Some Problems With Advanced Cell Technology

April 17. 2014. 3 mins read

In past articles, we have discussed the merits of stem cell research and highlighted companies such as Cellular Dynamics which has a current business model of simply selling fully functioning human stem cells in bulk quantities. One other stem cell company that has garnered some media attention lately is Advanced Cell Technology.

About Advanced Cell Technology

Click for company website

Founded in 1994, Boston-area company Advanced Cell Technology (OTCMKTS:ACTC) is  focused on developing and commercializing human embryonic and adult stem cell technology in the area of regenerative medicine. Just yesterday, the MIT Technology Review published an article on the stem-cell treatment for blindness ACTC is currently testing. The article stated that “although complete data from the trials of ACT’s treatments have yet to be published, the company has reported impressive results with one patient, who recovered vision after being deemed legally blind.” ACTC has a 38-page investor presentation that expounds on their technology, the market opportunity, and the current progress of their pipeline.


While the technology sounds promising, ACTC is an over-the-counter (OTC) stock, and as mentioned in a previous article, OTC stocks merit a great deal of scrutiny as they often tend to lose investors’ money. ACTC’s share price is currently sitting at .0628 per share and with nearly 2.5 billion shares outstanding, this gives the company a market cap of $174 million. As of December 2013, ACTC had $1.7 million in cash, total liabilities of $26.4 million, and an accumulated deficit of $313.8 million. One thing to note in their financials is a steady decline in revenues and hefty operating expenses over time:


 Investors who would have purchased this stock when it began trading in 2005 would have already lost -98% of their investment.


Perhaps the biggest red flags for this company are to be found in the 10-K filed this month which highlights some of the current and past litigation brought against ACTC. During the year ended December 31, 2011, ACTC incurred approximately $52,095,000 in financing costs due to settlements and pending litigation with a group of 40 holders of convertible promissory notes and warrants between 2005 and 2010 who settled with the Company on claims that the warrants they held should have been adjusted due to the investment the Company entered into with JMJ Financial in 2010. In May 2012, the Company was named as a defendant in a civil action brought by the SEC related to improper transactions involving the sale and issuance of the Company’s securities resulting in a $3.5 million expenditure for ACTC in the form of “fines and penalties”.  In April 2013, it was determined that Gary Rabin, the then-Chief Executive Officer, failed to report 27 transactions in which Mr. Rabin sold shares of their common stock resulting in an SEC investigation which is still not closed and has cost ACTC $375,000 so far. Mr. Rabin is no longer with the company and ACTC is searching for a new CEO. According to an article in Nature published in January of this year, “on 2 January 2014, the Wisconsin Alumni Research Foundation (WARF) sued ACT for breach of contract. WARF, which handles patents and licensing for the University of Wisconsin, holds a number of key ES-cell patents, and ACT struck a licensing deal with the foundation in 2007. The case has been sealed.


The question investors should ask is if ACTC’s intellectual property portfolio shows such great promise, then why has the Company not been acquired? Why is it so difficult to raise capital outside of continuing to dilute existing shareholders which has increased weighted shares outstanding from 1.5 billion to nearly 2.5 billion in just two years? How many potential institutional investors will quickly look the other way when they learn about the legal problems Advanced Cell Technology (OTCMKTS:ACTC) has had in the past? Just where will the money come from to keep this company afloat long enough to commercialize this seemingly promising technology?


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  1. This is such a blatant hatchet job right from the start;

    “One thing to note in their financials is a steady decline in revenues and hefty operating expenses over time.”

    This is a research & development stage company, OF COURSE there are minimal revenues and hefty operating expenses – any prospective investor with even the most basic of investment knowledge would know this simple fact when doing due diligence on a r&d company!

    In this sort of investment, you are investing on the likelihood of FUTURE revenues, not current revenues!

    Minimal due diligence would make it clear that as far as an r&d investment goes, ACTC offers one of the better propspective investments available, and the quality of the risk/reward payoff n this case is immense.

    This is yellow journalism, nothing more.

