Traditional Chinese Medicine company Regencell Bioscience listed on the NASDAQ in July 2021. The company was attacked by short-seller Peabody Street Research in March 2022 alleging a number of corporate governance issues such as professional misconduct and questionable use of funds. The company's CFO resigned a month later although its share price has held up well. Additional clarity might be provided when the company published its next audited financials for end-June FY22, due to be published in October.
Last updated August 2022.
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Regencell Bioscience is a traditional Chinese medicine (TCM) bioscience company. It focuses on the research, development, and commercialisation of TCM for the treatment of neurocognitive disorders and degeneration, primarily attention deficit hyperactivity disorder and autism spectrum disorder. The company was incorporated in 2014 and is headquartered in Hong Kong. Regencell listed on the NASDAQ on 16 July 2021 and raised US$25m in its IPO. The manager of the offering was Maxim Group.
On 1 March 2022, short-seller Peabody Street Research published a short report: "Professional Misconduct, Luxury Apartments, An IPO Bailout & More". Main issues as follows:
- Regencell's FY21 (to end-June) annual report notes the company's dependency on its partner, Sik-Kee Au, who is the father of the founder. Sik-kee Au granted Regencell the exclusive rights and ownership of all his traditional Chinese medicine formulas as well as exclusive IP rights. However, Peabody uncovered that Sik-Kee Au was found guilty of professional misconduct in August 2021 by the Chinese Medicine Practitioners Board of the Chinese Medicine Council of Hong Kong.
- Sik-Kee Au was proven guilty of professional misconduct during the time period in which Regencell's first trial was conducted.
- Peabody was sceptical of recent trial results for a Covid 19 medicine, noting that it had yet to be peer reviewed. It also noted that it was conducted outside of Hong Kong; perhaps to avoid further penalties from the HK Chinese Medicine Council.
- Peabody questioned Regencell's leasing of two luxury apartments costing US$14k a month.
- Prior to its IPO, the company had US$67k in cash, negative shareholder equity of US$4m and was burning through US$112k a month. Peabody believed it was close to insolvency.
- Peabody questioned the company's plans for spending its IPO proceeds. It noted that no funds had been allocated to the commercialisation of its products.
- Regencell had been burning through cash at an increasing rate; increasing by 108% from FY19 to FY20, and 66% from 2020 to 2021.
- Lastly, Peabody pointed out the IPO underwriter's recent record. Regencell's underwriter was Maxim Group. Six of its IPOs in 2021 had returns in the range of -45% to -93%.
Peabody concluded saying that failure to disclose Sik-Kee Au’s professional misconduct, renting luxury apartments and the continuation of non-scientific studies did not bode well. It estimated 100% downside on the stock.
The company did not respond to the report.
On 26 April 2022, the company announced the resignation of CFO Mr. Tien Hsiang Chau for family reasons. No replacement was announced.
COMMENT: Clearly, the resignation of the company's CFO without a replacement so close to the short-seller's publication is a concern. However, the company's share price remains largely unchanged since. We will have to wait for audited financials to be published in October to get additional clarity.
Regencell generates no sales and so there is no point putting its financials through our A&G Screen.
Peabody Street Research: Professional Misconduct, Luxury Apartments, An IPO Bailout & More, 1 Mar 2022
Regencell Bioscience: Annual Report - YE Jun. 2021
Regencell Bioscience:: Prospectus, July 2021
SEC: Regencell Bioscience Filings