The stock price of Italian bioplastics maker Bio-On srl plunged more than 70 percent in less than two days after the release of a scathing report by a U.S. investment firm.
Bio-On officials denied the report's allegations and said they were considering legal action against the investment firm.
Bio-On's share price dropped to 15 euros (US$16.74) in late trading on the Borsa Italiana July 25. The price had opened at 55.30 euros on July 24 and had been above 68 euros in late 2018.
Quintessential Capital Management of New York issued a very critical report on Bio-On on July 19. In the 18-page report, QCM officials said that "after meticulous collection and analysis of information, we came to the opinion that Bio-On is a 'house of cards,' a scheme conceived by management to enrich themselves on at the expense of shareholders."
The report added that although Bio-On is "a seemingly successful company boasting growing revenue and profits," the Bologna-based firm "is actually a massive bubble based on flawed technology and 'fictitious' sales thanks to a network of empty shell companies."
QCM noted in the report that it has "has an economic interest in the price movement of the securities mentioned in this report," which typically means the firm has a short position in the stock.
In a July 24 response, Bio-On officials said that the firm "totally denies the assertions that would attribute to Bio-On's management incorrect behaviors and that the company is communicating false information to the market."
"What has been published is subject to the company's and its lawyers' evaluation for the purpose of its own protection against potential price manipulations by hedge funds," they added. "The fund author of the report clearly declared an economic interest in the company stock price reduction, as reported in its disclaimer."
Bio-On is commercializing polyhydroxyalkanoate (PHA) resins, a biodegradable polyester made by bacterial fermentation of sugar.
In a separate response, Bio-On officials confirmed that its Bologna-area plant "is fully operative and active in PHA production." In their report, QCM officials had questioned the status of that plant.
Bio-On officials added that the production plant "is central to the company's business to create a new standard in PHA production, proved on industrial scale, and accelerating PHA spread in the biopolymers market."
They added that the plant "has been visited over the last few months by multiple public, financial and industrial players, to whom the full operation…was shown."
In May, Bio-On reported a profit of 33.5 million euros on sales of 51 million euros for 2018. Both of those totals are up substantially from 2017.
Bio-On's primary technology is a process in which sugar beet pulp is fermented to yield PHA. Company officials have said that their material is 100 percent natural and biodegradable. Bio-On operates a pilot-scale production plant near Bologna.
In January, the firm announced a partnership with consumer products giant Unilever to use bioplastic micropowders in My Kai brand sunscreens. Bio-On's micropowders won a Best Practices Award in 2018 from global consulting firm Frost & Sullivan.
Since late 2018, Bio-On has announced partnerships to build bioplastic production sites in Russia and Mexico, as well as the formation of Zeropack, a joint venture with agricultural firm Gruppo Rivoira to make packaging for fruits and vegetables.
A little more than 10 percent of Bio-On's shares are publicly traded. Company executives Marco Astorri and Guido Cocagnani — who co-founded Bio-On in 2007 — each own stakes of almost 11 percent. The remaining shares — almost 68 percent of the total — are owned by Capsa srl, a lumber and woodworking equipment firm based in Milan.
