Echo Therapeutics (ECTE)

Echo (ECTE) Note 09-18-14

downloadreportPlatinum Seeks Return of $5M Calling Echo “Worst in Class Governance
Platinum Finally Sues as Echo Refuses to Submit Books & Records
Nobody in Charge? 2nd Interim CEO Steps Down – No Replacement Announced
Reiterating Avoid/Sell as the Echo Therapeutics Meltdown Continues

Download Full 8-Page Note with Important Disclosures: Morning Note 09-18-14 ECTE

Following last week’s lawsuit filed last week by Platinum seeking Echo’s Books & Records, Platinum is now seeking the return of their $5M investment made December 10, 2013 stating that Echo defrauded them out of the $5M in bad faith and entered into the Securities Purchase Agreement with no intention of performing its obligations or using the funds for the intended purposes. The complete rescission letter filing with the SEC can be found at:
http://www.sec.gov/Archives/edgar/data/1031927/000101359414000594/echo13da-091714.htm

Since Echo has refused to turn over their Books & Records to Platinum to review (and for which Platinum filed suit last week), Platinum is also now attempting to “take away the punchbowl” by seeking a return of their $5M investment. We reiterate our Avoid/Sell rating as the continuing meltdown of Echo Therapeutics progresses.

Full Text of Letter from Platinum Sent to Echo Board of Directors:
Gentlemen: As you are aware, in December 2013 affiliates of Platinum Management (NY) LLC (collectively, “Platinum”) came to Echo’s rescue by both providing $5 million in funding and identifying additional funding and technical help in the form of a highly qualified Chinese development partner, Medical Technologies Innovation Asia, LTD. (“MTIA”). The goal was to refocus Echo’s efforts on commercialization of its promising medical device products. Platinum provided its $5 million and entered into the December 2013 Securities Purchase Agreement (the “Securities Purchase Agreement”) on condition that Echo receive simultaneous funding from MTIA. Platinum’s understanding was that MTIA would help Echo address the Board’s and management’s past failures by jointly bringing the Company’s promising medical device products to commercialization without similarly burning through copious amounts of cash. Prior to funding, we were given clear assurances that the Echo Board was committed to refocusing the Company on prompt commercialization, was excited about working with MTIA and would, on an expedited basis, add an independent director identified by Platinum who would participate in oversight and decision making. We were induced to provide funding based on these (and other) assurances, without which we would not otherwise have invested.

Yet almost immediately after taking the funds, Echo began reneging on its obligations:

• Instead of simply withdrawing its S-1 registration statement, the Company asked for a delay of that major obligation, which Platinum properly rejected.

• Instead of evaluating and adding Platinum’s highly qualified nominee to the Board in the manner and time frame required by the Securities Purchase Agreement, Echo and its Board soon thereafter breached its obligations. In an irony that highlights the poor judgment of Echo’s pre-2014 directors, the Platinum nominee that the Board rejected is precisely the director who stockholders elected at Echo’s June annual meeting by a nearly 4 to 1 margin.

• Instead of embracing the crystal clear mandate for change the stockholders voted for at the annual meeting, lingering directors William Grieco, Vincent Enright and James Smith took steps to maintain the status quo. Since the annual meeting, the lingering directors and their counsel, in a tribute to worst in class corporate governance, have operated the Board to exclude the two independent directors from information and decision making, thus interfering with the ability of the new directors to discharge their fiduciary duties for the benefit of all stockholders. This profoundly frustrates one of the purposes of Platinum’s investment.

• Instead of fully cooperating with MTIA, we understand that the failure of the Company to pursue commercialization and its propensity to squander vast amounts of money on lawyers, lawsuits and lingering director entrenchment has frustrated and alienated MTIA, leading to a failure to start development cooperation and a suspension of funding that Echo is not properly disclosing to the market.

• Instead of spending Platinum’s funding on developing products that will raise the stock price and benefit all stockholders, the lingering directors have busily spent unknown sums on unwarranted and self-interested increases in their gold-plated indemnities and bylaw changes. These actions appear designed to silence input from the newly and overwhelmingly elected independent directors and make it punitively expensive for stockholders to exercise their litigation rights against the Company, which is now seemingly being operated for the good of the lingering directors and not stockholders.

