By Mak Yuen Teen
Starting from the end of March 2020, Catalist-listed Biolidics Limited made a series of announcements and press releases, and received extensive coverage in the local and international television and print media, regarding its “rapid test kits” for COVID-19.
Its price and trading volume went off the charts. On the day of the first announcement and press release on 30 March at 5.10 pm – or before the close of trading – it went from 20.5 cents at close the day before, to 22 cents at close on March 30 – or an increase of 7.3%, with volume for the day more than double the day before.
However, it was from March 31 onwards that it really kept hitting new peaks. The price went up by 5 cents while volume was nearly 53 times compared to the day before. That day, the volume was nearly 242 times the average daily volume for the 20 trading days in March before the first announcement. Cumulative trading volume from March 30 to April 24 was 4.26 times the free float, after including the 17,858,000 shares that were placed out to 21 investors on March 27.
On the placement, it was announced on March 16, 2020 and completed on March 27, with a placement price of 17.5 cents, a discount of approximately 7.3% to the volume weight price of 18.88 cents.
Wouldn’t the board be aware of the impending developments regarding the COVID-19 test kits? Were the investors who subscribed to the placement privy to information about these developments?
A response on April 9 at 9.01 pm to a detailed set of queries issued by SGX on April 1, 3, 4 and 8 regarding its announcements and press releases on March 30, and April 1 and 6, did not stem the exuberance.
By April 22, the stock price had increased by 171% to 76 cents compared to the day before the announcement. The average daily volume between March 30 to April 22 was 297 times the average daily volume for the 20 days in March before the first announcement. Then, after a request for trading halt at 1.09 pm on April 22, which was lifted the following day just after 2 pm, it fell back down by 31 cents (or 41%) to close at 45 cents on April 24. An announcement about the appointment of a US distributor for its test kits during the trading halt, and less than an hour before trading resumed, did not stop the fall. This particular curve was not flattened, but squashed.
The chart below, which I put together to combat COVID-19 “circuit breaker” boredom, attempts to summarise the announcements, press releases and media coverage, and the evolving narrative in Biolidics’ disclosures during the period.
Meanwhile, the stock price and volume of another Catalist-listed company, Clearbridge Health, has been on its own run. Biolidics is an associate company of Clearbridge, having been listed from a spin-off from Clearbridge.
Has the market being overly-excited by the disclosures by Biolidics? Were the company’s disclosures timely, accurate, fair and balanced as required by the listing rules?
DETECTION OR DIAGNOSIS? COVID-19 VIRUS OR ANTIBODY TEST KIT?
The first announcement on March 30 was about the signing of a one-year agreement with a diagnostic kit manufacturer (it is interesting that the company referred to a diagnostic kit manufacturer, but the kit is not for diagnosis as the company later was keen to emphasise).
The announcement was accompanied by a more comprehensive press release, which said that the company had received “provisional authorisation from Singapore’s Health Sciences Authority (HSA) [for its rapid test kit] to be used in Singapore”. No details were provided about the diagnostic kit manufacturer, or the dates of entering the agreement and receipt of the provisional authorisation from HSA. The company also said the first batch of the “COVID-19 Rapid Test Kits” is expected to be available in April 2020.
It did not mention the name of the manufacturer which it signed the agreement with. In the April 9 response to SGX queries, a “Nanjing Vazyme 2019-nCOV IgG/IgM Detection Kit” was mentioned in the context of an answer about the provisional authorisation from HSA. A Forbes article that same day quoted Mr Jeremy Yee, the non-independent and non-executive chairman of Biolidics as follows: “Yee estimates commissioning roughly two million COVID-19 test kits in the next two months from Nanjing-based Vazyme Biotech, a Chinese producer of enzymes and antibodies.”
According to the National Medical Products Administration (NMPA) of China, a product with the name of “IgM/IgG antibody test kit for novel coronavirus 2019-nCoV (colloidal gold method)” manufactured by company called Nanjing Vazyme Medical Technology Co., Ltd. is one of NMPA approved novel coronavirus 2019-nCoV test kits.
Why did the company not disclose the name of the manufacturer in its earlier announcements and only mentioned it in the Forbes article?
In response to SGX’s query, it also disclosed that it had already signed the manufacturer’s agreement nine days earlier on March 21. It also said it received the provisional authorisation from HSA on March 27, three days before the first announcement.
While the company said that it received the authorisation on March 27, SGX pointed out that HSA had publicly announced the provisional approval on or around March 20 or March 24.
