RE: last april's run-up | departing director saleMasters must have had really hungry school kids…who are probably really fat by now.
What value did he bring to the company to justify those very profitable options?
Did he suggest that all management be rewarded with low priced options for the great contributions they’ve made to the "proof of concept”, er, clinical trial program?, did he recommend that the Cdn glio trial design include injection as opposed to infusion?, did he suggest that the ph II prostate trial be halted after 6 patients because the results were good? Did he suggest Thompson use a hedge fund for financing instead of an institutional investor with a likely longer term time horizon?
These guys remind me of pigs lining up at the trough gorging themselves, while the development of the science comparatively starves.
Thompson spoke at INVNW about the huge amount of pre-clinical trial work they did with NIH/NCI to prepare for upcoming combo therapy trials, his remarks could even have been interpreted as taking a shot at the NCI for allowing others to conduct combo therapy trials with little pre-clinical work.
yet lets look at some numbers to see if he put actually put onc (ie shareholders) money where his mouth was...
From the Sep/04 3rd qtr report, Pre-clinical trial expenses and research collaborations totaled $735,461 for the first 9 months ($238,316 for the same nine months in 2003) or about 13% of total R&D expenses (Manufacturing made up about 60%)
In their 3rd quarter report, Oncolytics states
“Pre-clinical costs include toxicology studies and are incurred by the Company in support of expanding its clinical trial program into other jurisdictions and other applications. Research collaborations are intended to expand the Company’s intellectual property related to reovirus and other viruses and identify potential licensing opportunities arising from the Company’s technology base.”
- judging by the breakdown in other quarters, research collaboration represents 3 to 4 times the amount spent on pre-clinical work - so pre-clinical expenses for the first 9 months would likely have come in at at about $150,000 (or about 25% of masters' profits on his options).
from the 2004 annual report, R&D expenses totaled $7,107,998 – interesting that Note 9, which is supposed to provide a reference to further details regarding this amount (like the quarterly reports do), refers to obligations assumed from SYNSORB and cancellation of the royalty with a founder. Looks to me like Doug wasn’t on the Ball again, or perhaps he was just too busy conceiving patentable ideas for the reovirus to justify his bloated options!)
if we take 13% of the $7M R&D costs, we get about $900K in preclinical trial and research collobaration expenses for 2004 or about 1/3 the amount they spent on STOCK BASED COMPENSATION (which doesn't include masters' gorging).
in first quarter 05, onc spent an earth-shattering grand total of $52,767 on pre-clinical trials, LESS THAN 10% of what they spent on SALARIES and other office expenses. Research collaborations totaled $183,423
in the 1st quarter report, oncolytics states.
The Company incurs research collaboration expenses as it continues to investigate the interaction of the immune system and the reovirus, the use of the reovirus as a co-therapy with existing chemotherapeutics and radiation and the possibility of new uses for the reovirus in therapy.
I find it curious and interesting that they seem to change their explanation of what constitutes pre-clinical expenses and research collobaration expenses in the 1st quarter from the 3rd quarter report – and don’t provide any breakdown of total R&D in the 2004 annual report Note 9. (interestingly, but not surprisingly, they do have a detailed breakdown of stock-based compensation in the annual report to try to “justify” the outrageous options.)
Their numbers should be comparative from quarter to quarter and year to year, yet they keep changing how they are categorized and disclosed – perhaps wanting to obscure how little is actually spent on clinical & pre-clinical expenses, especially compared to manufacturing, compensation and public company expenses?
as for manufacturing, here is what the 3rd quarter F04 reported the following: (scroll down)
| R&D Expense Components |
2004 |
2003 |
| Manufacturing & related process development |
$3,339,895 |
$1,112,598 |
| Clinical trial expenses |
$436,542 |
$56,703 |
| Pre-clinical trials & research collaborations |
$735,461 |
$238,316 |
Total estimated manufacturing expenses for 2004 was about $4.2M, then add another $750K for the first 3 months of 2005
They have spent $5M to produce reovirus for perhaps 25 clinical trial patients that their Cdn glio & UK systemic trials have treated over the past 12+ months? That works out to about $200,000 per patient, or about 200 times their estimated revenue per treatment!!!
How does that jive with this statement in their Feb 2003 release announcing
Completion of Manufacturing Process Development for REOLYSIN®
“As an example of the productivity of the manufacturing process, with a single dose of REOLYSIN® presently expected to be from 109 to a maximum of 1010 PFUs (plaque forming units – a measure of live virus particles), each litre of primary cell culture could produce 100 to 1,000 doses of this purified final product. Oncolytics has filed selective patent applications with respect to the new manufacturing process.”
given the pace of enrolment in their proof of concept, er i mean clinical trials, the manufacturing expenses are off the charts and questionable (and if there was some extended benefit to these process development costs beyond 12 months, the amounts should be captialized, not expensed.)
Does Thompson actually think that a serious analyst he was presenting to isn’t going to find this obvious inconsistency between what the numbers say and what he said about the huge amount (though surprisingly “cheap”) pre-clinical work they do?
Is this perhaps why these analysts didn’t go run out and put in their buy orders at these amazing “bargain” prices?
Meanwhile, Masters made more in 3 days of exercising his options and immediately turning around and selling onc shares than what onc spent on pre-clinical work in all of 2004? (perhaps he knew a little more than BIOEYE & friends were “sharing” with message board readers?)
Management is fattening themselves up at the expense of the serious development of the science, RAS active cancer patients and shareholders. if reovirus is as safe and effective as many believe, managements failure to advance it as a treatment while fattening themselves up despite their failure is appalling.
It is time to bring accountability to Thompson & co., since they obviously can’t and won’t be accountable to shareholders otherwise.