Enochian Bioscience’s Dispute On Our Report And Our Response

Out of all the serious issues we bring up in this report, Enochian Biosciences (ENOB) contacted Seeking Alpha to say they only have one dispute (so far) with this report regarding our statement that their claimed value for their intellectual property (IP) is “an artificial price set by the company”. We believe there are much more serious issues to be discussed in the report, such as figuring out the actual value of the IP. We believe the discussion we are having here is one of semantics.

Since they didn’t mention anything about our damning research against their lead “scientist” and inventor of the IP, Serhat Gumrukcu, we’ll assume that everything we posted about him is accurate. This includes our research that he appears to not have earned an MD or PHD designation anywhere despite the company’s claim in their investor presentation, and that he is a convicted criminal.

The following is Enochian’s dispute followed by our response:

Enochian’s Dispute:

First, Note 1 to the Audited Financial Statements states that the “Company accounts for indefinite life intangible assets [the IP] in accordance with ASC 350, ‘Goodwill and Other Intangible Assets’.” To state that accounting in accordance with the FASB Accounting Standards of U.S. GAAP is “artificial” is false and defamatory. Furthermore, in Note 3 to the Audited Financial Statements Enochian details the processes used to in the valuation the IP, which was “a multi period excess earnings model” not an “artificial” measure as falsely alleged in the article.

Second, the assertion that the value of the IP is “set by the Company” is wholly false. As stated in the Note 3 to the Audited Financial Statements, at the time the IP was acquired “The Company retained a valuation specialist to advise management in the determination of the fair value of the various assets [the IP] acquired and liabilities assumed.” As clearly stated, the price was based on the advice of an independent valuation specialist, not “artificially” set by the Company.

Third, as the valuation of the IP is contained Company’s balance sheet and described in the associated Notes as part of the Audited Financial Statements, the valuation based on the advice of an independent valuation specialist was tested by yet another independent valuation specialist in connection with the report of the Company’s independent registered public accounting firm in accordance with the standards of the Public Company Accounting Oversight Board. In other words, the Company’s IP is based on a clearly defined standards applied by not one, but two independent valuation specialists, and the article’s statement that the IP’s valuation is an “artificial price set by the company” is clearly false and defamatory.

White Diamond’s Response To Dispute:

Enochian’s HIV drug IP is pre-clinical, which according to Investopedia “is usually assigned zero value” has no published data anywhere that we have found. It was created by Serhat, who is a convicted criminal with apparently no biotechnology experience. Furthermore, the HIV drug pipeline is not even patented yet, so there were no patents sold. We believe this IP is worthless, however, the company claims it’s worth $154.5M as shown on its balance sheet.

First, the company paid for the IP with illiquid shares from its shell company that had minimal assets after its cancer vaccine failed. There was no cash used to purchase this IP. So the company could claim it’s worth $10B if it wanted to, the shares can be worth whatever they say it is. If the company had value when the shares were given for the IP, then that would be a more accurate and realistic determination of the value of the IP. For example, take a company like Pfizer (PFE), with a solid, real-world share value based on real assets, its shares are currently worth about $37 apiece. If Pfizer paid for an IP with 1 million shares, then we could accurately value the IP at $37M.

The company claims that the price was based on the advice of an “independent valuation specialist”, so therefore the price isn’t “artificial”. First, that specialist was not independent. As stated in ENOB’s recent 10-K:

“The Company retained a valuation specialist to advise management in the determination of the fair value of the various assets acquired and liabilities assumed.”

As stated above the company “retained” the specialist, meaning that they paid for the services. Being paid means the specialist is not independent as it’s in their best interest to advise a high valuation to satisfy their customer, Enochian. Notice the word “independent” is not used in the 10-K to describe this specialist.

It says that the specialist only “advised” management in the determination of the fair value. Therefore, management is the one that ultimately determined the value, not the specialist.

We also don’t see this specialist’s valuation report posted anywhere publicly.

The company claims that further evidence that the valuation is accurate is because the company’s accountant signed off on it. We are not claiming that this valuation was done in an illegal fashion or violated accounting standards. But it was subjective based on the company’s opinion. As we have shown above, management was the one who ultimately determined the value of the IP.