
  • Experts refute management claims in Q3 earnings call that “FDA previously provided positive feedback to Athenex that it would accept the results of this one pivotal trial for license application in the U.S. if the primary endpoint is met”, noting that there must also be an acceptable benefit/risk profile.
  • Our Experts note that the treatment regiment for the IV Paclitaxel control group is a high-dose, three week regiment. This regimen has tested as inferior to the low-dose, weekly treatment. This would have created a much higher threshold for Oraxol’s primary endpoint.
    • It’s noteworthy that oral paclitaxel competitors, such as Daewa Pharmaceutical Co., have not shied away from this low-dose, weekly regimen as a higher threshold control.
  • Differing outcomes in safety profile of Oraxol, when compared to IV paclitaxel, “is likely due to the delivery mechanism and formulation which includes the novel, unapproved PGP inhibitor HM30181A”. Our consultants believe this may prompt further studies into the Oraxol delivery method, consistent with our prior reporting about adverse effects.
  • The report also highlights issues in relation to the rarity of the FDA approving drugs with no USA clinical patient data. This presents a greater question mark for Athenex, who have already announced plans to commercialize this in the USA.
  • Experts have noted Athenex’s absence in providing any detail relating to Oraxol’s adverse effects, in particular those effects which are inconsistent with IV paclitaxel, such as GI complications.
  • Viceroy elected to file all our findings to the SEC, FDA and New York Governor due to the highly irregular corporate governance and business practices committed by the company. We note the company have failed to address or deny one issue, despite repeated requests to identify one single falsity.

We await Athenex’s San Antonio presentation, which we believe will provide more granular detail.

Viceroy remain short Athenex and maintain our price target of $2.83.
Athenex management continue to ignore our reports or address any of the issues we have highlighted.

Athenex – 2019 Q3 Financials Brief

Falling revenues, stalled operations, flat R&D.

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November 7, 2019 – This report is a brief on Athenex’s Q3 results announcement. Viceroy will provide a further, more in depth update upon the release of Athenex’s 10-Q.

  • Athenex revenues continue to fall Q/Q, and has guided to do so in Q4, despite Athenex’s raised guidance. This is primarily due to higher than anticipated sales in Q1 & Q2 for Vasopressin, which has been pulled due to FDA ruling brought about by a lawsuit against Athenex by its largest customer, AmerisourceBergen.
  • Athenex COO, Jeffrey Yordon, states stated the FDA’s decision regarding Vasopressin “did not come unexpected”. Either this is a lie, or the Athenex had been consciously illegally selling as much Vasopressin as possible before the FDA undoubtedly came knocking.
  • Address of financials persists on using YOY figures to hide the fact that the company has suffered declining revenue in the last two quarters.
  • Q3 Update confirms API production is still suspended.
  • Cost of sales have conversely slightly increased Q/Q.
  • R&D expenditure is flat YOY, excluding one-time-costs, despite an increase in drugs in development. This suggests to us that Athenex have curbed spending.
  • As previously reported, Athenex have not only committed >US$1.5b expenditure at their Dunkirk site across the next ten years but are also on the hook for excess development costs for the facility, whose floorplan has expanded by 28% on-the-fly and falling significantly behind schedule. We are curious to see the cash burn in relation to this facility in Athenex’s 10-Q.
  • Athenex’s new China-funded plant must also generate unrealistic revenues of almost US$1b within 5 years of opening, despite turning over only $160m across the last 5 years combined.
  • There has been no change to Athenex’s massive cash burn this year, with losses accelerating to $102m in the 9 months leading to Q3, 2019. To manage its cash burning commitments to major facilities and R&D, Athenex has issued dilutive equity, and incredulously borrowed US$50m from major investor, Perceptive, at a punitive rate of 11%.

Athenex management “stand behind the integrity of its management team and board” and will refuse to address us, according to Mr. Lau on this morning’s conference call. This is laughable considering half the board has evaporated billions in prior frauds.

We have already highlighted management’s involvement in Sino Forest, GCL Silicon/Poly, Suntech, Chelsea Therapeutics, the world’s largest illegal taxol smuggling operation, LyphoMed, Gensia and Sagent. It is mind blowing that Athenex investors would continue to associate with any one of these farces, let alone a collection such as this.

Considering the quantum of issues Viceroy have highlighted, it is alarming to shareholders that Athenex have not addressed a single point of our work. Opting instead to simply state we have published “inaccurate information”. Other commentators have begun to back-test our work[1].
Where are the inaccuracies, Athenex?

 

We will provide a more updated brief upon the release of Athenex’s 10-Q.

