Why Does Cellceutix (CTIX) Look So Familiar?
We’ve written quite a few articles on why we think it’s a bad idea to invest in any over-the-counter stock. You won’t be finding the next Tesla or Apple on the OTC market, but you will find many companies with the “next big thing” that never comes to fruition. The track record of these OTC companies speaks for itself. So when we came across what appears to be a very heavily discussed OTC stock called Cellceutix, we had to take a closer look.
Founded in 2007, Cellceutix (CTIX) is working to develop a number of pharmaceutical compounds to treat cancer. Their lead compound, Kevetrin, was assigned a patent in December 2012 and was invented by Krishna Menon who is a co-founder of Cellceutix and one of the Company’s two officers. The Cellceutix development pipeline can be seen below:
CTIX shares are up over +27% in the past 5 days and +95% over the past year giving the company a present market cap of $360 million. While the Cellceutix website is stock full of great information about the Company’s potential, we’re first interested in looking for any red flags in the SEC filings. What we see looks to be some pretty familiar characteristics that we see in many of the OTC companies we’ve looked at. We see just two company officers, one CEO and one research executive who has brought in the intellectual property that he invented himself. We see the CEO of the company providing personal loans to the company to keep things afloat. We see both executives taking in rich salaries of nearly $500,000 a year, 10% salary increases per year, and a 2014 year-end bonus of $250,000 each. We see the usual signs of conflicts of interest that the Company admits to:
Our executive officers or directors or their affiliates may have an economic interest in, or other business relationship with, partner companies that invest in us or are engaged in competing drug development; Previously, Kard Scientific, a company controlled by Dr. Krishna Menon, President and Director, provided preclinical and manufacturing services to the Company and leased space to the Company. Innovative Medical Research Inc., a company owned by Leo Ehrlich and Dr. Krishna Menon, leases space from the Company and is engaged in research.
And then turns around and states:
While the Company is not aware of any conflict that has arisen to date, the Company does not have any policy in place to deal with such should such a conflict arise.
We see funding needs that far exceed current cash which likely means shareholder dilution is coming. Q1-2015 saw a loss of $2.9 million leaving Cellceutix with $10 million in cash on hand. Cellceutix plans to incur expenses of approximately $23.2 million over the next twelve months to advance their drug pipeline. Lastly, we see that both Cellceutix executives were involved previously with Nanoviricides, another OTC company we warned investors about before which also uplisted to the NYSE MKT a few years ago with great fanfare. Since our article on NNVC, the stock has lost -69% of its value.
It’s great to see that Cellceutix is planning an uplist. While uplisting does provide some legitimacy to an OTC company, it doesn’t mean you still won’t lose all your capital. Unipixel (UNXL) and their “disruptive display technology” is an example of an uplist that decimated investors with broken promises and class action lawsuits. Another high profile uplist was 3d bioprinting firm Organovo (ONVO) for which we’d argue the jury is still out on.
So is CTIX worth investing in? First ask yourself, what type of exposure are you trying to achieve here? You’re most likely looking to invest in a disruptive technology that will revolutionize cancer treatment. In that case, why not just buy a basket of companies involved in cancer immunotherapy? Note that none of these 19 companies are OTC stocks. That’s a huge plus and you’re much less likely to lose your money with such a diversified portfolio.
Still, feel like you have to invest in CTIX? Wait until it uplists then create a “motif” that includes some CTIX but then also includes some other companies looking to disrupt cancer treatment like nano-drug delivery company BIND Therapeutics (BIND) or cancer genomics company Foundation Medicine (FMI), neither of which were ever OTC companies. Then you can trade the basket just like a single stock, you’ve diversified your investment, and you’ll be much less likely to lose all your money as you would be by investing in one single stock.