A Stock Called Comedy: The Joke Is On Soul Or Other

China Medical Technologies – a Chinese diagnostic, medical testing as well as genetic tools fellowship which I am brusk – is perhaps the strangest even out inwards our portfolio. Here is the official “business description”:

China Medical Technologies, Inc., a medical device company, develops, manufactures, as well as markets immunodiagnostic as well as molecular diagnostic products. It uses molecular diagnostic technologies, including fluorescent inwards situ hybridization (FISH) as well as surface plasmon resonance (SPR), as well as enhanced chemiluminescence immunoassay (ECLIA), an immunodiagnostic applied scientific discipline inwards the development, manufacturing, as well as distribution of diagnostic products for the detection of diverse cancers, diseases, as well as disorders, every bit good every bit companion diagnostic tests for targeted cancer drugs. The fellowship offers immunodiagnostic products, such every bit ECLIA analyzers as well as reagent kits for diverse clinical applications, including anemia, cardiac diseases, nutrient safety, increment disorders, hepatitis, HIV, infertility, liver fibrosis, metabolic function, reproductive endocrinology, SARS, thyroid disorders, as well as tumors tests. It also provides FISH probes, a molecular diagnostic IVD reagent for the prenatal diagnosis of diverse genetic diseases; detection as well as prognosis of diverse cancers; as well as identification of cancer patients. In addition, the fellowship offers HPV(human papillomavirus)-DNA chips, a molecular diagnostic biosensor chip, as well as SPR analyzers for the diagnosis of HPV infection as well as genotyping of HPV. It sells FISH probes as well as SPR chips to large hospitals through its straight sales force; as well as ECLIA reagent kits to modest as well as mid-size hospitals through distributors. The fellowship was founded inwards 1999 as well as is based inwards Beijing, the People's Republic of China.

The sometime pump for the fellowship was CMED but the fellowship has been delisted, trades on the pink-sheets as well as has gone completely silent. They trial no SEC filings, pay coupons on none of their debt as well as produce non reply questions from investors or regulators. The pump is now CMEDY.PK.

According to their final published accounts they had roughly 100 1000000 USA dollars inwards cash, 20 1000000 USA dollars (118 1000000 RMB) inwards quarterly pre-tax profits as well as were nether absolutely no fiscal stress. They did still receive got $396 1000000 USA dollars inwards convertibles outstanding. At a high stock cost those converts would convert. At a depression cost they would pay inwards cash hence if the stock cost was depression plenty the fellowship powerfulness receive got had to refinance. However amongst 20 1000000 per quarter inwards profitability it was hardly going to a problem.

Well it looked similar it was non going to endure a problem.

Some shortsellers idea that the fellowship was using its cash to purchase assets from undisclosed related parties. More florid allegations went approximately but I receive got verified none of them.

Still the stock went down.

It went below the conversion cost for the convertible which meant the above-mentioned covert would endure due inwards cash. And as well as then – strangely – the fellowship pose out a press release stating they intended to restructure this debt. Here is the commutation release:

BEIJING, Dec. 13, 2011 /PRNewswire-Asia-FirstCall/ -- PRC Medical Technologies, Inc. (the "Company") (Nasdaq: CMED), a leading China-based advanced in-vitro diagnostic ("IVD") company, today announced that the Company intends to implement a debt restructuring excogitation to ameliorate its residue sheet. The excogitation may include, without limitation, a debt-for-debt commutation amongst existing holders of the Company's convertible notes maturing inwards August 2013 as well as Dec 2016, which may potentially involve holders receiving novel debts amongst dissimilar involvement rates, maturities as well as principal amounts compared to the existing debts or other alternatives to endure agreed. Holders of the Company's convertible notes are requested to contact the Company's Cayman legal representative, Thorp Alberga at cmednoteholders@thorpalberga.com, which volition collect contact data from such holders to facilitate their communication amongst each other to shape a noteholders' commission to liaise amongst the Company. 

This was genuinely remarkable. The fellowship – at to the lowest degree on the stated residue canvas – had plenty coin to pay the debt (at to the lowest degree for a while). It for certain did non necessitate to default on trivial coupons – but it defaulted.

Worse – it did non fifty-fifty tell anyone it defaulted. The bond trustee notified holders as well as that is all. And since as well as then the fellowship has been completely silent. It does non reply whatever questions from investors or regulators. It has precisely disappeared.

