Nov 292011

English: Burzynski Institute Logo

The Burzynski Research Institute is a publicly traded company. I shit thee not, it is traded in an over-the-counter (OTC) market under the sobriquet of BZYR.OB. It’s what is termed a ‘penny stock’: individual shares cost less than a dollar. They are usually considered high-risk investments, in that you may make a killing if you’ve picked a winner: this is the legendary startup with a genuinely novel product (see: Facebook, Google, Amazon). More likely, you’ll lose your entire investment when the company folds or the bubble bursts. Oh, and the majority of the shares are not for trading: someone, usually the founder and his/her family, will have a controlling share that allows them to do exactly what they like with the company.

However, maybe the BRI is one of the smart picks. Let’s see. First, an extract from the blurb that goes with share price on the EDGAR listing:

As of May 1, 2011, there were approximately 2,000 holders of record of the Company’s Common Stock, as shown on the records of the Transfer Agent and Registrar of the Common Stock. Since many shares may be held by investors in nominee names, such as the name of their broker or their broker’s nominee, the number of record holders often bears little relationship to the number of beneficial owners of the Common Stock.

The Company has never paid cash dividends on its Common Stock and the Board of Directors intends to retain all of its earnings, if any, to finance the development and expansion of its business.

So, dividends are to be filed under YOU WISH. How about capital gains, then? The current share price is $0.32, significantly up on the $0.15 to $0.20 range I can see from January 2009, but less than the peak of $0.51 earlier this month. Over 5 years it’s been as low as $0.07. So it’s suddenly taken off: why? It can’t be the quarterly financials, they show a loss. They always show a loss.

Have a look at the published, audited results for the last three financial years, again on Yahoo! since they don’t provide an embed service and I suspect it would be both rude and dishonest to copy/paste this from their site. The first thing that strikes us is not that the Institute makes a hefty (for a small company) loss of around $5 million every year, but that it has no declared income. Nothing, nada, zilch, rien, nic, naught, the square root of bugger all. Not a fucking sausage.

What manner of WTFuckery is this?

Liquidity and Capital Resources

The Company’s operations have been funded entirely by Dr. Burzynski with funds generated from Dr. Burzynski’s medical practice. Effective March 1, 1997, the Company entered into a Research Funding Agreement with Dr. Burzynski (the “Research Funding Agreement”), pursuant to which the Company agreed to undertake all scientific research in connection with the development of new or improved Antineoplastons for the treatment of cancer and Dr. Burzynski agreed to fund the Company’s Antineoplaston research for that purpose…

Hmm. So, instead of the funds supplied by Stan The Man being included in income, to offset expenses, it’s going… where? Share capital. These are USA financials, so stockholders’ equity is at the bottom. Look at the share capital being increased to cover losses.

WHO AUDITED THIS BULLSHIT? You see, there are rules in accountancy. Principles, we call them. You could be forgiven for thinking otherwise, after all the grief a collection of money-grubbing merchant bankers (euphemism) has put the world through in the past few years, but principles there are. One of the first you learn is that you match expenses with income and capital with capital expenditure.

In other words, if the company is expensing its R&D, as it is here, it should have income coming in from somewhere. Increasing share capital is fair enough if you’re financing an asset, which in this case would be R&D expenditure on a drug/treatment/whatever which can reasonably be expected to be recouped later through sales, licensing fees and so on. But they’re not capitalising R&D expenditure, they’re writing it all off. Every last fucking penny is being binned. It is not going into the balance sheet as an asset expected to generate future revenue.

To me, as a professional accountant, this says quite clearly: the so-called ‘research’ being conducted at the Burzynski Research Institute is worthless and they know it.

Clearly, this situation is untenable. Money is being poured into a bottomless pit, until such time as either the miracle cure is proved to work and the patents… er no. The Institute has only about $4,000 of fixed assets, and that’s the net value after depreciation of the furniture. The Institute doesn’t even hold the patents on the drugs it’s supposed to be researching. +24 WTF points, new balls please.

Incidentally, just how solid is Dr Burzynski’s financial support and commitment to the Institute? I mean, apart from the tax relief which he probably gets from small company investment? Well, his legal commitment is purely short-term (maximum one year):

 In the event the research results in the approval of any additional patents for the treatment of cancer, Dr. Burzynski shall own all such patents, but shall license to the Company the patents based on the same terms, conditions and limitations as are in the current license between Dr. Burzynski and the Company…

The Company entered into a third amendment to the Research Funding Agreement, effective March 1, 2007, whereby the Company and Dr. Burzynski extended the term thereof until February 28, 2008, with an automatic renewal for an additional one-year term…

The Research Funding Agreement automatically terminates in the event that Dr. Burzynski owns less than fifty percent of the outstanding shares of the Company, or is removed as President and/or Chairman of the Board of the Company, unless Dr. Burzynski notifies the Company in writing of his intention to continue the agreement notwithstanding this automatic termination provision.

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  • Geoff Robbins (@_TheGeoff)

    I’m clearly being dumb here, because this sounds like a tax-dodging scam of some description. You know, fraud, malpractice, tax evasion, that kind of thing.

    It’s obviously my problem, it’s a well written analysis and I can’t for a moment imagine that’s what you’re suggesting, what with “Dr Burzynski’s Lawyer” being so keen on sueing people. I’m clearly not of sound mind or “a reasonable person”.

    Keep up the things I clearly don’t get ;)

  • Storm

    Interesting post.

    I can’t really understand what mechanism they are using to introduce the extra money? If it’s extra capital then shouldn’t it change the share structure…And if it’s a donation shouldn’t it be treated as income?

    • anarchic teapot

      I suppose that since the shares are worth 0, the company having no assets, any skewing of share capital doesn’t really matter. I’m guessing it’s our old friend the share premium reserve that’s being used here.

      As for your point about donation: quite.

      Geoff, I can’t *imagine* where you get wild ideas like that and I’m sure anyone with a contact in Burzynski’s local IRS office would be happy to ask them to look into this just to set our minds at rest.

  • Brew Computer (@BrewComputer)

    Good work. Hope our American chums use the IRS links and donate any award they may receive to a worthy cancer charity.

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