Taken together, this points to a lengthy and ongoing pattern that establishes that the Company entered into the Securities Purchase Agreement in bad faith, with no intention of performing, and with the purpose of fraudulently separating Platinum from its money while denying it the benefits of its bargain. As such, we have instructed our attorneys to prepare a lawsuit to rescind the Securities Purchase Agreement and recover from both Echo and the lingering directors the funds that the Company induced Platinum to invest.

Frankly, we are astonished at Echo’s continuing conduct. It is a real shame because with some responsible, independent fiduciary oversight, we feel the Company’s technology has great promise and the potential for exponential returns for stockholders. The stranglehold of the lingering directors, however, is rapidly extinguishing that promise. We expressly reserves our rights against those who have brought Echo to this sad and unnecessary situation.

Download Full 8-Page Note with Important Disclosures: Morning Note 09-18-14 ECTE

Echo (ECTE) Note 09-15-14

downloadreportPlatinum Finally Sues as Echo Refuses to Submit Books & Records
Nobody in Charge? 2nd Interim CEO Steps Down – No Replacement Announced
Reiterating Avoid/Sell as the Trainwreck Continues

Download Full 6-Page Note with Important Disclosures: Morning Note 09-15-14 ECTE

After the market closed Friday, Platinum Management, Echo’s largest shareholder (owning 20% and 30% on a fully converted basis) announced a lawsuit based on Echo’s refusal to provide the company’s books and records as requested by Platinum on July 23rd under Section 220 of the Delaware General Corporation Law. Platinum stated that they have reason to believe based on input from a former service provider that certain directors, officers and other employees may have been involved in, and/or may have attempted to cover-up potentially improper conduct and “…serious concerns that the Lingering Directors’ actions may be the result of more than mere incompetence.. The full press release can be found at http://prn.to/1ANZQLM and Platinum’s original July 23rd request can be found at http://prn.to/1nEa3J1. Delaware Section 220 Inspection of Books and Records can be found at http://delcode.delaware.gov/title8/c001/sc07/

Nobody In Charge? Ms. Burke, Echo’s general counsel, was named interim CEO on June 30th for 60 days expiring August 30th. Echo’s website indicates she is no longer interim CEO and the lack of SEC filings since August 19th appears to confirm that Echo has not had a CEO for the past 2 weeks. We note that Echo has not had a permanent CEO for the past 11 months and has now gone through 2 interim CEOs (there is an interim CFO). We find it ironic that the only members of Echo’s management/board with actual CEO experience are Platinum’s representatives.

Running Out of Cash: As of June 30, 2014, Echo had just $4.1M in cash. So far this year, Echo management has spent $560K in failed Board battles that were clearly unwinnable and represent a poor use of shareholder money. Echo is now warning about a potentially dilutive offering stating “The Company continues to explore a variety of funding alternatives which it believes, together with the cost reduction initiatives, is necessary to permit the Company to ultimately achieve its clinical trial and regulatory approval objectives.

Symphony Development Delayed? We note that Echo reduced headcount by 35% and stated “In the absence of a financing or strategic transaction, Echo’s ability to achieve its previously stated product development timelines will be negatively impacted by the Company’s effort to preserve cash and reduce expenses.” We believe the absence of specific development progress in their Q2 press release and 10-Q along with a lack of Q2 investor conference call indicates to us that little progress has been made on the GEN2 system needed for CE Mark and FDA approval. As a reminder, on May 9, 2014, Echo stated that their CE Mark notifying body requested additional data as a result of individual patient variability and that Echo stopped GEN1 development to work on a GEN2 system instead.

Chinese Partner Balks: Medical Technologies Innovation Asia (MTIA) had agreed to make a $5M equity investment in Echo in exchange for licensing the Symphony technology. After making an initial payment of $2.4M of the $5M earlier this year, MTIA still has not paid the remaining $2.6M, which we believe is likely due to lack of confidence in Echo management.

