IN THE MONEY: Endovasc And Its Friends In High Places
By CAROL S. REMOND
A Dow Jones Newswires Column
NEW YORK -- When you're a little guy, you often gain credibility when you hang around with the big boys.
Such is the case with Endovasc Ltd. Inc. (ENVC), a tiny development-stage Texas biotechnology company that recently trumpeted its relationship with a Fortune 500 company, an international drug maker and an Ivy League college.
But as it turns out, those relationships aren't exactly as the company describes them.
And when it comes to things that aren't exactly what they look like, investors may also want to check out a recent appointment to Endovasc's audit committee, which was retracted late Tuesday.
Last summer, the company said it would name independent members to its audit committee. But one of the people it named to the committee is a newsletter publisher who has been recommending the purchase of Endovasc's shares. Oh, he owns the stock, too. Independent?
To be sure, investors should have at their fingertips plenty of information that tells them to proceed with caution when it comes to Endovasc's stock. For starters, the company's auditors have issued going concern statements. It did a reverse 40-for-1 stock split to boost its share price. Even at that, the stock trades today around $1.76 a share.
Endovasc's latest quarterly filing with the Securities and Exchange Commission on Nov. 19 shows that the company had a meager $19,000 in cash and short-term investments at the end of September while it burned through $42,000 in the third quarter alone. The company is testing two drugs not yet approved for marketing by the Food and Drug Administration. So far, it accumulated $12 million in deficits since its inception in 1996.
Which is why partnerships with big name institutions become important to companies looking to make that big breakthrough.
Endovasc's stock rose to more than $3 from $2 a share earlier this month after the company announced it teamed up with Philip Morris to finance a study of one of its drugs, Angiogenix.
But Philip Morris (MO) sees it differently. A spokesman for the food and tobacco giant said the agreement is for one of the many research grants it gives out to support studies on the health effects of tobacco. The spokesman said the grant isn't, as Endovasc described in a Nov. 6 press release, a specific agreement to study "the potential for broad practical use of Endovasc's nicotine-based heart treatment, Angiogenix".
But you can't really blame Endovasc for its enthusiasm about the renewal of a one-year grant first secured in March 2001. Endovasc's annual report shows that the $512,000 granted last year, out of a total $700,000 award, represented 77% of the company's sales for the fiscal year ended June 31, 2002. In the third quarter, 46% of the company's revenues came from the renewal of the Philip Morris grant.
Columbia University also takes issue with Endovasc's press releases when it comes to the results of a study of Angiogenix conducted by one of its researchers.
"We have some concerns about the way they interpreted the results of the study," said Glenn Peterson, associate vice president of communications at Columbia University's Heath Sciences Division. Peterson said Columbia first asked Endovasc to correct a press release about the results of the Angiogenix study in late July. Now, Columbia is asking for a retraction of comments made in releases issued Oct. 28 and Nov. 6.
"Columbia demands that Endovasc immediately issues a press release retracting in full its prior press releases regarding the erroneous characterization and description of Columbia's research and issue a clean statement which actually sets forth the preliminary nature of such research," Peterson said.
Endovasc may have been a little overzealous earlier this month when it said it terminated discussions with major drug company GlaxoSmithKline PLC (GSK). A spokeswoman for Glaxo said Endovasc and Glaxo spoke very briefly. "We get calls from thousands of individuals and companies with products they feel are worthy of development. In the end we do very few deals," she said.
Endovasc's chairman and chief executive David Summers said that the company's media representatives "got ahead of us on some of the press releases." Commenting on the Philip Morris release, Summers acknowledged "that the press release should have been worded better." He said Endovasc and its lawyers are working to find a statement acceptable to both Endovasc and Columbia. Summers said Endovasc was contacted by Glaxo. "They contacted us through an individual (Reuben Bakst) that said he represented Glaxo," he said. Summers said he sent information to Glaxo about his company's stem-cell research, at Glaxo's request, and got a reply saying that Glaxo wasn't interested. "We decided to terminate any further discussion with them," Summers said.
As it turns out Endovasc isn't alone in aggressively marketing the potential of the company.
James Dale Davidson , one of the company's newest board members, has taken a liking to Endovasc and promotes the company's stock in the October and November issues of the Vantage Point Investment Advisory.
In his November newsletter, Davidson praises Endovasc's achievements and reiterates his "optimism that Endovasc could multiply in value many times over."
Davidson , who is the founder of Baltimore-based newsletter group Agora Publishing, first told his readers in October that he strongly recommended Endovasc "because I am impressed with the creativity and intelligence of its resident genius Dr. Summers."
Davidson also tells the 9,000 subscribers of Vantage Point that he has a significant personal holding of Endovasc stock, although he doesn't say how much, and serves on a committee of the company's board.
It's hard to tell what "significant" means when it comes to Davidson's Endovasc holdings because he hasn't filed any filings with the SEC about his holding of the company's stock.
Summers said he didn't know that Davidson was a significant shareholder when he appointed him. Summers, who said that he was aware that Davidson mentioned Endovasc in his newsletters, said that "If there is a conflict of interest, I'll remove him from the board."
(After inquiries about Davidson's role with the company earlier this week, his appointment was rescinded by the board. That disclosure was made in an SEC filing late Nov. 19)
By the way Davidson leaves an interesting point out of his glowing endorsement of Endovasc. Although Davidson proudly refers to him as "Dr. Summers" in his newsletters, Davidson doesn't tell his subscribers that the Endovasc chief officer got his doctorate degree on the Internet from Kennedy-Western University, a non-accredited university licensed to operate in the state of Wyoming.
Summers said Kennedy-Western was accredited in the state of Idaho when he got his degree in 1982. "It wasn't Harvard or Princeton but I learned a lot. I never made any representation other than I got a Ph.d. from Kennedy-Western," the chief officer said.
Meanwhile, the company has been doing battle with short sellers.
Following an attempt two years ago to use highly dilutive financing, Endovasc is currently embroiled in a lawsuit with short sellers. The company accuses former investors of making illegal profits by forcing Endovasc to convert preferred stock into common shares, which were then used to cover short positions, according to a suit filed in September in the U.S. District Court for the Southern District of New York.
Endovasc hired Atlanta-based financial firm J.P. Turner & Co. LLC back in 2000 to facilitate the placement of $4.5 million in convertible preferred stock along with a $15 million equity line of credit.
An attorney for Balmore Funds SA and Celeste Trust Reg, two defendants in Endovasc's suit, said that there is nothing in the agreement between his clients and Endovasc that precluded the two funds from shorting the company's stock.
In a related but separate action brought in the same court, a judge recently ruled in favor of Balmore and Celeste which were suing Endovasc for failing to deliver on requests for conversion. The judge ordered Endovasc to issue 203,314 shares to the funds for failing to previously deliver on conversion notices and to pay the funds' legal bills.
- by Carol S. Remond; Dow Jones News; 201 938 2074; carol.remond@dowjones.com
Updated November 20, 2002 3:31 p.m. EST |
