AFR journalist makes off the cuff remarks without rhyme or reason
It's easy to make sensationalist headlines such as this. To make flippant comments online, without the need to expand on them in greater detail. Unfortunately, or at times fortunately for those involved, these loose comments can materialise into financial outcomes when they are attributed to investments. Therefore the integrity, or at times lack of integrity of those making the remarks, is of utmost importance, if those reading them may in fact rely on them when making investment decisions.
Recently a financial journalist at the AFR Tom Richardson, cast dispersions on the valuation of a stock I often write about, Imugene (IMU). In doing so his comments have been brought to my attention. Tom, by way of background formerly wrote for Motley Fool, a site not immune to headlines either. How the Motley Fool site works is, (for those not in the know), they post sensationalist headlines as well, such as, “Three words the IRS doesn’t want you to hear” followed by “How a secret Reagan era tax loophole lets three energy companies pay out super dividends.” At the bottom of the article there is more than likely to be a link leading to five energy related stocks they recommend. It's an age old formula. Like me writing, “Warren Buffet said It’s not until the tide goes out you realise who is swimming naked," followed by a link to an article an analyst mate of mine might have written on “Five value stocks to protect you against the upcoming stock market crash”. Journalists follow this formula all the time. I might write the catchy headline “Western Sydney lives matter protest gains traction," then quote two or three tradies in Western Sydney who state they are willing to protest against the lockdown, and all of a sudden I have half my readers thinking the majority of Western Sydney is about to revolt.
This week Tom Richardson’s AFR headlines took the shine off the ASX listed Archer Materials, when they wrote, “The group’s crazy $655 million valuation may be a standout, but it’s not unique as meme-stock valuations mushroom across the sharemarket thanks to their popularity on meme-infused message forums such as Hotcopper.” Archer Materials took umbrage to the AFR article stating that the term “knocked back," used in the article, implies its application for a recent patent had been rejected.
That’s not the case, said Archer in response: “The patent application has not been rejected and it is still active. The formal term for the status of the 12CQ chip related patent application in Australia remains filed and, importantly, the patent application has not lapsed and has not been refused.” Archer went on to say, “It is not unusual for patent examiners in different countries to issue examination reports and request clarifications and additional information.” The AFR article then noted “one of just three directors, Alice McCleary resigned on July 29 and was listed on June 17 as owning 3.87 million shares after acquiring an additional 1.17 million via options.” At the time I identified with some of the Hot Copper comments relating to the article as they posted :
"Tall Poppy Syndrome? The authors time would have been better spent reading a few annual reports and the latest company announcements, maybe then they would have bought some shares and been in a happier place today.”
Unfortunately for Archer, and those invested in the stock, it was all to late, the stock fell 15% on Friday. No-one was interested in what the company had to say, they bought the headline. But Motley Fool had another headline as a result “Why the Archer Materials (ASX:AXE) share price is plunging 15% today” followed by “Securing intellectual property patents can be highly lucrative, when successful.” And so the media circus continued on its merry way.
But Tom’s article this week didn’t stop with Archer, he was making a broader statement through the headline “Meme-stock fever spreads to more companies on ASX," by suggesting “The young investors who are part of this new wave prefer to conduct research on Reddit, Facebook, TikTok and Twitter, and speculate on stocks they expect to rise, without any reference to fundamentals.” The only problem being that his article, (like those posted by him before on Imugene), were not written purely based on fundamentals. As one Hot Copper member noted in response to the article “How is Archer a meme stock that is popular on message boards? It has been a quiet achiever. There are no teenagers pushing up this SP for shits and giggles. It just is not true. There's nothing meme worthy or funny about Archer.. It's just a good investment.”