No Response to Alternative Game Plan: On July 18th, Echo’s largest shareholder, Platinum, held a shareholder forum and presented a credible product develop game plan including a fast-to-market strategy for the Symphony tCGM system in the rapidly growing wearable technology space for dieters, athletes and pre-diabetes markets. Also presented was a development plan for gestational diabetes, which currently affects 4% of all pregnant woman but new guidelines from the IADPSG (International Association of Diabetes Pregnancy Study Groups) could increase glucose monitoring for up to 20% of all pregnancies. The plan would also continue the current critical care pathway but focus on a more commercially-viable lower-cost system incorporating GEN2 features. Finally, an informal non-binding vote taken during the forum, estimated at representing >50% shareholders called for, among other things, the resignations of legacy directors, Mr. Enright, Mr. Grieco and Mr. Smith (see all voter referendums at http://prn.to/1neYSFy)

Reiterating Avoid/Sell Rating: Echo has been financially rewarding for management, the Board, their lawyers and proxy advisors but for shareholders, not so much. After a disastrous 3 years where Echo’s stock has declined 95% due to multiple poorly executed financings, an incredibly ill-timed 1 for 10 reverse-split, lawsuits, and losing two Board battles with Platinum, their largest shareholder, Echo finds itself with no permanent CEO or CFO, no product, low cash, a spooked Chinese partner, a split Board and a great deal of investor animosity. We continue to believe Echo Therapeutics remains uninvestable unless dramatic changes are undertaken to refocus on developing the Symphony tCGM system and its Prelude and wireless biosensor components.

Download Full 6-Page Note with Important Disclosures: Morning Note 09-15-14 ECTE

Echo (ECTE) Update 09-02-14

downloadreportMaintaining Avoid/Sell Rating
No Permanent Management, No Game Plan, Low Cash
Recalcitrant Board Stokes Investor Animosity

Download Full 22-Page Update Report with Important Disclosures: ECTE Update 09-02-14

No Permanent Management: We note that Echo has not had a permanent CEO for the past 11 months and is now on their second interim CEO and more recently, an interim CFO. After a disastrous 3 years where Echo’s stock has declined 95% due to multiple poorly executed financings, an incredibly ill-timed 1 for 10 reverse-split, lawsuits, and losing two Board battles with Platinum, their largest shareholder, Echo finds itself with no product, low cash, a spooked Chinese partner, a split Board and a great deal of investor animosity.

Running Out of Cash: As of June 30, 2014, Echo had just $4.1M in cash. So far this year, Echo management has spent $560K in failed Board battles that were clearly unwinnable and represent a poor use of shareholder money. Echo is now warning about a potentially dilutive offering stating “The Company continues to explore a variety of funding alternatives which it believes, together with the cost reduction initiatives, is necessary to permit the Company to ultimately achieve its clinical trial and regulatory approval objectives.

Symphony Development Delayed? We note that Echo reduced headcount by 35% and stated “In the absence of a financing or strategic transaction, Echo’s ability to achieve its previously stated product development timelines will be negatively impacted by the Company’s effort to preserve cash and reduce expenses.” We believe the absence of specific development progress in their Q2 press release and 10-Q along with a lack of Q2 investor conference call indicates to us that little progress has been made on the GEN2 system needed for CE Mark and FDA approval. As a reminder, on May 9, 2014, Echo stated that their CE Mark notifying body requested additional data as a result of individual patient variability and that Echo stopped GEN1 development to work on a GEN2 system instead.

Chinese Partner Balks: Medical Technologies Innovation Asia (MTIA) had agreed to make a $5M equity investment in Echo in exchange for licensing the Symphony technology. After making an initial payment of $2.4M of the $5M earlier this year, MTIA still has not paid the remaining $2.6M, which we believe is likely due to lack of confidence in Echo management.

No Response to Alternative Game Plan: On July 18th, Echo’s largest shareholder, Platinum, held a shareholder forum and presented a credible product develop game plan including a fast-to-market strategy for the Symphony tCGM system in the rapidly growing wearable technology space for dieters, athletes and pre-diabetes markets. Also presented was a development plan for gestational diabetes, which currently affects 4% of all pregnant woman but new guidelines from the IADPSG (International Association of Diabetes Pregnancy Study Groups) could increase glucose monitoring for up to 20% of all pregnancies. The plan would also continue the current critical care pathway but focus on a more commercially-viable lower-cost system incorporating GEN2 features. Finally, an informal non-binding vote taken during the forum, estimated at representing >50% shareholders called for, among other things, the resignations of legacy directors, Mr. Enright, Mr. Grieco and Mr. Smith (see all voter referendums at http://prn.to/1neYSFy)

