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Biotech Stock Mailbag: Peregrine Pharma

Of the 31.1 million shares of stock sold in the 2012 fiscal year ended on April 30, Peregrine only publicly announced the sale of 6.2 million shares in a registered direct offering on Sept. 2. The remaining 24.8 million shares -- 80% of all shares sold by the company in fiscal 2012 -- were sold through back-door ATM offerings

And Peregrine continues to sell stocks via ATM transactions in the new fiscal year -- $1.5 million between April 30 and June 30, according to its 10-K. During this period, Peregrine's average stock price was 49 cents, which means the company sold more than 3 million shares.

Note that these most recent ATM stock sales run concurrent with the release of the bavituximab phase II lung cancer data on May 21. If these bavituximab data are so great and generating so much partner interest, as Peregrine executives claim, why sell stock so cheaply?

Until Peregrine answers that question, I'd be highly skeptical of the claims its executives are making about anything. Their actions reveal a whole different and far more troubling truth.

Readers had many thoughtful comments responding to the Wall Street short seller about his column defending short selling and striking back against long-only investors who have taken to attacking shorts personally instead of rebutting their bear arguments.

Kevin K. emails, "I'm short both Arena Pharmaceuticals (ARNA) and Vivus (VVUS) but what I find hilarious is the lengths to which the longs of each camp go toward trashing the other. Apparently what to their brittle minds constitutes 'horrible, illegal, unethical, manipulative, and corrupt' for shorts to say (or an honest reporter like Adam Feuerstein) is perfectly fine as long as you're long and attacking the bona fides of another company. They can have it both ways but the hypocrisy is layered so thick I don't know how you manage to stay calm, Adam."

Kevin continues: "Regarding shorting I often remind longs that shorts create liquidity and thus better prices for all involved. When the longs are buying, shorters increase the shares for sale so the longs get better prices. Good for them if they're right. If they're wrong at least they have the comfort that when they go to sell, there are more buyers -- the shorts -- than there otherwise would have been to get them better prices when they sell."

Mike V writes, "I generally agree with the short sellers' view expressed in your article this morning. There certainly is a role for short sellers in making financial markets more efficient. However, I would make a clear distinction between expressing a well-reasoned bear case for being short and the actions of the short sellers recently in Questcor Pharmaceuticals (QCOR).

"In Questcor's case, I believe we are witnessing a coordinated attack on the company's share price. The Citron report was timed specifically for release right after Questcor disclosed its June monthly prescription data, but while the company is in a quiet period prior to releasing earnings. Thus, management cannot buy back its shares and is limited in what it can say to defend itself... Right before the company was scheduled to make a presentation at an investor conference to respond to Citron's arguments, a web site appeared from a company called Biosim Pharmaceuticals claiming to be working on a generic version of Questcor product. This, not surprisingly, was the main bear argument in Citron's report. I believe this company to be totally fictitious, although I don't have the time or resources to conduct an investigation.

"My point in all this is to draw a distinction between legitimate short sellers making a bear argument versus web sites like StreetSweeper and Citron which I believe are conducting coordinated attacks on companies to drive down near-term stock prices and make a quick buck. For those that have a sufficient time horizon to take advantage of this, one can argue that it is fine or even advantageous. But for those of us that are measured on relative performance every quarter, month or even week, this seems patently unfair. How is that different than the proverbial 'pump and dump' boiler room on the long side?"

What happened to attacking the message, not the messenger? Stock manipulation is a sad but real occurrence -- everyone realizes this -- but the manipulation occurs just as much on the long side, if not more, than it does on the short side. Yet I never hear anyone complain when longs manipulate stocks. Citron may be 100% wrong about Questcor, but he has as much right to publicize a bear thesis as a long investor has to go on CNBC to talk about why Questcor should be bought.

Chrisis writes, "No problem with shorts (I am currently short Vivus.) The problem is when shorts foment outright lies about a stock. For example, Jim Cramer on Mad Money last week said Arena's drug causes hallucinations. That is wrong, unethical and illegal."

I reached out again to the short seller quoted in the column. His reply: "It is a problem when anyone lies about a stock but to claim that short sellers are disproportionate in this regard is absurd. There is an M&A rumor every day. Should longs be allowed to lie? Also, Arena's drug does cause hallucinations -- read the FDA documents."

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