Richardsons article endeavoured to wrap Imugene (IMU) into this Meme Infused fever by saying, “Meanwhile, Paul Hopper’s biotech hopeful Imugene is worth $1.6 billion, despite not having a product candidate at the phase III clinical trial stage.” A quick look at the Imugene share register would negate the “meme fever debate” notion when one discovered BlackRock Fund Advisers, Vanguard Investments, Credit Suisse Asset Management and The Vanguard Group were leading the Imugene share holder registry. For to assume Black Rock and Vanguard, the two leading investment management firms in the world undertake their market research based on Reddit and TikTok is pure folly, if not incredulous. But once again, if he wrote the headline “World’s leading fund managers invest in Paul Hopper led Imugene," it probably wouldn’t lead to an increased following on his twitter or other social media handles. A pay rise from the AFR, needless to say a promotion, may not be in the offing. For his following is built, as we note from his lessons learned from his time at Motley Fool, on the premise “The local share market remains lightly regulated and there are plenty of unscrupulous listed operators using it as a vehicle to fleece investors.”
Therefore rather than write about Paul Hoppers decade long sabbatical spent honing his biotech craft in the USA, visiting countless hospitals and engaging valuable medical professionals, it's much more his style to turn to Hoppers personal transactions. Richardson did this on May 27, in his article with the again sensationalist headline “Imugene’s 2.3 bn valuation raises eyebrows” noting the fact that Hopper exercised 25 million options at about 4¢ each at a cash cost of $1.07 million and that last December Hopper entered into a funding arrangement for “taxation and investment commitments” with an investment bank secured by 107.2 million shares.” For Richardson, having written at the time about Imugene’s other directors Lesley Chong and Charles Walkers share activities, freely admits “‘Stock promotes’ or ‘stock pumps’ are the oldest trick in the share market book that have fleeced speculators for hundreds of years. They play on greed, laziness, and those wet behind the ears.” At the time Tom in no way I’m sure sought to call into question the Imugene directors actions, far from it. Yet to the naked eye one could possibly imply the directors of Imugene make an announcement, such as the acquisition of an Oncarlytics platform, pump the stock up, only to sell shares and realise profit at the whim of unsuspecting investors who are “wet behind the ears”. For what Tom didn’t write at the time, was that these same directors have invested the majority of their time and wealth into Imugene. And by the way his recent article falls short of accusing the Black Rock and Vanguard Investment managers of being “wet behind the ears”. That may be a bridge to far for even his readership.
Tom Richardson of the AFR, or @Tommy345 as he calls himself on twitter, appears to have a real “B” in his bonnet about penny dreadful stocks. It seems to really irk him that companies without sales such as Archer and Imugene can have valuations that have multiplied exponentially in recent times. But a quick look at the share market highlights sales don’t always equate to valuations. Markets are all about perception. Let me give you an example. When I was in Europe in 2017 at an IT Conference there was a stand at the conference entitled Bitcoin. I started talking to the Bitcoin representatives and they suggested to me retailers and businesses would one day be using Bitcoin, or paperless money, as opposed to cash and tangible currency, to transact business. Bitcoin was worth about $900 USD in that year. I remember coming back to Australia and telling friends about it and they looked at me like I had the measles. Now its value is 50 times that figure. Why? Because the market perceives one day crypto currency shall take the place of traditional currency. No, the banks and large financial institutions don’t like it. They are going to do everything they can to slam cryptos, in much the same way traditional paper journo’s enjoy slamming internet sites such as Hot Copper and Reddit, but the reality is the internet is here to stay. And often, as is the case with Bitcoin, market valuations equate to an investments potential, as much as its sales. Particularly today in a low interest rate environment where investors are searching for growth. Look at the internet URL cars.com, as an example, it sold for $872 million USD, and it hadn’t turned a key. As was the situation with Tesla in its infancy. Or what about a famous penny stock Apple. All stocks have to start somewhere. Another example, Moderna the COVID 19 vaccine provider, isn’t forecast to increase in value based on sales its making today, it is forecast to increase in value as the market anticipates increased numbers of COVID vaccines and booster shots are going to be required well into the future.
