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Mark Ahn, president and CEO of Galena Biopharma, says the Lake Oswego biotech firm did not know a marketing firm was placing articles online purportedly by individual investors.
(Randy L. Rasmussen / The Oregonian)
A Lake Oswego biotech firm that saw its stock price more than triple since July has watched it plummet in recent days after company insiders -- including directors and officers -- made millions by selling hundreds of thousands of shares.
The stock drop appears fueled, in part, by an online reporter's disclosure of the stock selloff and a marketing campaign funded by the biotech firm, Galena Biopharma. The campaign to woo investors may have crossed a line by not revealing who paid for it, some observers say.
On Friday, Galena published an open letter to investors responding to the criticism.
Media attention "is having an impact on investor confidence," wrote Galena President & CEO Mark Ahn. "Let success or failure be dictated by facts and data, not the questionable logic of a headline-seeking reporter."
Ahn said the selloff by insiders doesn't reflect a loss of confidence in the company by its directors. Rather, they legally could not sell stock for a nine-month period because Galena had been engaged in buying another firm, Mill Pharmaceuticals.
"There are narrow windows when executives and officers can sell," Ahn said, adding that his sale of $2.8 million worth of shares consisted of less than 20 percent of his holdings.
Considering the firm has promoted a potential breast cancer vaccine, the rise and fall of Galena stock has potential significance for the roughly 200,000 women diagnosed with breast cancer each year. It also serves as a reminder for investors seeking stock advice on the Internet: what you read may not be what it seems.
It also shows the tenuous existence of a biotech firm that largely built its profile on an unproven product, the potential vaccine called E75 and since trademarked as Neuvax. Already, a New York law firm has announced it is investigating a potential class-action lawsuit against Galena on behalf of shareholders, and noted that insiders sold nearly $10 million worth of stock in the last two months.
The company's precipitous fall from of high of $7.77 per share one month ago to $3.72 Friday on the NASDAQ exchange appears fueled in part by an article on TheStreet.com that disclosed a Galena-funded web-based promotional campaign.
The campaign resulted in "articles" posted on stock commentary sites, such as Seeking Alpha, ostensibly by individual investors but without disclosing their status as paid promotional material.
According to a document obtained by Adam Feuerstein, a senior columnist for The Street, two Seeking Alpha articles were part of a marketing campaign by a firm hired by Galena called The DreamTeam Group. The marketing firm also published promotional material on other sites affiliated with DreamTeam between early August and late November.
Seeking Alpha has removed the two articles that were authored by the same person using different pseudonyms, said George Moriarty, Seeking Alpha's managing editor. The site removed five pro-Galena posts last month for similar reasons, though Galena's Ahn denies any connection to those articles.
Moriarity said Seeking Alpha contributors are supposed to disclose conflicts and present themselves "in an honest or forthright manner. People who try to skirt and cheat the system undermine those principles. It creates a misleading situation."
Ahn, Galena's CEO, said the company did not intend to mislead investors. He did not know the DreamTeam Group was not disclosing that its promotional materials were funded by Galena. In fact, he said he'd been told DreamTeam didn't write the Seeking Alpha articles. It was "an independent writer," he said.
Investors rely on getting good information and knowing the source of the stock analyses they read, said Bill Parish, a Portland investment advisor and corporate governance activist. He called it dishonest to publish stock analysis without disclosing it was paid for by the firm in question.
Oregon has some of the toughest shareholder protection laws in the country, said Portland securities lawyer Terry Scannell. If the firm did mislead investors, it could face legal difficulties — and so could anyone who assisted in portraying the company in an unwarrantedly positive way.
"To the extent that they had any knowledge to the contrary at all, they're going to be subject to liability," Scannell said.
The two articles linked to Galena highlighted an upcoming summer 2014 announcement of trial results of the potential breast cancer vaccine, results that, if positive the articles state "will likely send shares to new 52-week highs."
Ahn noted that The Street's Feuerstein has repeatedly criticized the firm as more about public relations than substance, but said it's inaccurate. Ahn noted the firm has expanded significantly, begun trial of a new drug and distribution of a cancer pain drug called Abstral. Its level of institutional ownership by large investment houses has more than doubled, to about 20 percent.
Galena has actively guarded its reputation in the courts. In late 2012 it sued a firm that posted an unsigned "article" on Seeking Alpha blasting Galena management and questioning whether its vaccine candidate would work. The firm withdrew the article.
In late 2013, Galena sued the primary inventor of its vaccine candidate, in Oregon federal court, saying Constantin Ioannides' comments on Seeking Alpha that criticized the firm damaged its stock value.
-- Nick Budnick