The company’s response was that HSA’s approval on March 20 was for “Nanjing Vazyme 2019-nCOV IgG/IgM Detection Kit”, which is a product manufactured by Nanjing Vazyme Biotech Co., Ltd. It said that it only received HSA approval for the product to be manufactured and marketed under its own brand, Biolidics 2019-nCOV IgG/IgM Detection Kit, on March 27.
It added that it did not know why HSA had stated that the provisional authorisation was for “Nanjing Vazyme 2019-nCOV IgG/IgM Detection Kit also marketed as the Biolidics 2019-nCOV IgG/IgM Detection Kit”, and why HSA published its regulatory update on March 24 before the company had obtained the approval from HSA. It undertook to clarify with HSA.
According to the March 24 announcement of the provisional authorisation on HSA’s website, the applicant was “Biolidics Limited” and it did indeed indicate “Nanjing Vazyme 2019-nCOV IgG/IgM Detection Kit (Also marketed as) Biolidics 2019-nCOV IgG/IgM Detection Kit”, with the date of provisional authorisation stated as March 20. It was very clear that both were provisionally authorised on March 20.
Even if we accept Biolidics’ explanation above, there is still the question of why it was not announced on March 27.
On this, the company said that “the receipt of HSA approval for the Biolidics Test Kits became material only when it is certain that the Company could commercialize the Biolidics Test Kits”. It also added that the company “believed that this required an executed manufacturing agreement, HSA approval and product liability coverage which it executed/obtained on 21, 27 and 30 March 2020 respectively”. That is, it only obtained the product liability coverage on 30 March 2020 – the final condition for commercialisation in its view – and therefore only announced it then.
In other words, Biolidics’ justification for not disclosing the signing of the manufacturing agreement on March 21 and the receipt of HSA approval by March 27 was that the ability to commercialise the test kit depends on obtaining product liability coverage.
What is the likelihood of the test kit not receiving such coverage? Should the company have gone through all that without a reasonable expectation that such coverage would be obtained? If the HSA authorisation and product liability coverage are critical and uncertain, were they included as conditions precedent when the company executed the manufacturing agreement on 21 March? If not, did the board exercise due care in entering into the agreement?
Based on SGX’s rules on continuous disclosures, it is difficult to see any reasonable justification for not disclosing the signing of the manufacturing agreement and the receipt of the provisional HSA authorisation immediately. The rules do not say that companies should only disclose information about its products when it is certain that it could commercialise its product.
Using Biolidics’ logic, a company could justify delaying disclosures even later, and in the meantime, there may be individuals in possession of the undisclosed information trading in the shares. I think in situations like this, it behoves regulators to do more to investigate if there were indeed individuals who did so.
Biolidics’ press release on March 30 was titled “BIOLIDICS TO LAUNCH ITS RAPID TEST KIT FOR COVID-19; OBTAINS APPROVAL FROM SINGAPORE’S HEALTH SCIENCES AUTHORITY FOR ITS RAPID TEST KIT TO BE USED IN SINGAPORE”.
The press release said: “Biolidics’ easy-to-use rapid test kit can detect COVID-19 using serum, plasma or whole blood samples with an accuracy of more than 95% in 10 minutes”.
The press release went on to repeat the ability “to detect COVID-19 with 95% accuracy within 10 minutes” claim. It also said it was “working closely with Clearbridge Health Limited to obtain the relevant and/or authorisation from various health authorities in the region for the use of the rapid test kit” and that it will leverage on “Clearbridge Health’s distribution platform of healthcare solutions and technologies in Asia, particularly in Philippines, Malaysia, Indonesia and Hong Kong…to market and deploy its rapid test kit in these countries”.
The press release also said that Biolidics’ rapid test kit “is easy to use and can enable more effective and efficient decentralized screening among suspected patients. As such, the rapid test kit is suitable to be used for screening of suspected patients in the following scenarios, among others: – Points of border entry – Potential COVID-19 clusters”.
These were queried too by SGX and I will discuss them later as they were repeated and expanded in further disclosures by Biolidics.
As mentioned earlier, Biolidics made its first announcement and press release on 30 March just before the close of trading. When queried later by SGX as to why it did not disclose after trading hours, this was its response: “The Company cleared the announcement on 30 March 2020 on or about 4.40 pm and instructed the company secretary to release the announcement with the understanding that it would be done after trading hours. The Company believes that the company secretary may have released the announcement after 5pm as no specific instruction as to timing of the release of the announcement was given in this instance.”
In my view, there is no excuse for the announcement and press release to be released before the close of trading or without a trading halt. At this present time when the world is looking for solutions to detect or combat COVID-19, previously undisclosed information about the manufacture, distribution or sales of any test kit related to COVID-19 by a company would highly likely be material information. The company secretary, who is from a well-known corporate secretarial services firm, should have advised the company accordingly. However, ultimately, it is the board’s responsibility to ensure that the company complies with continuous disclosure requirements.
