Stock Gumshoe

This here one is an oldie but a goodie — it’s one that I sniffed out back in April, when but a few courageous souls were following the Gumshoe’s exploits. Now that readership here has exploded tenfold or more, and this teaser ad, virtually word for word, has recently started making the rounds again, I thought I’d share it with you once more. Though readers have recently started forwarding me email ads about this one again, and they appear to still be pushing it, they haven’t even bothered to update the ad with the fact that this company’s share price is now down to $4 from $6. Not something to brag about perhaps, though maybe it makes the company more compelling for some investors.

I’ll leave my original article unchanged, below, except to clarify that although I did own Myriad Genetics back in April, I sold it a few months back and no longer hold any stocks that are significantly focused on Alzheimer’s, as the company teased here is (though I still would pick MYGN over this teased company).

I’ll share a couple other updated notes at the bottom, so read on!

This one’s from Addison Wiggin, selling a nesletter called Emerging Capital Report by Jonathan Kolber. I haven’t come across this one before, but it was sent in by a reader.

The email links here for a “Shocking Buyout Alert” on a micro-pharma company. And you can get a free copy of their special report as part of their Breakthrough Profits Library — risk free, of course!

Or you can come to your friendly Stock Gumshoe if you don’t want no stinkin’ free trial.

Here’s the sell:

“Gains of 30-60X your money or more are all but certain if you’re holding shares when big pharma BUYS IT OUT”

This company’s value is based on “exclusive rights to no less than six patents generated by research conducted by the renowned Mayo Clinic…”

And the real key: This is for Alzheimer’s, one of the great unmet needs in American medicine (and also, unfortunately, a disease that has brought dozens of pharmaceutical companies to their knees — messing with the brain ain’t easy). In the ad’s words:

This company’s “patents isolate and protect a powerful chemical compound that’s virtually free of side effects and at least eight times more effective than some other treatments at combating - and maybe even reversing - one of today’s most dreaded diseases: Alzheimer’s.”

So that sounds awfully promising. The ad talks a lot about the market for Alzheimer’s drugs, which we can stipulate is at least a $2 billion market and potentially much more than that (it’s already $2 billion even with no really effective drugs on the market). If you want to build a blockbuster drug, the ready markets right now that aren’t well addressed at all but that are huge are Hepatitis C and Alzheimer’s, so I see plenty of spam for both.

And it gets better: the “Alzheimer’s drug sailed through FDA Phase 2 drug trials with flying colors”

And better still: This drug doesn’t just go after Alzheimer’s, it also is being studied as a treatment for nerve gas exposure, which means the military and homeland security may be interested as well.

In fact,they’ve also been involved with a “Cooperative Research and Development Agreement with the Army’s Walter Reed Medical Center.”

Not bad.

Some more specific hints:

This company was formed by a reverse merger (not uncommon to save money — or sometimes obscure unfortunate information — for teensy companies).

It’s a $6 stock.

So what is this company, about which Wiggin writes:

“Even if this company never sells a single pill or gets one red cent from Big Pharma, it’ll still likely go up 10 times in value…”

After adding all of that information into the Thinkatronic 4000, I can tell you that this micro-phama company is …

Neuro-Hitech (NHPI.OB)

Oh, wait, there’s news here, too — they’re on the Nasdaq capital market now, so it’s just “NHPI” … good for them!

Their drug is called Huperzine A, and the patents underlying it really did come from the Mayo Clinic (and there are six of them). And I must note that the newsletter publisher is guilty of a little bit of hyperbole here (really! I know, shocking). The drug hasn’t “flown through Phase II with flying colors” just yet, it’s still in Phase II for Alzheimer’s disease, and they expanded this phase by adding some patients back in December, and it’s in Phase I as a nerve agent antidote. I haven’t seen that any results from the Phase II studies have been released which would justify the “sailing through” the way I understand that phrase — but perhaps Mr. Wiggin defines “sailing” differently than I do.

They really are working with Walter Reed, though that’s maybe not such a popular thing to claim these days, and they really are tiny — market cap of just over $50 million.

And the “but, wait … “

Clinical trials for Alzheimer’s take a Looooong time — I own an Alzheimer’s-related company called Myriad Genetics (MYGN at oneguysinvestments.com if you’re interested), and it’s very different drug, Flurizan, is far ahead of this one — but it still has many years likely to go before it gets approved, if at all. So in the drug development timeline the urgency may be there if this is a takeover target, but not necessarily for the drug’s actual commercialization (in my opinion).

Still, as you can see from tons of recent articles and you can imagine from the Baby Boomers entering their Alzheimer’s years, this market gets bigger and bigger and more and more compelling for pharma companies, so maybe someone will buy it out. From just a cursory glance at their financials I would expect Neuro-Hitech to have to enter some kind of partnerships or licensing agreements or be bought out at some point in the not-too-distant future, because the clinical trials they’re doing will be extraordinarily expensive — especially if they continue to Phase III. Whether it will be for $360 a share (60X the current price) is another question entirely, this would have to be a hell of a drug … and if that’s the case, you’d think it would be a lot more popular on the stock market already. Shares have dipped from a high of about $9 when they went public about a year ago to today’s $6ish.

It’s at $5.99 today, so I’ll give them credit for the $6 they claim since I dont’ know when the original email went to my reader.

Just remember: plenty of fortunes have been lost already in the pursuit of an Alzheimer’s cure, so tread softly. As always, maybe it will be a blockbuster, maybe a bust — the Stock Gumshoe doesn’t know, and I haven’t researched it in any real detail, I just get the ball rolling by telling you the company name. Good luck.

