The hedge fund manager Neoprobe Corp. (NYSE Amex:NEOP) investors love to hate isn’t eager to take credit for the cancer diagnostics company’s free-falling stock price.
But the fact remains that Dublin, Ohio-based Neoprobe’s shares are down 40 percent since short-seller Martin Shkreli of New York-based MSMB Capital began agitating about his concerns over the design of clinical trials for the company’s radiopharmaceutical, Lymphoseek, which is used by surgeons to identify lymph nodes in patients with breast cancer or melanoma and to indicate whether cancer has spread to a particular lymph node.
Prior to Shkreli’s steady drumbeat of skepticism, Neoprobe’s shares had rocketed up a stratospheric 166 percent on the year — in just five months.
The stock hasn’t gone down because of one man’s opinion; it’s gone down because of the facts,” said Shkreli. “It had nothing to do with me. Perhaps I began the process of helping people realize Neoprobe’s stock was overvalued.”
Neoprobe and its army of retail investors probably wouldn’t buy that line of reasoning.
On May 31, Neoprobe’s shares closed at $5.48. Shkreli first took his grievances about the clinical trial public in a blog post at Seeking Alpha on June 1. He followed that a week later by filing a citizen’s petition with the U.S. Food and Drug Administration that asked the agency to deny Neoprobe’s request for a regulatory review of Lymphoseek, which the company is expected to file in the coming months.
Yesterday, the stock closed at $3.35, a 39 percent drop from its May 31 close. That share-price decline reduced Neoprobe’s market capitalization nearly $200 million to $291 million, based on the company’s 87 million shares outstanding.
But if Shkreli can really be considered to be correct about Neoprobe, the stock will have to tumble a lot farther. He puts its fair value at a lowly 50 cents.
Aside from several big complaints about the Lymphoseek clinical trials’ design, Shkreli argues that Neoprobe misinterpreted the message from a meeting with the FDA, is overstating the market potential for the drug and fudged the data from the trial.
Neoprobe has vigorously defended itself by explaining its rationale behind the design of the trials and called Shkreli’s petition “baseless and replete with factual and regulatory misstatements, served under a cloak of legitimacy.” (Neoprobe officials declined to comment for this article.)
Shkreli retorts, “I’m trying to do investors a favor by explaining the risks.”
Alas, Neoprobe’s investors likely wish Shkreli would keep his favors to himself, and more pointedly, shut up and go away. Neoprobe investors who congregate on message boards argue that, in shorting Neoprobe, Shkreli’s agitation is aimed at trying to manipulate the stock price for his own personal gain and that he’s taking advantage of smaller investors who don’t have institutional clout. In addition to writing extensively about Shkreli’s past, posters at InvestorsHub have attempted to organize a “social network hedge fund,” and have endeavored to poke numerous holes in Shkreli’s valuation of Neoprobe, including that he fails to account for the value of the company’s second expected product, another radiopharmaceutical targeting agent called Rigs.
The Shkreli-Neoprobe affair highlights the inherent tension between institutional and retail investors. With his blog analyses and status as a hedge fund manager, Shkreli casts the situation as him dropping some pearls of wisdom on the great, unwashed message board masses. “It’s sort of an exercise in helping people understand how a hedge fund thinks about investing,” he said.
Retail investors, though, think Shkreli is merely trying to screw over the little guy who’s put his hard-earned nest egg into a promising and largely overlooked company. They’ve parked their cash in Neoprobe, seen the company hit numerous milestones, salivate at the thought of Neoprobe being acquired for buckets of cash by a big player like Cardinal Health — and are confident the tiny Dublin, Ohio, company will get there. (Along with that optimism is the expected mix of nervousness and hand-wringing you might expect, such as one investor who complained, “I have been in a losing position with it from the first day I bought it on my neighbors advice for almost 7 weeks and it doesn’t make me feel good.”)
But Neoprobe’s retail-investor army probably won’t take much solace in the fact that Shkreli says the company’s plummeting stock has nothing to do with him.
“There’s a lot of shoot-the-messenger activity going on, but in reality the stock’s going down because the company’s got some pretty serious problems,” Shkreli said. “It’s not a bad company; it’s simply a stock that’s not trading at what it’s worth.”