Report 1: https://viceroyresearch.org/2019/10/22/athenex-too-little-too-late/

Report 2: https://viceroyresearch.org/2019/10/23/athenex-where-theres-smoke/

Report 3: https://viceroyresearch.org/2019/10/24/athenex-no-integrity/

Report 4: https://viceroyresearch.org/2019/10/25/athenex-bonus-round/

Report 5: https://viceroyresearch.org/2019/10/28/athenex-rehash/

Report 6: https://viceroyresearch.org/2019/10/29/athenex-unpopular-operating-officer/

Report 7: https://viceroyresearch.org/2019/11/04/athenex-financial-situation/

Other Coverage: https://seekingalpha.com/instablog/38002746-denniskneale/5369151-cancer-conflicts-interest

[1] Blog entry-Dennis Kneale:https://seekingalpha.com/instablog/38002746-denniskneale/5369151-cancer-conflicts-interest

Athenex – Financial Situation

Ahead of this week’s earnings, Viceroy provide an insight of what’s to come.

REPORT DOWNLOAD LINK

Athenex Inc. v. Azar – Summary

November 4, 2019 – This report provides a deep dive on Athenex’s significant revenue declines and capital over-commitment that investors can expect in the coming months. We believe revenues from the second half of 2019 will fall ~40% against the first half of 2019.

  • Athenex best seller, Vasopressin, has been pulled due to FDA ruling brought about by a lawsuit against Athenex by its largest customer, AmerisourceBergen.
  • COO Jeffrey Yordon is on record as stating the Vasopressin ban “did not come unexpected”.
  • Almirall licensing payments in 2018 were non-recurring, and 2019 milestones appear to have been delayed as Almirall redefine Athenex deliverables.
  • Per management’s guidance, we expect product sales revenue to fall approximately 40% in the second half of 2019 against the first half of 2019.
  • Athenex have not only committed >US$1.5b expenditure at their Dunkirk site across the next ten years but are also on the hook for excess development costs for the facility, whose floorplan has expanded by 28% on-the-fly and falling significantly behind schedule.
  • Athenex’s new China-funded plant must also generate unrealistic revenues of almost US$1b within 5 years of opening, despite turning over only $160m across the last 5 years combined.
  • Athenex must also pay RMB 10b in taxes over 10 years at its China Site, according to project commitments. Strangely, Athenex’s own tax projections do not meet the required sum from these commitments by over 30%.
  • To manage its cash burning commitments to major facilities and accelerated R&D, Athenex has issued dilutive equity, and incredulously borrowed US$50m from major investor, Perceptive, at a punitive rate of 11%.

Considering the quantum of issues Viceroy have highlighted, it is alarming to shareholders that Athenex have not addressed a single point of our work. Opting instead to simply state we have published “inaccurate information”. Other commentators have begun to back-test our work[1].
Where are the inaccuracies, Athenex?

We have already highlighted management’s involvement in Sino Forest, GCL Silicon/Poly, Suntech, Chelsea Therapeutics, the world’s largest illegal taxol smuggling operation, and now LyphoMed, Gensia and Sagent. It is mind blowing that Athenex investors would continue to associate with any one of these farces, let alone a collection such as this.

Viceroy reiterate our view that Oraxol is obsolete in the modern medicine, and that Athenex will be effectively bankrupt by mid-2020 with no profitable operations given management’s overenthusiastic spending habits.

Viceroy remain short Athenex, and are in the process of obtaining a compiled, detailed report by industry specialists pertaining to Oraxol and its inability to be commercialized.

In considering the above, Viceroy estimate that Athenex’s risks of a highly discounted and dilutive capital raise is all but guaranteed.

Athenex – Unpopular Operating Officer

While his resume appears impressive, Athenex Chief Operating Officer Jeffrey Yordon has always been in the proximity of disaster, including two class action lawsuits.

REPORT DOWNLOAD LINK

October 29, 2019 – As we move into the sixth installment of our coverage on Athenex, Viceroy reiterate our view that Oraxol is obsolete in the modern medicine, and that Athenex will be effectively bankrupt by mid-2020 with no profitable operations given management’s overenthusiastic spending habits.

This report further exposes management’s ties to impropriety and provides a broader summary of Athenex’s management & director teams.

  • Yordon’s executive career started as President of LyphoMed, who’s CEO was sued by acquiring entity, Fujisawa Pharmaceutical.
    • Fujisawa claimed LyphoMed filed false information with the FDA in connection with thirty five ANDAs. Information was either misrepresented, destroyed or was not recorded where it concerned adverse test results.
    • LyphoMed’s CEO was none other than John Kapoor of Insys Therapeutics fame.
  • Yordon claims to have founded Gensia Pharmaceuticals, when the business was in fact acquired from Kedall Co. while Yordon was employed at Gensia’s topco.
    • Gensia’s share price collapsed upon flagship heart medication showing no statistical benefits.
  • While employed at American Pharmaceutical Partners, Yordon and other senior management were sued for making misleading statements about the prospects of an anti-cancer drug.
  • While director of Sagent, shareholders sued the company alleging that the board and its advisors failed to negotiate a fair deal for the company’s shareholders in a sale; agreeing to certain terms which only benefitted management.
    • Yordon was CEO at the time of the engagement of the company’s investment bankers and establishment of the board’s “strategic committee” to evaluate such decisions.

