Management at PreMD Inc. (former symbol AMEX: PME, current symbol OTC: PREMF, TSX: PMD) has engaged in some questionable behavior recently.
Background
On May 30, 2008, PreMD announced that “the American Stock Exchange ("AMEX")…intends to delist the Company's common stock from the Exchange.”
Questionable Behavior
1. On August 13, 2008, PreMD reported its 2008 Q2 results. The results contained a grievous mathematical error that made the company look worse than its real condition. (Can you find the error? )
I sent an email message to PreMD on August 14, 2008, specifying the error.
PreMD did not respond to my message. PreMD made zero effort to correct the error, such as issuing an updated press release.
2. Only one week later (August 21, 2008), PreMD announced that the company “received notice from [AMEX] that it intends to suspend trading in PreMD's stock on the AMEX effective August 28, 2008 and to initiate delisting proceedings.”
Regarding the future of PreMD's shares, the press release only stated “PreMD continues to trade on the Toronto Stock Exchange (the "TSX") under the symbol PMD.”
I sent an email message to PreMD on the same day, asking:
“If PreMD intends to send an email notice to shareholders, would you please explicitly state something to the effect of ‘PreMD will no longer be listed on any U.S. markets’ or ‘Following delisting, PreMD will be listed on the Pink Sheets’, etc.?”
PreMD did not respond to my message. PreMD did not send an email message to shareholders (although the company has sent email messages to shareholders in the past about other issues).
My Analysis
I’ve been through many delistings in the Czech Republic (1697+ of the 1700+ companies that originally appeared on the Prague Stock Exchange have been delisted).
The behavior of PreMD’s management is very similar to the sleazy actions of Czech management prior to a delisting. They release bad results and provide zero information in an effort to get shareholders to dump their shares. At ridiculously low market prices. (PreMD’s share price was $0.03 during the three days before AMEX suspended trading, and volume was 1.456 million shares with only 26.7 million shares outstanding!!! Somebody bought those shares for a cheap price.)
Questionable Behavior
3. On August 18, 2008, PreMD announced “the U.S. Food and Drug Administration ("FDA") has upheld their decision” that PreMD’s flagship product, PREVU(*) Point-of-Care (POC) skin cholesterol test, is not approved.
The timing of this announcement, of course, added to shareholder panic about the delisting.
However, I smelled a rat here.
AstraZeneca Pharmaceuticals LP already had a license agreement with PreMD for marketing and distribution of PREVU(*) in the United States. Based upon the negative FDA ruling, the AstraZeneca agreement should have been quickly terminated.
It wasn’t.
I became suspicious that the FDA ruling would be overturned on appeal **after the delisting**, which would explain why the AstraZeneca agreement had not been terminated.
I voiced my suspicions loudly and repeatedly. In response, the agreement was finally terminated on September 16, 2008 with this caveat from PreMD’s CEO: “Our relationship is such that I believe there may still be opportunities with AstraZeneca, especially if our appeal to the Commissioners Office is successful.”
