Some Problems With Advanced Cell Technology
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.
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?
Here at Nanalyze, we hold the lion's share of our investing dollars in a portfolio of 30 dividend growth stocks. Find out which ones in the Quantigence report freely available to Nanalyze subscribers.