7.20.11 | Brandon Glenn

Neoprobe: Does stock’s 40% drop validate its biggest critic?

The hedge fund manager Neoprobe (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; its’ 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.”

Brandon Glenn MedCity News

Brandon Glenn is the Ohio bureau chief for MedCity News.

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Tags: Cancer, NEOP, Neoprobe, Ohio, pharmaceuticals, publics

Comments Post a comment

Medical City via its bureau might have served their readers/customers more aptly if they had conducted the slighest bit if diligence relative to Shkreli(admited hedge fund manager with emphasis on shorting stocks). How can any reputable publication can print Shkreli`s argument that NEOP. misinterpreted the FDA`s “message” is? After reading this tripe one is led to believe that Shkreli is communicating with the FDA about
the merits of Lymphoseek. This read is weak and merits no further contemplation.

Comment by RICK DREW — July 20, 2011 @ 5:07 pm

these links from two independent analysts suggest a different view relative to NEOP. Maybe the author of this piece might have been better served, hence; also his/her readers, if more sources were considered.

http://analystupdate11.blogspot.com/

http://neopanalysisbywbbsecurities.blogspot.com/

Comment by Rick Drew — July 20, 2011 @ 6:11 pm

who is MARTIN SHKRELI:more dd to consider that should have been by Brandon Glenn

https://sites.google.com/site/vatsire/Searching-for-Martin-Shkreli

Comment by Rick Drew — July 20, 2011 @ 9:33 pm

Rick-
Let me take a wild guess and venture that you’re long on Neoprobe? If that’s the case, your viewpoint is just as compromised as you claim Shkreli’s is.

I don’t know whether Shkreli’s arguments have any merit. But apparently some investors think they do. Otherwise why would the stock have fallen 40% since he began speaking out?

Comment by Brandon Glenn — July 21, 2011 @ 9:02 am

Glenn absolutely i`m long. where in your article do you write that Shkreli has publicly stated/written he is shorting NEOP. Glenn, where in your piece do you mention numerous, independent analysts actively staking out a diametric(180 degrees) view to Shkreli. did you even consider looking into his credentials or lack thererof. the stock fell(much to my advantage!) because and for the lack of better phraseology, “it got ahead of itself”. personal observation:this piece smacks of lazy journalism.

Comment by rick drew — July 21, 2011 @ 1:53 pm

Glenn… I have to agree with Mr. Drew. You, as a “Journalist”, did a poor job of adequate research before publishing this article. It does not come across as un-bias based on numerous missing but publicly known information. Your recent second article is better written and shows no obvious bias. You may not be bias but after reading your above article, my guess is you are bias against Neoprobe. You may deny that in sincerity but your article reads in a bias against Neoproe and for Shkreli position. To not share his publicly known position is a major red flag and miss if you consider yourself a professional journalist. Hence, lazy poorly written article or possible you have an agenda for Skkreli and/or against Neoprobe. Which??? But IMO, one or the other – poorly written or bias??

Comment by Richard — July 21, 2011 @ 2:17 pm

Shkreli’s intent was to lower the stock price significantly using his tactics and shorting the stock. The was his goal and only goal despite his claims. He claims other reasons to appear to acting in a good sincerely helping manner. But the real truth is…. he shorted the stock, then made a media support negative run at lowering the stock for the purpose of making money for himself and constituents. All other claims are for cover. The truth always comes out and with a proof of all his claims being wrong as Neoprobe moves forward with the FDA process will show his true purpose/goal and the truth. Then I expect you to write an article showing his true goal of telling incorrect information while benefiting with his short position but yet how he told everyone if was to help other investors see the truth about Neoprobe and their Lymphoseek product. Agreed? Thanks!!

Comment by Richard — July 21, 2011 @ 2:26 pm

I called Shkreli a “short-seller’ in the second paragraph.

Comment by Brandon Glenn — July 21, 2011 @ 5:36 pm

I also wrote this later in the piece:

“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.”

Comment by Brandon Glenn — July 21, 2011 @ 5:39 pm

This stock did not go down because of the facts. In fact, every single point Shkreli has made has been proven to be fraudulent. Those who have investigated Shkreli have also found some very disturbing facts regarding his history and his background. Investigations into Shkreli’s conduct and past are ongoing. I happen to know for a fact that my congressman is conducting an investigation into Shkreli.

Comment by dbf — July 22, 2011 @ 3:46 pm