    1. Thank you for the comment Marc. Consistent minimal revenues from an R&D company is different then consistently declining revenues. As mentioned and linked to in the article, there is plenty of positive content available talking about the merits of the technology. To move from 1.4 million in revenues to .2 million in revenues in 4 years in a steadily decreasing fashion is worth mentioning. Another article could be merited to look at where these revenues were coming from and why they appear to be drying up.

      1. “Another article could be merited to look at where these revenues were coming from and why they appear to be drying up.”
        Indeed, which I note you failed to do. Funny that.
        Again, blatant hatchet job.

  2. This article reminds me of a Yahoo message board post. The article was not a balanced discussion of ACTC by any means and I dare say that it appears there is a motive in play along the lines of the recent SA articles. The way I look at it, if ACTC did not have some serious clout in the stem cell world, one would not see all this kind of attention lately. I trust the scientists, MIT and all the other organizations that see the powerful potential of ACTC and where they are headed

    Marc, you are right

    1. Thank you for the comment Don. There is certainly no “motive” behind this article financial or otherwise. As mention in the “About Us” section, we will never short any stock discussed on this site. The article mentions that positive media attention received by ACTC lately and also mentions some red flags in the 10-K filing investors should be aware of. It has provoked a healthy discussion here in the comments section and it is a good thing for investors to see both sides.

  3. This article fails to comprehend that this is an early stage biotech. Of course they only have patents (pretty spectacular ones) and trials going for them at this stage. And while they have some outstanding minor litigation, most of it is settled already, and they have one oustanding issue with the SEC, which is, in my book, quite minor. Not something to base an analysis of this sort on.

    Companies that treat 1/3 of 10% of the market that just one of ACT’s treatments in trials now, and with old fashioned technology, have been recently valued at approximately 30 billion (REGN). I don’t think ACT will have trouble raising funds, based upon their technology and their trials. See MIT Technology Review, yesterday, for an interesting discussion of ACT’s Phase I trials for RPE cells.

    Plus today, their chief scientist is in the WSJ and making global news. I’d hardly put this company under the kind of false light that this article suggests. No doubt, they have some ways to go yet, but there is no reason to suggest this company is not an incredible speculative buy at this time. I own a sizeable amount of shares, and have no intention of selling any time soon, as a disclosure.

    1. Thank you for the comment biosectinvestor. This is the second time ACTC has had an involvement with the SEC over improper share transactions. This should be a red flag to any investor as it suggests that no internal controls are in place to prevent these occurrences from happening. Litigation by 40 previous holders of convertible promissory notes and warrants should be a big red flag as well to future institutional investors. This may be an “incredible speculative buy” at the moment which is a great thing for speculators, but not for investors.

  4. I agree that the article has a negative bias to it. To answer the questions posed at the end of the article:
    1. The company was not acquired under CEO Rabin’s tenure is because he thought the offers were billions short of his goals for the company.
    2. Most of the additional share during the past two years went to settle the aforementioned legal
    3. Apparently ACT has verbal commitments from many institutional buyers once the company completes its planned uplist to the NASDAQ. Has the author ever reviewed the legal issues that have faced the largest banks and other financial institutions in the world or companies such as Microsoft, Apple, Exxon-Mobile or General Motors?
    4. Financing options include extending the financing with Lincoln, non-dilutive loans from other financial institutions, and the uplist to the NASDAQ referred to above.
    Tell us about this investment after the RPE therapy is tapping into the 30 billion plus dollar market to reduce AMD, not to mention the many other applications listed in ACT publications.

    1. Thank you for your comment Art and answers to the questions posed. If you can provide links to SEC filings that mention the offers for acquisition that ACTC received during Rabin’s tenure I’ll gladly append them to the article. Likewise any such information concerning verbal promises of investments by institutional buyers that are mentioned in SEC filings would be useful.

      If the shares were solely issued to settle legal issues, this would mean a 66% increase in shares outstanding over the past two years for this reason alone. ACTC can incur more debt however with the current interest expense/late fees amounting to 1.4 million in 2013 and cash on hand of 1.7 million, they will need to reassure any entity that grans them a loan the ability to pay at least the interest on the loan going forward.