And another quick update here, seven months after this teaser started circulating … the shares are no longer anywhere near $6, they’ve fallen back to $4 and change, though they recently perked up a bit — and for a $50 million company, the “perking up” could easily be due to the urgings of this particular newsletter tout, there’s no real way of knowing. There has been essentially no news on the company that I can see, other than the fact that the Phase II trial is taking quite a while to complete (they haven’t yet “sailed through” as the teaser ad says … at least, my definition of “sailed through” would mean that they are done with the trial, and they ain’t). NHPI’s website now says they have the Phase II patients enrolled, with an increase in the number of patients over their initial plan, and they expect the trial to be completed next month (don’t take my word as gospel for any of this, I haven’t dug very deep and the company doesn’t exactly get a lot of press). If the stock’s going to make a move anytime in the near future, I expect the announcement of those results might be the time — though up or down is anyone’s guess. As is the likelihood of the trial results coming out on schedule. The fact that the shares have drifted down from $9 to $4 during the life of the trial is a little bit of an indication that folks may not have a lot of faith in the pending results, but that’s not much of a real predictor as far as I know. One imagines that if this was miraculously curing people we would have heard something by now, or at least had enough leakage of insider tips to boost the stock, but even a mildly positive and safe impact on such a difficult disease could possibly be great news for NHPI.

The other stuff, about the extreme difficulty in getting Alzheimer’s drugs approved, and the likelihood that they’re going to need some more cash if they proceed with Phase III trials later on without a strong financial backer, still holds true in my mind — this drug Huperzine A, which is actually a Chinese herbal derivative, is just now getting to pivotal Phase II trials, and it is by quite a ways the most advanced compound in their pipeline … if you’re waiting on this one to turn into a barn burner it might be a loooong wait unless they somehow win the lottery and get Pfizer or their ilk to buy them out — which is certainly possible, but I have no way of calculating how probable it is. I expect it all depends on the clinical progress of Huperzine A. Best of luck to them, for the sake of patients everywhere I hope it works and is a miracle cure.

This one has been floating around for a week or so, and if I’m right about the company that’s being teased it has already taken flight thanks in part, I expect, to the incessant marketing from Jonathan Kolber’s Emerging Capital Report. Whether it will stay up in the intermediate term, I don’t know.

But I’m getting ahead of myself: What is this company?

The teaser offers very few actual clues that are specific in any way, so it’s difficult to be sure that I’ve got it right. But I’ll provide an educated guess for you.

This is what we know about the company:

Kolber believes that the Sprint/Clearwire WiMax rollout is going to dramatically increase Wimax usage among consumers, and reduce the cost of the equipment as volume climbs. He thinks that will make it feasible to use this microwave transmission standard to provide broadband access in rural and exurban America, in the hinterlands where the “last mile” costs of running fiber or cable are very high.

He says that the company best poised to profit from this is one that already has WiMax experience and is providing some long range microwave-based broadband access now, and is already in rural america providing broadband access with other technologies. Their existing national presence in rural areas will help them to get customers, I guess, and provides them with infrastructure for billing and everything else.

And the only specific clue is that this was a $3.55 stock about a week and a half ago, and a $4 stock when the email was updated a few days ago.

So what do we have here?

As I said, I can’t be absolutely certain … but I think it’s

KeyOn Communications (KEYO, trades over the counter)

This is one of the larger rural broadband providers in the country, serving small and medium sized areas in 11 states, mostly in the West and Midwest. They’re headquartered in Nebraska, right in the middle of their served areas.

And the shares have been on fire lately and had a reverse split, so the shares are no longer at $3 or $4 — you could pick up shares at the close on Friday at about $11, following a week of gains, a 1-2 reverse split, and a 20% gain just on Friday as the split went into effect. So, if we ignored the split, the shares would be at about $5.60 at the moment. Not a bad week. In conjunction with the reverse split they also changed the ticker, so you’ll see some information about the company tied to their old ticker symbol KYCS if you want to delve deeper.

This is a very thinly traded and small company, of course — as are most that trade over the counter, and they appear to be quite a long ways from becoming profitable. Kolber says the firm has found a way to acquire customers in big chunks, and to get them for far less than the cable and large telecom operators have to pay, but that doesn’t necessarily mean they’re worth acquiring. Part of their advantage might be that the competition in their rural and suburban areas is not particularly robust.

So, if this is the company being teased, what is their future going to look like? I don’t know Jonathan Kolber, but I’ll accept the premise that he’s well connected in this world and knows a good prospect when he sees it … but if I were investing with my own money, I’d certainly want to delve into their financials, see how they’re going to finance what would be a very expensive buildout of Wimax in their rural markets (remember, even in the urban areas they’re focusing on Sprint/Nextel and Clearwire are planning to invest billions in building their networks).

And, of course, I’d want to look at the competition — this will compete with the existing broadband that’s offered to some of their areas, including some ISDN and satellite broadband, which are admittedly lower speed and, in the case of ISDN, geographically limited. It also means they’re potentially competing against the big wireless companies if they opt to provide their data networks in more suburban and rural areas, like Verizon’s EVDO network … and Qualcomm recently developed a chip that will allow users to hop back and forth on the various commercial high speed wireless networks, so that could potentially provide some competition as well.

Direct competition might also come from a new company, Open Range Communications (openrangecomm.com) that’s just formed with a big loan from the US government — if they happen to go after the same geographic areas. The federal government has a controversial program that has lent out massive piles of cash to various entities to build out broadband access in these underserved areas, so it’s not necessarily a clean market that will go to just the best service — there’s a lot of “free” money floating around out there.

Other info about KeyOn? They just did an offering to raise a bunch of cash, most of which they’re going to use to buy bandwidth and spectrum and otherwise try to expand. And I’m sure it will be ages and ages before they’re profitable … but still, if they do get reduced costs and a massively increasing market, maybe Jonathan Kolber will be right. What do you think?