Reiterating Avoid/Sell Rating: Echo has been financially rewarding for management, the Board, their lawyers and proxy advisors but for shareholders, not so much. As a result of management’s actions, Echo now finds itself with no product, low cash, a spooked Chinese partner, a split Board and a great deal of investor animosity. We feel like the U.S. Major in the battle for Ben Tre during the Vietnam Tet Offensive who stated “‘It became necessary to destroy the town to save it“. We continue to believe Echo Therapeutics remains uninvestable unless dramatic changes are undertaken to refocus on developing the Symphony tCGM system and its Prelude and wireless biosensor components.

Download Full 22-Page Update Report with Important Disclosures: ECTE Update 09-02-14

Echo (ECTE) Note 07-24-14

downloadreportThe Gloves Come Off as Platinum Demands Echo’s Books & Records
Dissident Platinum Shows Solid Game Plan for Symphony tCGM Development


Download the Full 7-Page Note with Important Disclosures:
Morning Note 07-24-14 ECTE

The Gloves Come Off: Echo’s largest shareholder Platinum Management (at 20% and 30% fully converted) is now invoking Section 220 of Delaware’s corporate law statutes demanding to inspect the books and records for Echo Therapeutics. Platinum stated they are specifically looking for possible mismanagement, breaches of fiduciary duty and wrongdoing by, among others, members of the Board and the current interim CEO. The letter states the documents are due on or before July 30, 2014. Platinum’s press release with comments are at: http://prn.to/1nEa3J1 and Section 220 Inspection of Books and Records can be found at: http://delcode.delaware.gov/title8/c001/sc07/

We continue to reiterate our Avoid/Sell rating as the company in its present condition is uninvestable in our opinion. We remain disappointed that almost a year has gone by since several senior management changes, countless board meetings combined with a successful dissident shareholder proxy battle, which have all have failed to compel Echo to fully unlock the value of the Symphony tCGM and its underlying technology. We believe the strategic game plan presented at the July 18th shareholder forum and supported by Platinum is a credible way forward for the company while we await Echo management’s response.

Download the Full 7-Page Note with Important Disclosures: Morning Note 07-24-14 ECTE

Echo (ECTE) Note 07-23-14

downloadreport

Dissident Platinum Shows Solid Game Plan for Symphony tCGM Development
Reiterating Avoid/Sell as Echo “Enrages Rather than Engages Shareholders

Download Full 6-Page Note with Important Disclosures: Morning Note 07-23-14 ECTE

Echo’s largest shareholder Platinum (at 20% and 30% fully converted) held their shareholder forum on July 18th and we believe presented a credible product develop game plan including a fast-to-market strategy for the Symphony tCGM system in the rapidly growing wearable technology space for dieters, athletes and pre-diabetes markets. Also presented was a development plan for gestational diabetes, which currently affects 4% of all pregnant woman but new guidelines from the IADPSG (International Association of Diabetes Pregnancy Study Groups) could increase glucose monitoring for up to 20% of all pregnancies. The plan would also continue the current critical care pathway but focus on a more commercially-viable lower-cost system incorporating GEN2 features. Finally, an informal non-binding vote taken during the forum, estimated at representing >50% shareholders called for, among other things, the resignations of legacy directors, Mr. Enright, Mr. Grieco and Mr. Smith (see all voter referendums at http://prn.to/1neYSFy):

While it is understandable that Echo management would not attend the forum, we were disappointed that they did not release an updated development game plan for investors, as we feel the current plan fails to unlock enough shareholder value compared to the time and development costs required.

We continue to reiterate our Avoid/Sell rating as we continue to view the company as uninvestable. The cognitive dissonance between Echo’s disastrous 3-year performance and management’s willingness to continuously enrage, rather than engage, a passionate shareholder base is a red flag in our opinion. While we don’t have any insight into management’s current strategy, if any, we certainly hope it is worth any potential damage to their reputations within investment community.

Download Full 6-Page Note with Important Disclosures: Morning Note 07-23-14 ECTE

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