Bell tolls for young stockbroker
[2008-4-7]
Progen Pharmaceuticals, a Brisbane company developing a drug to treat cancer, had made a significant breakthrough.
Clinical trial results released on April 16 last year had showed that Progen's drug, called PI-88, had substantially improved post-surgery survival rates in liver cancer patients.
Clearly excited by the news, Bell Potter's research analyst Linda Ong upgraded her valuation on the company by 30 per cent to $16.31. In a note to clients she described Progen as "Australia's Genentech in the making", in reference to the successful San Francisco company often credited with spawning America's own biotechnology industry.
The stockbroker, aged in his early 20s, jumped on the phone to his clients to relay the story.
Progen's share price, which had been rising steadily in anticipation of the result, was certain to go through the roof, he told them. Did they want to buy in?
The clients, most of them financial planners, appeared keen. So the broker hung up the phone and placed bids for $200,000 worth of stock at around $9 a share.
But Progen's share price did not go through the roof. By the close of trading that day, it had slid 3 per cent to $8.83. The clients, who had never formally committed to the orders, backed out.
Unable to offload $200,000 worth of shares at the elevated price, the stockbroker turned to his parents to bail him out. They were forced to remortgage their house to do so.
This cautionary tale was relayed to The Australian by a senior broker at Bell Potter, who is concerned by how speculative stocks, such as Progen, have been aggressively promoted by the firm.
It follows recent claims that Bell Potter has been threatened with legal action from disgruntled clients who took out margin loans with troubled broker Tricom Equities in order to buy Progen shares.
The clients, who are being sued by Tricom over margin calls, are believed to be considering filing cross-claims against Bells on the basis that they were pushed into the stock.
According to stock exchange trading data, which has been seen by The Australian, Bell Potter has been the most active supporter of Progen during the past 15 months, purchasing a net $27 million worth of stock. The firm has also been prepared to pay more than most other broking houses -- its average buy price was $5.51, compared with the market average $4.76.
Bell Potter has also provided ample corporate support for Progen, joining with eG Capital in underwriting a $34 million fundraising exercise last year.
One of Progen's problems is its failure to secure a licensing deal. More than two years ago, the company told investors that it was involved high-level discussions with multiple global pharmaceutical players.
Progen has had to carry the burden of preparing for its costly phase III trial in liver cancer by itself.
While Bell Potter has introduced many of its clients into the stock in recent years, it is believed that the firm has no plans to recruit a new biotechnology analyst.
A spokesman for Bell Potter declined to comment on the firm's promotion of the biotech or any impending legal action.
He also declined to comment on the young broker whose parents were saddled with a $200,000 bill for Progen shares. It is understood that the broker has since left the industry.
Clinical trial results released on April 16 last year had showed that Progen's drug, called PI-88, had substantially improved post-surgery survival rates in liver cancer patients.
Clearly excited by the news, Bell Potter's research analyst Linda Ong upgraded her valuation on the company by 30 per cent to $16.31. In a note to clients she described Progen as "Australia's Genentech in the making", in reference to the successful San Francisco company often credited with spawning America's own biotechnology industry.
The stockbroker, aged in his early 20s, jumped on the phone to his clients to relay the story.
Progen's share price, which had been rising steadily in anticipation of the result, was certain to go through the roof, he told them. Did they want to buy in?
The clients, most of them financial planners, appeared keen. So the broker hung up the phone and placed bids for $200,000 worth of stock at around $9 a share.
But Progen's share price did not go through the roof. By the close of trading that day, it had slid 3 per cent to $8.83. The clients, who had never formally committed to the orders, backed out.
Unable to offload $200,000 worth of shares at the elevated price, the stockbroker turned to his parents to bail him out. They were forced to remortgage their house to do so.
This cautionary tale was relayed to The Australian by a senior broker at Bell Potter, who is concerned by how speculative stocks, such as Progen, have been aggressively promoted by the firm.
It follows recent claims that Bell Potter has been threatened with legal action from disgruntled clients who took out margin loans with troubled broker Tricom Equities in order to buy Progen shares.
The clients, who are being sued by Tricom over margin calls, are believed to be considering filing cross-claims against Bells on the basis that they were pushed into the stock.
According to stock exchange trading data, which has been seen by The Australian, Bell Potter has been the most active supporter of Progen during the past 15 months, purchasing a net $27 million worth of stock. The firm has also been prepared to pay more than most other broking houses -- its average buy price was $5.51, compared with the market average $4.76.
Bell Potter has also provided ample corporate support for Progen, joining with eG Capital in underwriting a $34 million fundraising exercise last year.
One of Progen's problems is its failure to secure a licensing deal. More than two years ago, the company told investors that it was involved high-level discussions with multiple global pharmaceutical players.
Progen has had to carry the burden of preparing for its costly phase III trial in liver cancer by itself.
While Bell Potter has introduced many of its clients into the stock in recent years, it is believed that the firm has no plans to recruit a new biotechnology analyst.
A spokesman for Bell Potter declined to comment on the firm's promotion of the biotech or any impending legal action.
He also declined to comment on the young broker whose parents were saddled with a $200,000 bill for Progen shares. It is understood that the broker has since left the industry.
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