  5. For more information about ACT (and its competitors) in developing a new approach to replacing/rejuvenating damaged photoreceptors to restore vision to those who have lost it, please take a look at my recent (last week) article:

    A New Approach for Repairing/Rejuvenating Damaged Photoreceptors

    The use of retinal progenitor cells to repair or rejuvenate damaged or destroyed photoreceptors (rods and cones) to restore vision in those with lost vision due to photoreceptor damage is now possible and will soon be starting human clinical testing.

    To read the complete story, please follow this link: http://tinyurl.com/RetProgenCells

  6. As other commenters have noted, ACT is a development stage biotech company only now just nearing completion of their first set of Phase 1 clinical trials. It is understandable that revenue at this stage should be minimal (thus far largely from licensing technology), and that R&D costs should increase as the company moves further into multiple clinical trials. I don’t see this as unusual or problematic. With regard to the progress of the AMD/SMD trials themselves, ACT has a larger patient pool ideal for FDA scrutiny (this is a good thing!), and is further along, than any of its competitors in the “RPE” field. As per the example in the article, the preliminary results thus far are purported to be “tantalizing”. The company, in conjunction with the Jules Stein Eye Institute, will be commencing Phase 1 MMD trials within days to weeks, has been working with Tufts University veterinary scientists since at least last year on trials on dogs for auto-immune disorders, and is in the process of developing their Phase 2 end-points for their AMD/SMD trials, which may commence as early as later this year. The IP for all these and other potential applications is extensive and impressive.

    It is true that the litigation issues have been problematic in the past and have had a detrimental effect on the share price, but the legal issues are now largely resolved or nearing resolution. The WARF case was dismissed with prejudice. Of the some 50 (not 40) warrant holders and related parties, most were proactively settled prior to any litigation, all but one of the remaining ones were settled, and the last one has a potential settlement hearing later this month. This will hopefully will close the books on this entire distraction. The SEC investigation (not litigation) into the late-reported sales by Rabin seems to be focussed primarily on the former CEO himself, although ACT may bear some responsibility for poor oversight (hence the set-aside of $375K). With a newly-promoted CoB, and the new interim CEO who is in fact actually the company’s recently-hired CFO, oversight going forward should be much more robust; the recent revision of previous years’ 10-K reports to more accurately reflect the company’s finances and risk factors was an additional step in the right direction. In any case, none of the remaining legal issues are fatal, and while the worst case scenarios could mean some additional short term dilution and share price instability, the importance of moving beyond these legal uncertainties will ultimately increase shareholder confidence.

    Despite being on the OTC with effectively no real impartial analysis, the company is fortunate to have an extremely engaged investor base who act as a diverse knowledgable group of “amateur analysts”, providing the investment community with a wealth of additional scientific, regulatory, legal, and financial insight and opinion via a couple of well-respected message boards. Of course, the impetus for cleaning the books, resolving old lawsuits, and in general being a more “mature” company is the desire to reverse split and uplist to Nasdaq, and having access to dedicated analysts and institutional investors. Once on Nasdaq, with legacy business issues related to the dealings of two former CEOs cleared up, this little company that has peered into the abyss and survived should start to get the respect and enthusiasm they deserve for their truly groundbreaking science. I have no doubt that within the coming months and years, ACT will make long shareholders very happy. As a disclosure, I am long since 2009, with substantial shares.

    1. That’s a very good response Konrad, thank you. Do you have any insight into when they plan to reverse split which would be one of the first steps towards up-listing to Nasdaq?

      Given that the stock currently sits 1 penny off the 52-week low, this may be a good time to act for anyone who is considering a speculative position. While you may have no doubt that within the coming months and years, ACT will make long shareholders very happy, this may not apply to long shareholders who purchased ACTC when they started trading in 2005 and who since then would have lost -98% of their investment as of today.

      1. It is funny how you pick the worst possible statistic from many years ago to try to prove your point. Investors buy based on the current state of a company and the FUTURE prospects of the company not something that happened almost a decade ago.

