Thursday, January 10, 2008

CellCyte's Wild Ride

Several newspaper articles in the last month chronicled the wild ride of a tiny biotechnology company called CellCyte Genetics. CellCyte's web-site claims it to be "an emerging biotechnology leader focused on the development and commercialization of breakthrough stem cell-enabling therapeutic products." A somewhat different story was first told in the Vancouver Sun by David Baines:

CellCyte began as a nondescript Vancouver exploration company called Shepard Inc. The two senior officers were Michael Eyre, owner of a Richmond car dealership, and Glen Macdonald, a Vancouver geologist who is actively involved in creating shell companies.

The company, with the help of Vancouver chartered accounting firm Morgan & Co. and Vancouver geologist Bill Timmins, filed a registration statement with the U.S. Securities and Exchange Commission in 2005 as a prelude to trading on the OTC Bulletin Board.

It was difficult to believe this was an earnest business endeavour. Shepard had only one mineral claim in the Northwest Territories, costing just $2,500. By all appearances, it was being created for some ulterior purpose.

Sure enough, in January this year the company announced it would acquire CellCyte, a Kirkland, Wash.-based company 'engaged in the discovery and development of breakthrough stem cell enabling therapeutics.'

In June, CellCyte -- with the help of filing solicitor Thomas Deutsch of Vancouver law firm Lang Michener -- filed a disclosure statement showing, among other things, that one of its major shareholders was Newport Capital Corp., a Zurich company controlled by Brent Pierce, who is currently serving a 15-year stock market ban in B.C. for fraud.

For years, Pierce has been able to tip-toe around his ban by promoting U.S. over-the-counter companies like CellCyte -- which are not B.C. reporting issuers and therefore outside the jurisdiction of B.C. securities regulators.

His other promotions have included Lexington Resources (high $7.46, now one cent); Uranium Energy (high $9.25, now $3.30); Morgan Creek Energy (high $5.40, now 30 cents); GeneMax (high $47, now 21 cents); and Geneva Gold (high $3.50, now $1.50).

Now Pierce is focussing on CellCyte. In October, he hired U.S. pen-for-hire James Rapholz to tout the stock:

'Now, a practical 'pill-in-a-bottle' application puts the miracle of regenerative medicine within immediate reach!' Rapholz gushed in a 12-page report.

At the time, the stock had levitated to $5.70, but he clearly expected much more: 'Invest just $5,000 now . . . and you could have $7 million.'

To produce and distribute this piece of hysteria, Pierce (through his private company, Stockgroup AG) paid Rapholz a stunning $445,000.

The story was then picked up by the Seattle Times. Its reporter, Angel Gonzalez, also found out that,

CellCyte's auditor also has regulatory issues. Just months after the firm, Williams & Webster of Spokane, signed off on CellCyte's 2006 financial statements, the national Public Company Accounting Oversight Board in June took the unusual step of barring one of its two name partners from associating with any accounting firm, and suspended the other for a year, over inadequate scrutiny of a different public company.

At that point, Ed Silverman began a post on the story on the PharmaLot blog with this introduction, "This is the sort of tale that gives biotech a bad rap, in our view." (Predictably, an anonymous commentator on that post claimed, without documentation, that Angel Gonzalez based the whole story on the ramblings of a disgruntled former employee, conveniently ignoring the Vancouver Sun version.)

Yesterday things came somewhat unglued. Angel Gonzalez again wrote in the Seattle Times,

Shares in fledgling biotechnology company CellCyte Genetics, whose market value soared to more than $400 million last fall after being hyped by offshore shareholders, plunged 55 percent Monday and Tuesday in heavy selling.

The sharp drop coincided with changes made on the company's Web site after The Seattle Times inquired late last week about the accuracy of statements in the biography of CellCyte chief executive and co-founder Gary Reys.

Claims removed from the Web site include statements that Reys had led his previous company 'from conception to early human clinical trials in 18 months,' and that he had helped an early generic pharmaceuticals company through an initial stock offering and a sale to a drug-industry giant.

Reys said any inaccuracies in his profile were unintentional.

But other misleading statements remain on the company's site and in the filing it made with the Securities and Exchange Commission to begin trading its shares.

• Both documents state that he 'attended the University of Washington and majored in finance.' According to university records, however, he enrolled in autumn 1965 and withdrew within weeks; he did not receive any credits toward a degree.

• Both documents say Reys received a 'CPA designate,' and until late last week the Web site said he was a past member of the Washington Society of Certified Public Accountants. But the Washington state Board of Accountancy says he is not registered as a certified public accountant, nor does it have any record that Reys took the CPA test in the state.

As was noted widely in the news, a Health Affairs article (see this Health Affairs blog post and its links) documented that US health care spending now exceeds $2 trillion dollars. The enormous flow of money through health care seems to be attracting far too many people who are more interested in money in their own pocket than the serious business of helping patients get better, or at least better endure their illnesses. This depressing little case of a company that seems to be operating in the Wild West of health care is a sobering reminder of why we need to be skeptical of all those "innovative entrepreneurs" who have invaded health care and medicine.

But let's hope that all this is merely a flash in the pan, and CellCyte ends up producing some wondrous applications of "regenerative medicine."

No comments: