Radient Pharmaceuticals Corporation (PINKSHEETS: RXPC) is a perfect example of what happens when investors ignore the warning signs and continue to bet on an unsound company as shares have collapsed from a high of 1.69 back in early January down to below 0.04 on Wednesday, August 10, 2011. While the writing was on the wall many months ago many investors chose to overlook the obvious and put their money on hope, never a smart investment move. Fortunately for those shareholders who bought in at the high end they may actually be afforded the invaluable emotional experience of closure soon as RXPC faces the very real prospect of insolvency given their incredible debt and lack of revenue.
While RXPC continues to tout exclusive distribution agreements for their lone product, the cancer detection test known as Onko-Sure, the reality is these agreements appear to be a dime a dozen and have amounted to nothing substantial for the company. This most recent distribution agreement was struck with Taiwan-based Uni Pharma, Co. which, according to RXPC’s press release on August 4, 2011, will “import, market, and sell Onko-Sure® in the Taiwanese market.” According to RXPC Chairman and CEO, Douglas MacLellan, Uni Pharma has “built well-established distribution and sales channels into doctors’ offices, labs, and hospitals.”
For whatever reason these distribution agreements almost always trigger some sort of reaction from investors yet the news did nothing positive for RXPC’s share price. Perhaps it’s due to the fact that the company currently has exclusive distribution agreements in place for Onko-Sure test kits in the U.S., Canada, Puerto Rico, India, Greece, Turkey, Israel, Vietnam, Australia, New Zealand, the United Kingdom, European Union, the Middle East, Russia, Hong Kong, Lao, and Cambodia. That may sound impressive but RXPC has acknowledged that as of March 31, 2011 only one distributor has met the minimum purchase requirements.
Of particular interest in that list of exclusive distribution agreements is India. RXPC created a joint venture/partnership with Super Religare Laboratories, billed by RXPC as “the biggest diagnostics lab in India,” serving “over fifty-thousand doctors in every hospital, in every state in India.” Back in December 2010 an interview with MacLellan was published on biomedreports.com in which the CEO detailed the significance of India:
“Well, for example, we are in active discussions with India about some pending business and they have indicated that they are going to be placing some very big orders from us. So it makes it difficult for us to try to do accurate forecasting without considering many multiple factors. We just brought in a top flight kit manufacturer that has over 25 years of experience in building in detour diagnostic test kits. At this point we can produce 300 kits a day. To give you an idea, that’s 1500 kits a week, 6000 a month or about 70 thousand kits in a year. That’s about capacity right now. But, If we need to, we can actually double that capacity by adding a couple of lab technicians and a couple of robots. So if you start looking closely at the numbers, and this is average pricing for us, you’ve got 70,000 kits times $500- which is $35 million in revenues for us with an 85% gross margin. Can we be at that type of capacity requirement by the end of 2011? I definitely think so.”
According to estimates that followed that same interview sales projections for India were projected at 25,000 Onko-Sure Test kits in 2011, by far RXPC’s biggest market. That hasn’t exactly panned out so well as first quarter figures for RXPC, ending March 31, 2011, were listed as $30,655 and that wasn’t from sales in India- they had none. Given MacLellan’s average pricing of $500 per kit that works out to just over 60 kits sold during the three-month period, that’s not in line with what RXPC was projecting, remember MacLellan stated that the company could produce 300 kits a day.
As disturbing as the lack of revenue generated from these distribution agreements has been, investors should actually be more upset about that fact that in RXPC’s June 8, 2011 press release detailing the first quarter financials they stated “We have a limited supply of one of the key components of the Onko-Sure test kit. The anti-fibrinogen-HRP is limited in supply and additional quantities cannot be purchased. We currently have two lots remaining which are estimated to produce approximately 21,000 kits. Based on our current and anticipated orders, this supply is adequate to fill all orders in hand. Although we are investigating or outsourcing of this component so that we are in a position to have an unlimited supply of Onko-Sure in the future, we cannot assure that this anti-fibrinogen-HRP replacement will be completed.”
Six months earlier MacLellan was boasting about the company’s capability to produce “about 70 thousand kits in a year.” It’s really difficult to figure out how 70,000 kits can be produced when the company is facing a limited supply of one of the key components of the Onko-Sure test kit, it is so limited that they only have enough to produce approximately 21,000 kits but between that December interview and their June 8, 2011 press release the company didn’t produce 50,000 kits. At the end of the day it’s just some questionable practices implemented by RXPC to entice investors and it obviously worked as shares did climb to a 52-week high of 1.69 in early January but with reality setting in those shares quickly dropped.
We could go on all day about the problems with RXPC, we haven’t even touched on the fact that they’re in default to each of the holders of their convertible notes due December 1, 2011 in the original principal amount of $8,437,500 which has now pushed their total liabilities (with accrued interest, penalties and default redemption payments) to the 2011 noteholders aggregated $22,301,761. They have no substantial revenue and only have 200 million shares fully authorized with 177 million outstanding as of July 11, 2011. They have already been delisted from the AMEX for failing to file their annual report on Form 10-K for the year ended December 31, 2010. The issues are just numerous and the end can’t be too far off, it’s just too bad that RXPC didn’t make an early detection kit for investors because there are plenty of shareholders who lost a lot on this company.