But back to Imugene (IMU), the multi bagger who Richardson referred to on May 27 as having that many stocks on issue that you can throw them around like confetti. Investors in Imugene know and have been made well of the fact the stocks flagship drugs may never realise any sales under the Imugene banner, or indeed reach Phase 3 Clinical trials under their guise. Paul Hopper, their Chairman noted as late as last week on ASX Investor in a YouTube interview entitled “ASX Biotech: Understanding The Biotech Space With A Leading ASX Chairman/Entrepreneur," that he was not in the Biotech Industry to take drugs past Phase 2 trials, toward sales. That he did not want to be responsible for 100s of sales people running around to countless hospitals and pharmacies in the US, as “Big Pharma” was much better placed to perform that task. Just as they, Big Pharma, were better equipped to conduct Phase 3 trials, in which hundreds of patients and millions of dollars were required to take drugs to market. Like Viralytics, the company he took from a 3 million dollar valuation to approximately $503m (when sold in 2018 to Merck), Imugene's cancer drugs are on the shelf to be licensed or bought out by Big Pharma when their Phase 2 results are realised. And given the safety and efficacy of their B cell platform drugs, Her VAXX, and PD1, these drugs are in the frame to achieve a tidy sale value in a biotech market eager to secure immunotherapy vaccines with long patent lives. Big Pharma themselves are searching for drugs to combine with their existing drugs. Cancer drugs that can compete with current market leaders such as Keytruda and Herceptin, their existing cash cows.
And even if the B cell platform does not come to fruition, and existing trials take a 180 degree turn and fail, the Imugene valuation is still well supported given its “large number of shots on goal,” as their CEO Lesley Chong notes. The recent FDA approval of their blockbuster oncolytic virus CF 33, exemplifies the professionalism of the valuable team assembled by Hopper, to tackle not just blood cancers, but the holy grail of solid tumours in cancer. As the majority of Imugene investors are well aware, CF33 already has a huge following in the lucrative biotech space, with its inventor Yeoman Fong being touted by some as medical innovator of the year, for his success with CF33 in preclinical trials. Once the first patient at Imugene is dosed with CF33 the stock is sure to move far above recent market valuations, as Big Pharma throws its comb over the clinical trial data, in much the same way ASIC scrutinises the market movements of companies in the AFR articles penned by Richardson.
Yet the purpose of this article is not to lambast, criticise or cast dispersions over Richardson, the AFR or indeed Motley Fool. The points Richardson makes are more often than not valid ones. Directors do need to be held to account. In the Imugene situation director shares have been sold at much higher values following announcements, than where the stock sits today. To the naked eye the valuation at Imugene does appear somewhat high. That is without looking closely at the current biotech market fundamentals and extensively analysing recent IMU clinical trial data, as many erstwhile Imugene investors have taken the time to do. My point in writing this article is that when writing on matters financial headlines may not tell the full story. Just as the sensationalist headline to this article does not paint the full picture. I am in no way insinuating AFR journalists write and make assumptions without rhyme or reason. Yet could the headline imply that fact? Maybe they could. Journalists such as Richardson at the AFR, and indeed Motley Fool have a place in the investment space. He is correct in assuming that many penny stocks fail. That without sales your company could well be dead in the water. That for every Novavax, which has risen 3,290% just this year, there are countless biotech failures. That it’s much safer to invest in value, or even hybrid stocks which combine income first, growth second management strategies. However if you are going to lead with a sensationalist headline, you, in my humble opinion, owe it to your readers to dive a bit deeper into the fundamentals surrounding the headline. As many investors either don’t do, or have time to do all the homework. They aren’t all paying AFR and Motley Fool subscriptions, they’re merely making uneducated investment decisions based on the headlines. They aren’t too interested in what the company has to say after the headline has been written, all they see is the headline.
Oh speaking of headlines, I just thought of a headline I could fire out of my Tommy gun (great Clash song btw) for my next article.
“Is Imugene the next Novavax?”
Any takers?
Nb: Do your own research. Investment decisions should be made based on an extensive analysis of all the risks associated with the stock and or investment being considered. These opinions are the writers honest opinions and are not intended to harm, prejudice or assume malice against any individual or company noted herein.
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