        Using your logic in reverse, I should be buying Kodak shares NOW because 10 years ago it was doing pretty well. The point that some are making here is that the article does not pass the smell test given all the other aspects the company and FUTURE prospects. If you really want to help investors you need look forward not back because that is what is really important.
        Anyone can regurgitate history, it takes learned individuals to see into the future and isn’t that what investors are always looking for, some clue that will help them make a proper decision about a potential investment. You sir, did not do that so what value add did you provide today?

        1. Thank you for the comment Don.

          Investors make an investment based on the current state of a company indeed, and in this case the company in question dismissed it’s CEO just three months ago because of improper trading, an event that brought on an SEC investigation. This is the second SEC investigation of ACTC in the past two years. This same company only has 1.7 million in cash on hand and an interest expense last year of 1.4 million (both facts released this month). The question of where funding will come from to ensure the survival of this company should be on every current investors mind. The value add provided today is that readers of this article such as yourself chose not to refute the facts presented, but instead provided counter arguments as to why they feel the future potential of this company’s technology outweighs the risks.

      2. The company ideally wants to complete the reverse split and uplist by late September, as the shareholder mandate for the process expires then. That’s not to say the company can’t return to shareholders and ask for an extension if necessary (it has done so once before), but I think everyone concerned, both shareholders and the company, would prefer it happens sooner rather than later. The company has stressed that the reverse split will be coupled to the uplist (so no reverse split followed by a long-term lingering on the OTC), and according to the company, the entire process will be done ideally from a “position of strength”, which presumably refers to some value-creating events such as the publication of data to-date, the transition to Phase 2 trials, and/or perhaps some type of JV or other significant scientific or financing event. As of the latest corporate conference call two weeks ago, the company stressed the continued importance of the uplist, but offered no additional guidance as to when we should expect it.

        1. Thank you for that information Konrad. That is very useful.

          ACTC would seek most likely seek a listing on the Nasdaq Capital Market which is a equity market for companies that have relatively small levels of market capitalization. The requirements for such a listing can be found in the below document (see page 9):


          Some of the requirements include having at least 300 round-lot shareholders on record, and stockholders equity of at least $4 million. The latest SEC 10-K filing made this month stated that as of December 2013, ACTC had negative stockholders equity (stockholders’ deficit) of $22.5 million. While researching this article I recall there being less than 300 shareholders on record (around 220) but I would need to look back through the filings to see where I saw that mentioned.

          1. Someone with more experience with the shareholder equity issue will have to comment on that, although I believe settling all of the lawsuits is supposed to have have a significant positive effect on shareholder equity. Perhaps another commenter can add some insight here.

            As for the number of shareholders on record, the latest 10-K does indeed mention a number around 225, but note that buried within that are a large number of shareholders whose shares are held in street (thus the “shareholder” is the brokerage firm). According to one of the previous year conference calls (I’m sorry, I don’t have a reference handy… hopefully another commenter can provide a link), actual ownership is on the order of 45,000-50,000 individual account holdings (although since some shareholder have multiple accounts, there are presumably less total shareholders).

          2. Regarding the shareholders’ equity requirement:

            Stockholders’ equity = Total Asset – Total Liabilities
            22533610 = 3907919 – 26441529

            This means they either have to increase assets or reduce liabilities. In either case this can be accomplished by issuing more shares. If they reduce debt entirely they would barely fall under the $4 million minimum requirement. It is my understanding that they have settled the lion’s share of the lawsuits already which is reflected in their present liabilities.

