The Asensio/Hemispherx Soap Opera (part 1)

Mary Schweitzer schweit2 at
Thu Oct 1 22:17:25 PDT 1998

... or, is this any way to run pharmaceutical innovation?

Short intro: Biotechs are generally small firms with a major product that is going to be very very expensive to take through the long list of testing requirements of the FDA. But ... that's THEIR problem (forget the patients). Before testing, few Big Boys are interested, particularly if the drug will help a "small" group of people (oh, only 100,000 or so ...). If the company goes belly-up, there goes the drug.

Specific situation: Hemispherx Biopharma has the only drug currently in the FDA pipeline for the disease chronic fatigue syndrome (or CFIDS). First trials in 1990-91 were pronounced "inconclusive" because there was a pronounced placebo effect -- research published in JAMA in 1995 showed that PWC's (people with CFIDS) have major neuro-blood hypotension problems. 1-2 litres of IV saline DOES make them feel better, if temporarily, and that was the placebo. Dismissal of the study also coincided with FDA and NIH's position that CFS was psychological. REsearch has all gone theother way since then, and the drug Ampligen now has a theoretical basis for working in that it seems to "plug up" a missing segment of RNaseL that is the hallmark of serious CFIDS cases.

FDA finally persuaded to permit cost-recovery studies last year (only about 35 patients on them, however); new Phase III trials (double blinds) beginning now, with 230 patients, half of whom will be on Ampligen and half on a "placebo" (very LOW doses of IV saline, presumably low enough not to induce the hydration effect). Eight months after starting the infusions, the blinds will be lifted. Those on the placebo will be permitted six months of Ampligen.

Got all that?

First shot across the bow, Business Week 28 September:



At a time when many other biotech companies have seen their share pummeled, Hemispherx BioPharma (HEB) has been a standout. The company's shares, traded on the American Stock Exchange, have risen 140% so far this year, as investors have laid bets that the company has an effective treatment for Chronic Fatigue Syndrome.

But in recent days, the shares have pulled back a bit. A number of short-sellers are betting that the company's potential has been vastly overstated by the market. At issue is a drug called Ampligen, which the company believes is effective against chronic fatigue. Among the short-sellers is Manuel Asensio, head of investment boutique Asensio & Co. Asensio is shorting the stock with a target price of zero, having taken the view that Ampligen is neither safe nor effective. Asensio calls Ampligen ''a highly toxic, obsolete drug that is ineffective in the treatment of any disease.'' Hemispherx' CEO, Dr. William A. Carter, calls such assertions ''frivolous and wrong'' and says the drug's safety and effectiveness have been well established.

Other shorts note that the company was brought public by Stratton Oakmont, a notorious penny-stock house whose two former principals, Jordan Belfort and Daniel Porush, recently pleaded not guilty to federal money-laundering charges. Carter maintains, however, that Hemispherx was never tarnished by Stratton's numerous run-ins with regulators.

The shorts maintain that the company's shares are subject to substantial dilution from as-yet-unexercised warrants, options, and convertible preferred stock--most of them eventually exercisable at well below the current stock price. Asensio calculates that, when exercised, they will boost the number of shares outstanding by more than 80%. A Hemispherx spokesperson confirmed Asensio's contention and conceded that the 23.6 million shares outstanding will swell to 41 million on a fully diluted basis. Carter, however, asserts that Hemispherx "doesn't believe there will be a substantial dilutive effect." But if the short-sellers are right, Hemispherx is setting itself up for a severe case of Shareholder Fatigue Syndrome.


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