So what happened?

There are 2 hypotheses: (a) this actually is a fraud or (b) this is a existent fellowship as well as the administration are playing “silly buggers” to restructure the residue canvas to their liking (or fifty-fifty to pocket the company).

A lot of people believe the minute thesis. In this a solvent fellowship only stopped paying its debts as well as are hoping the convertibles covert (at $10 a share) as well as sell the stock inwards marketplace position (at $2 a share) to recover what coin they can. And the insiders (who are talking to nobody) are buying the stock at $2 a portion (perhaps amongst cash from the company) as well as inwards the cease they volition actually ain it.

There are other theses – including that the company is existence taken mortal surreptitiously through a shadowy organization amongst a modest American usual fund group. This furthered the spike inwards the stock.


Read the Yahoo! chat board as well as y'all tin receive got some other 20 theses some implying honest administration as well as lying short-sellers as well as some implying awful things nigh the management. There is really piddling way of telling them apart. Management reply no questions hence all speculation is inwards a noesis vacuum.


We were brusk but nosotros were worried that this powerfulness endure the goodness Chinese fellowship thrown out past times a fraud allegation - nosotros are ever wary of existence wrong. And the stock was going upward which is never comfortable for a brusk seller.

So whilst the stock hung inwards the air much the same way bricks don't nosotros hired someone amongst genuine expertise inwards diagnostic tests to hold off at the technical specifications of the medical tests they had on their website. (Our practiced tin read Chinese.)

Here was their response:

They receive got 3 production lines: ECLIA, FISH, as well as SPR. I am a flake busy doing other stuff, hence I volition produce this inwards 3 parts, i production trace per part. Here is the commencement component on ECLIA: 

ECLIA musical instrument as well as assays are proprietaryECLIA Product brochures receive got no production specification Sensitivity of musical instrument is stated every bit 10^-19, but no units givenCan’t discover whatever patents that belonged to the company 

ECLIA is what they telephone band Enhanced chemiluminescence immunoassay. The fellowship said it is a unopen system, i.e. proprietary instruments as well as diagnostic assays. The assays cannot endure used inwards third political party instruments, as well as the instruments cannot endure used for third political party assays. This is really foreign because cost is of import inwards diagnostics based on chemiluminescense technology. Influenza A virus subtype H5N1 unopen scheme agency higher cost, smaller volume, but y'all promise to brand upward for it on price, i.e., differentiate products based on quality. Indeed, they claim that their musical instrument is really sensitive, 10^-19. But 10^-19 of what? They don’t specify the unit. Regardless, whether it’s tooth or ng/ml, 10^-19 sounds really impressive. However, I am used to nano or pico scale, as well as 10^-19 is i 1000000 times to a greater extent than sensitive than pico scale. This seems impossible. Not exclusively impossible technically, but also concern wise –  what diagnostic applications would necessitate this kinds of sensitivity? I can’t remember of any. Also, I don’t remember sensitivity matters for the type of assays they sell. 

Chemiluminescence immunoassay is the applied scientific discipline industrial plant life inwards pregnancy tests sold inwards drug stores. This is an sometime as well as inexpensive technology. In general, y'all exercise this applied scientific discipline to larn yeah or no answers apace as well as cheaply. The sensitivity of  chemiluminescence immunoassay is commonly below 0.5ng/ml, i.e., already really sensitive. Regardless, for inwards vitro diagnostics, most of the applied scientific discipline should endure inwards the assays, non inwards the instruments. And hither is where I industrial plant life foreign - the fellowship does non receive got production specification for its assays on the web. On the other hand, lots of Chinese instrumentation as well as diagnostic assays products sold on Alibaba demo no production specification at all.  The exclusively immunoassay applied scientific discipline that is known for its sensitivity is radioimmunoassay, but it is a niche production specific for detecting allergen for allergy diagnostic. If CMEDY’s applied scientific discipline is real, as well as then it's ECLIA products receive got a really modest niche as well as it in all likelihood has no sales - the fellowship has exclusively i exam for allergy – full IgE.

We rest brusk this stock. CMEDY is a goodness pump – add together an 0 (which is where I remember the stock volition air current up) as well as y'all larn COMEDY. That is goodness for a laugh.


John