      3. I sympathize with shareholders who bought in 2005 and have seen their investment markedly decline, especially if on-paper losses eventually became realized losses. Although my on-paper losses are not as severe as -98%, I too am in the red right now. Nonetheless, let me reiterate that in 2005 ACT was much more of an early stage developmental biotech than it is even now, and anyone who invested in 2005 and hoped for huge returns within a few years was probably not being very realistic. I’d read somewhere once that in terms of new drug products, the time frame from drug discovery, through animal studies, and finally through multiple phases of human trials and (hopefully) commercialization is typically on the order of a decade or more, so ACT isn’t necessarily too far off the mark if we can see some compassionate use of the RPE product in 2015 or 2016. Given the novelty of stem cell FDA-supervised treatments, I’d add that regulators and financiers might be even a bit extra cautious compared to their attitudes towards traditional drugs. Of course, in the absence of other other pre-existing products to provide a ready-source of steady revenue, investors in such early stage companies have to be prepared for lean years, dilution, and possibly even total failure. Given that ACT’s preliminary data appear to be so promising, and that their management team is finally maturing, those investors from 2005 with the intestinal fortitude, foresight and luck to still be holding, even through those worst days in the past, as well as those of us more recent investors who have been more fortunate, may yet be well-rewarded for our extreme patience and faith.

      4. Your reply to Analyze leaves one to wonder about your “expert involvement” in investing, leading to your “professional” advice regarding someone’s personal decisions for investments. Stating that one should look back to 2005 at what had transpired in ACTC’s past is NOT what prudent investors should do regarding speculative companies. All that invest in “speculative” companies are pretty aware of the early problems and barriers that have to be overcome by startup companies with innovative technology and the other negatives you have pointed out regarding share structure, cash on hand, debt etc etc. This is NO revelation to any or all that have put their $$ into this company. You, by your “revelations” are not going to sway any that know the risks of investing in bio companies into liquidating their position or taking a larger position in this stock. Wall Street i, and always will be, forward looking. That is why you will see PE ratios at seriously high numbers for most. What each and every investor must ask oneself is how much of a risk are they willing to take in ANY investment they make. There are risks in ALL investments even in solidified companies. What is the REWARD compared to that risk? Is it worth it for me, myself, to take a stake in its FUTURE. You have your opinion on this investment and for some unknown (?) reason you have chosen to reveal it through this publication to influence others. Your opinion is just that: an “opinion.” And anyone with any common sense would ask themselves why exactly one would make his/her opinion so public?

        1. This article does not constitute investment advice regarding anyone’s personal decisions for investments. It simple states facts taken from the company SEC filings and asks questions any informed shareholder should be asking.

          The article does however fail to mention the below “event of default” which ACTC filed several days ago with the SEC:


          On April 15, 2014, Advanced Cell Technology, Inc. (the “Company”) received a notice (the “Notice”) from CAMOFI Master LDC (“CAMOFI”) and CAMHZN Master LDC (“CAMHZN” and together with CAMOFI, the “Holders”) of an Event of Default under Amortizing Senior Secured Convertible Notes due June 30, 2015 held by each of CAMOFI and CAMHZN (collectively, the “Notes”). The Notice alerted the Company that due to the Company’s failure to deliver shares of common stock issuable to the Holders within three days of a conversion event occurring in March 2014 under the Notes, an “Event of Default” under the Notes had occurred and the Holders were reserving all rights held by them arising from such Event of Default. Among these rights are the Holders’ ability to declare as immediately due and payable the aggregate principal amount remaining under the Notes together with any other amounts owed under the Notes, which amount equaled approximately $1,200,000 in the aggregate as of the date of the Notice, with such amount accruing an interest rate of 18% per annum upon such declaration by the Holders.

          1. I am sure this will be answered by ACTC through normal by court procedure. If you are at all familiar with any court litigation cases you are aware that all cases have TWO sides “to the story”. You have stated just one side! It seems “your facts” favor only ONE side.

          2. You are right Art in that this story has two sides and we’ll need to see how it unfolds. However, for a company whose investors are concerned about funding, this sends a bad signal. ACTC seems to have a loyal investment base of longs who are in it for the “long haul” and aware of the risks. This article has stimulated some interesting discussions which was its purpose. As you mentioned earlier, this is information that is publicly available and investors should already be aware of it so this will not sway current investors into changing their positions.

  7. From a businessman’s point of view I went into this investment knowing it was extremely risky and I could lose all I put up. If I get wiped out it will not change the financial life style I currently enjoy.
    I should know by 2020
    If successful, it will have a dramatic effect on that life style.

  8. Why people still use to read news papers when in this technological world everything is available on net?|