We have already highlighted management’s involvement in Sino Forest, GCL Silicon/Poly, Suntech, Chelsea Therapeutics, the world’s largest illegal taxol smuggling operation, and now LyphoMed, Gensia and Sagent. It is mind blowing that Athenex would continue to associate with any one  of these farces, let alone a collection such as this.

In light of all of the issues and questions Viceroy have highlighted, it is also alarming to shareholders that Athenex have not addressed a single point, opting instead to simply state we have published “inaccurate information”.

Where are the inaccuracies, Athenex?

Viceroy remain short Athenex.

A link to Viceroy’s previous reports are as follows:

Report 1: https://viceroyresearch.org/2019/10/22/athenex-too-little-too-late/

Report 2: https://viceroyresearch.org/2019/10/23/athenex-where-theres-smoke/

Report 3: https://viceroyresearch.org/2019/10/24/athenex-no-integrity/

Report 4: https://viceroyresearch.org/2019/10/25/athenex-bonus-round/

Report 5: https://viceroyresearch.org/2019/10/28/athenex-rehash/

Athenex – Rehash

Athenex recycle press releases to pump investors. Viceroy release details of further conflicts with Athenex CROs.

REPORT DOWNLOAD LINK

October 28, 2019 – This report will continue to touch on major Athenex conflict of interest issues.

  • In another slap to the face for invetors, Athenex, instead of addressing any of the major issues Viceroy have put forward, have chosen to instead re-publish a press release from March 4, 2019, marketing the results of topical medication with their project partner, Almirall.
  • In case the connections to fraud were not already apparent, Almirall has recently settled a $3.5m Department of Justice and $3.1m California Department of Insurance claims relating to kickbacks and bribery of physicians for the promotion of their product. Athenex aim to use Almirall for their vast sales network.
  • Viceroy today release data showing PharmaEssentia, Athenex CRO, is also a related party. To recap, all three major Athenex CROs have an interest in the approval and ongoing success of the products they are conducting the trials for, as we have previously reported on CIDAL and ZenRx.
  • Athenex CEO Johnson Yiu Nam Lau is a busy man, moonlighting at yet another anti-cancer company, Taiwanese comapny Taivex Therapeutics. Investors should be asking what Athenex’s Chief Executive Officer is doing at another anti-cancer biotechnology company, especially if he finds the time to be credited in numerous academic papers sponsored by that company, and what possible conflicts of interest may have arisen.

 

We conclude that Athenex exists to abuse capital markets and enrich its management through related party transactions and licensing deals, rather than bring revolutionary drugs into the market.

Viceroy value ATNX stock at US$2.83 – a 71% downside –the sum of its tangible book value and 1x valuation on its licensing & consulting revenue streams, for the year ending June 30, 2019. With ATNX’s questionable license acquisitions and management’s precedent for overstated top line figures in previous ventures: this is optimistic.

 

Viceroy remain short Athenex.

Athenex – Bonus Round

Buffalo Soldiers vs the system, and a  summary of Viceroy’s reports this week.

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October 25, 2019 – This report serves as a summary to Viceroy’s work over this week, alongside data we have collated on Athenex’s dealing with the NY State Government

The Buffalo Billion is a commitment to the Buffalo, NY area to create jobs, spur investment and promote economic activity. The ambitious plan was committed to by New York governor Andrew Cuomo and first announced in the 2012 “State of the State” address.

The company’s response to Viceroy’s research is a further slap in the face to investors: the company has failed to address a single issue highlighted in any of our reports:

  • Where are the purported inaccuracies” in Viceroy’s reports?
  • Did managements/directors transactions, netting Directors millions of dollars of shareholder capital, not occur?
  • Were Athenex’s management team not involved in Sino Forest, Suntech, GCL Silicon/Poly, China Lumena?
  • Are Athenex’s Oraxol clinical studies using the current USA standard of care for its control base? If not, how can this ever be commercial?

Athenex has called out Viceroy as inaccurate, but have failed to identify a signgle inaccuracy in any of our reports.Viceroy remains short Athenex with high conviction. The number of red flags uncovered within the business and management team surpass any other company we have previously analyzed purely within data sourced from the public domain.

We reiterate our target price of US$2.83, now representing a 75% downside, and will continue to keep investors informed through further reporting.

We conclude that Athenex exists to abuse capital markets and enrich its management through related party transactions and licensing deals rather than bring revolutionary drugs into the market. This activity is carried out through overpromising the prospects of its flagship drug Oraxol and its purported “supply-chain” businesses like Polymed.

Athenex is a perfect storm of investor deception, insider enrichment and clinical trial risks. Investors should demand a full investigation of the issues discussed within this report: we are confident there is more to this story given how much was available purely through the public domain.

In light of the data Viceroy have presented, shareholders must question managements’ corporate governance and protect their rights through independent investigations.

Report 1:

https://viceroyresearch.org/2019/10/22/athenex-too-little-too-late/

Report 2:

https://viceroyresearch.org/2019/10/23/athenex-where-theres-smoke/

Report 3:

https://viceroyresearch.org/2019/10/24/athenex-no-integrity/

[1] https://buffalobillion.ny.gov/about-buffalo-billion