FIRST, WE TAKE PHILIPPINES…
Two days later, on April 1 at 9.21 pm, Biolidics issued another press release with the following headline: “BIOLIDICS’ RAPID TEST KIT FOR COVID-19 APPROVED FOR USE BY THE FOOD AND DRUG ADMINISTRATION OF THE PHILIPPINES”. It repeated the claim, twice, that its rapid test kit can detect COVID-19 with an accuracy of more than 95% in 10 minutes.
It also said that its kit “is generally used for the purpose of point-of-care testing…which allows the diagnostic testing of COVID-19 to be performed in a wide variety of healthcare settings by clinical personnel who are not trained in clinical laboratory procedures. Biolidics’ rapid test kit is simple-to-use and portable, hence it can be deployed where testing is needed most.”
However, this time, at the bottom of the first page of the press release, there is a cautionary note: “The results from the test is not be used for confirmatory testing or as sole basis for diagnosis. The results will have to be interpreted together with clinical presentation and are to be confirmed with supplementary testing”.
THEN WE TAKE EU….
More “good news” was to follow. On April 6, 7.31 am, it issued another press release titled ‘BIOLIDICS’ RAPID TEST KIT FOR COVID-19 OBTAINS CE MARKING FOR USE IN THE EUROPEAN UNION”.
The April 6 press release said that the kit “is one of the few that combines both IgG/IgM antibody test for COVID-19…” and added that it is “generally used for the added purpose of detecting the presence of immune antibodies against COVID-19 during and post-infection. It may be used as a point-of-care test…in a wide range of healthcare settings by clinical personnel who are not trained in complex clinical laboratory procedures”.
It reiterated: “The results from the test is not be used for confirmatory testing or as sole basis for diagnosis. The results will have to be interpreted together with clinical presentation and are to be confirmed with supplementary testing”.
FAST AND ACCURATE, BUT HOW ABOUT THE DISCLOSURES?
On April 9 at 9.01 pm, the company responded to a set of queries from SGX regarding its announcements and press releases on March 30, April 1 and April 6. SGX had issued those queries on April 1, April 3, April 4 and April 8.
Given how the price and especially the volume of the stock was going up from March 30, and how the market is likely to react to news of companies being involved in the development, manufacturing or sale of any Covid-19 related tests, my view is that the queries should have been announced immediately. Queries, especially multiple ones issued over a short period of time, could have put investors on alert. There were seven trading days between the issuing of SGX’s first query and the company’s response – an eternity in my view under the circumstances.
However, I must say that SGX’s queries include some very substantive ones, some of which I have already discussed.
SGX queried the company as to how the detection of the Covid-19 virus (which the company had mentioned in its March 30 and April 1 press releases) is the same as the detection of Covid-19 antibodies (which it first mentioned in its April 6 press release).
The company’s response was that “the detection of the presence of the antibodies is an indication that an individual has been infected by SARS-CoV-2”, which is “the virus which causes Covid-19”.
SGX also queried the company’s claims that its test kit can detect Covid-19 with 95% accuracy in 10 minutes. SGX quoted guidance issued on April 3 by the Singapore’s Ministry of Health on use of Serology Rapid Test Kits for Covid-19 infection, as follows: “Based on the currently available evidence, including local validation data, there is NO ROLE for COVID-19 serology (IgM/IgG) rapid test kits in the clinical diagnosis of COVID-19 infections. Medical practitioners should not be using such serology rapid test kids in the evaluation of persons with symptoms of acute respiratory infection.”
SGX asked the company to explain how its announcements on March 30 and April 1 are “factual, clear and succinct” pursuant to the continuous disclosure requirements in Catalist Rule 703, Appendix 7A and Practice Note 7A. For this query, it asked the board and sponsor, United Overseas Bank Limited, to respond and justify.
The company’s response was that MOH’s guidance referred to not using the tests as the sole basis for diagnosis of Covid-19 infections, but the company had only said that its kits were for “detection” of the Covid-19 virus and not for “diagnosis” of Covid-19 infections. It added that it was careful not to claim that the kits are for “diagnosis”, “or making statements which may be misleading to shareholders or potential investors”. This is even though as I mentioned earlier, it called its kit manufacturer a diagnostic kit manufacturer.
On the “95% accuracy in 10 minutes” claim, it said it was based on “validation data obtained in studies conducted in the People’s Republic of China, involving 570 samples from 5 hospitals”.
It added that both the board and the sponsor believe that the company’s announcements and press releases on March 30 and April 1 were “factual, clear and succinct”, and the disclosures “balanced and fair” and complied with the relevant rules.
HONG KONG AND U.S. ARE NEXT….
Biolidics announced more distribution agreements for its test kits. On April 15, it announced a three-year non-exclusive agreement with CK Life Sciences Int’l, Inc. for Hong Kong.
On April 13 and 20, it announced its notification to the U.S. Food and Drug Administration, and completion of listing, for the intended distribution of its rapid test kits in the U.S. The announcements said:
“The Company wishes to highlight that its COVID-19 Test Kits are solely used for identifying antibodies to SARS-CoV-2 (the virus which causes the disease, the Novel Coronavirus 2019) and is limited to testing in laboratories or by healthcare workers at the point-of-care. Information along the lines of the following are also required to be provided in the test reports:
- The test has not been reviewed by the FDA;
- Negative results do not rule out SARS-CoV-2 infection particularly in those who have been in contact with the virus. Follow-up testing with a molecular diagnostic should be considered to rule out infection in these individuals;
- Results from antibody testing should not be used as the sole basis to diagnose or exclude SARS-CoV-2 infection or to inform infection status; and
- Positive results may be due to past or present infection with non-SARS-CoV-2 coronavirus strains, such as coronavirus HKU1, NL63, OC43, or 229E”.
How do we square the false negative and false positive results associated with the tests highlighted in these announcements with the earlier claims of “95% accuracy” in detecting the COVID-19 virus?
And how do we reconcile the disclaimer now that its use “is limited to testing in laboratories or by healthcare workers at the point-of-care” with its earlier claims that the test kits can be used at points of border entry and potential COVID-19 clusters? Are those claims still valid?
In its April 9 response to SGX’s query about the financial impact of these developments, the company said it “is not able to ascertain the financial impact of these developments at the time of making the announcement as it has not received any firm orders nor commenced manufacturing of these test kits” (emphasis mine).
However, a Forbes article titled “Antibody Test For COVID-19 Could Help To Control Virus Spread, Says Singapore Medtech Firm” available online on the same day, April 9, at 5.26 am EDT, quoted Biolidics chief operating officer, Dr Wang Qing-Yin, saying: “The first batch of test kits are ‘on the plane from China to Singapore as we speak.”
It is unclear how they could be on a plane from China on the same day if manufacturing had not commenced.
The same article also quoted Mr Yee as saying that he “estimates commissioning roughly two million COVID-19 test kits in the next two months from Nanjing-based Vazyme Biotech, a Chinese producer of enzymes and antibodies. ‘In terms of production, we are only essentially limited by our capital,’ he says of temporarily reallocating resources meant for its cancer business to fund production costs”.
To the best of my knowledge, the information about commissioning two million test kits was not in any of the company’s announcements and press releases issued up to that time.
On April 23, Biolidics announced that it has entered into a distribution agreement with Aytu Bioscience, Inc., a NASDAQ-listed company, to distribute its rapid test kits in the U.S. The agreement is for one year, with an option for an additional one-year term. Aytu will buy an initial 500,000 test kits within one business day of the agreement and is required to buy another 1.25 million test kits within the first three months of the agreement in order to retain exclusivity. Biolidics is able to continue to sell directly to clinical partners in the U.S. Third party orders from Biolidics’ own referrals and sales are not included within the minimum order.
Biolidics said the agreement is likely to contribute positively to its revenue for the current financial year ending December 31, 2020. The company did not say if it likely to contribute positively to its profitability. It said it is “unable to quantify the financial impact as there are no minimum purchase quantities beyond the first three months of the Agreement”.
Information obtained from the NASDAQ website and other online financial sources show that Aytu has been unprofitable for at least the last five financial years, with net income available to common shareholders was a loss of US$27.13 million for FY2019. It is one of five Nasdaq companies that are on Nasdaq list of penny stocks as of April 26, 2020 (https://listingcenter.nasdaq.com/PennyStockList.aspx). Companies are added and removed from the penny stock list each business day, based on a company’s most recent financial and trading data. As a penny stock, Aytu risks being delisted from Nasdaq.
Has the board of Biolidics ensured that there was a proper assessment of the financial standing of its exclusive U.S. distributor, and its ability to fulfil its role as the U.S. distributor?
Meanwhile, it is unclear if the sponsor still holds the view that all the announcements, press releases and media comments by the company are “factual, clear and succinct” and the disclosures “fair and balanced”. Is it also satisfied that the placement that was announced on March 16 and completed on March 27 is in compliance with the rules?
SGX has done its part in querying the company. It is hoped that they and other regulators will look into whether the relevant rules have been complied with.
