“How to get this $35,000/gram miracle cure for just $0.65” — that’s the subject line of the latest teaser ad we’re reviewing … how can you resist?

The folks at Angel Publishing appear to be spinning off some of their newsletters, with Nick Hodge headlining, into a new little entity called the Outsider Club — which, as far as I can tell, is just another of the dozens of interrelated newsletter brands that have been built by Agora-affiliated publishers over the years. Some of them catch on and build big mailing lists, some of them quietly disappear.

But this pitch is not really just from this “Outsider Club”, it’s from Nick Hodge’s pricey newsletter called Early Advantage, which has been around for many years at Angel Publishing — it used to be called Alternative Energy Speculator until they realized that particular subsector was losing investor interest a couple years back, and it has called some interesting stocks to our attention, including Westport Innovations about five years ago before they were listed in NY.

So I tend to pay attention to their new picks even though some of the tiny ones end up being crash-and-burn disasters — my readers keep asking about them, and they pick so many tiny stocks that their attentions have a tendency to drive big spikes in the share price. I expect we’ll see the same thing once again here, since this latest teaser pick (which I mentioned a couple weeks ago, but haven’t gotten to looking at closely until now) is even smaller than most.

Of course, such spikes up in price are usually followed by a collapse if the story doesn’t play out as cleanly or as quickly as the ads always seem to imply, but they can at least be fun to watch.

So what’s Hodge’s latest darling stock?

Here’s the teaser pitch:

“… for 5+ years, a team of America’s foremost scientists has been hard at work in a laboratory… working on a Nobel Prize-worthy discovery.

“And it ALL revolves around the giant keyhole limpet… or more simply, the sea snail.

“It’s something you’d ordinarily see in a sci-fi film. But this is very real.

“And if you understand why this sea snail is so crucial — and what these scientists discovered while burning the midnight oil — you’ll be on the fast track to 300x your money profits….

“What was unearthed in a Ventura County lab is something that will alter the way the medical world operates forever…

“Few discoveries in history have had the kind of impact this one will have. It’s simply so game-changing, examples of past scientific developments may be completely pointless.

“We’re treading on truly unheard-of profit territory here.”

Well, we can at least rest assured that the fertile fields of hyperbole are growing nicely in Baltimore, MD — how can you not want to know about “unheard-of profit?”

Even if we know that the reality never matches the hype, there’s still that little part of our brain that says, “what if he’s even just halfway right?”

He compares this advancement to the big antiviral discoveries made by Gilead Sciences (GILD) back in 1992, and shows the dramatic stock move from 50 cents or so up to the low $20s — he doesn’t mention that it took 15+ years of patience and fortitude to enjoy those gains, or how many other companies seemed to have similarly exciting discoveries in 1992 and are now bankrupt, but you get the idea — biotech is one of those areas of the market where huge gains are possible. And even though the fact isn’t hammered into your head everyday the way those potential gains are, you probably area also quite aware that with 1,000%+ return potential you almost always get a heightened risk of 100% losses.

So what is this “Magic Molecule” that’s supposed to make us rich?

Here’s some more from the teaser ad:

“The world-shaking discovery… REVEALED

“For decades now, medical companies around the globe have heavily relied on a compound known as Keyhole Limpet Hemocyanin (referred to as KLH — or what I call the “magic molecule”).

“That’s a fancy name for what essentially amounts to sea snail blood…

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“KLH only comes from one place: the giant keyhole limpet, aka the sea snail I showed you a picture of earlier. And this sea snail lives in one very specific part of the world, off the coast of Central California….

“Here’s the key: There are only 100,000 of these creatures left in the wild. Once the KLH has been extracted from them, they die.

“In other words, the hundreds of drugs that rely on KLH — the drugs that assist patients who suffer from cancer to Alzheimer’s to drug addiction — are in grave danger of extinction… along with this specific species of sea snail.

“None of this may seem very exciting, but get this: Because it’s so scarce, the KLH extracted from these sea snails sells for between $35,000 and $900,000 per gram.”

OK, so that’s our little “Magic Molecule” — Keyhole Limpet Hemocyanin. I confess that I had never heard of it before taking a quick look at this story about two weeks ago.

And yes, the Keyhole Limpet was featured in Popular Science as an enabler of a cure for cancer about 18 months ago — an article that is worth a quick read, and that mentions the company that’s farming these mollusks in California to extract their blood.

So is that the same company being teased by Nick Hodge? Let’s quickly check a few more clues:

“Once single company — whose shares currently trade around a mere $0.60 as you read this — is the ONLY company that knows how to extract KLH without killing the sea snail. And they have a patent on it.

“So, not only does no one else know how to do this…

“But this tiny company also has a patent pending for a process in which they raise the sea snails on land.

“That’s what happens when you have the likes of these guys working in your Ventura County laboratory:

• The board-certified immunologist who, together with his team at UCLA, was the first to discover AIDS in 1980; and
• the Professor of Molecular Genetics and Biochemistry at UC-Santa Barbara — named one of the 50 leading technology pioneers of 2006 by Scientific American.”

So … yep, this is Stellar Biotechnologies, which is listed on the Venture exchange in Canada at KLH and also trades over the counter in the US at ticker SBOTF (with low volume in both places, this is a sub-$40 million stock and $100,000 in money flowing in or out could dramatically impact the stock price).

And yes, Stellar is the leading (and practically the only, they say) company that’s sustainably cultivating Keyhole Limpets on land, in a controlled environment aquaculture farm/lab, and extracting their blood for use in vaccines. Their current capacity is about one kilogram of blood per year, which doesn’t sound like a lot — but apparently the amount required for each dosage of a vaccine must be infinitesimally small.

KLH is really a vaccine conduit, not a curative compound in its own right (there are other mollusks that have been touted as miracule cures, like the anti-bacterial and cancer-fighting properties of some sea snails that have been in the press in recent years) — it’s a large molecule that’s safe for humans but has a strong immune response, here’s how they describe it:

“KLH is an important immune-stimulating protein used in wide-ranging therapeutic and diagnostic markets. Potent, yet proven safe in humans, KLH operates as both a vital component for conjugate vaccines (targeting cancer, autoimmune, and infectious diseases) as well as an antigen for measuring immune status. Stellar Biotechnologies was founded to address the growing demand for renewable, commercial-scale supplies of high-quality, GMP-grade KLH. Stellar has developed leading practices, facilities and proprietary capabilities to address this need.”

So apparently this KLH stuff is a great base for vaccines — it’s part of a tested compound for dozens of clinical trials right now, including at least a few active trials where they have supply agreements with pharmaceutical companies. You can see several presentations here about their business and technology. The Wikipedia page explaining this protein gives a pretty good broad overview here.

And the stock has climbed nicely this year, following their listing on the OTCQB and rising awareness among US speculators and plenty of news releases from the company about their aquaculture achievements and the progress of potential vaccines for cancer and other diseases, along with, of course, this recent attention from Nick Hodge. This isn’t the first time the company has been a stock market darling, that Popular Science article came a year after the surge of excitement that drove the shaers from 20-30 cents to well over a dollar for a few weeks in late 2010-early 2011, but we’re broaching new highs for the year again here in the 70 cent range.

That means Stellar Biotechnologies now has a market cap approaching $40 million — laughable for the kind of potential market they’re talking about, with hoped for royalties and other revenue bringing in hundreds of millions of dollars a year perhaps as soon as 3-5 years from now (that’s from one of their investor presentations), but very large for a company that has negligible revenue and posts losses in most quarters of roughly a million dollars. They’ll also have to raise money by selling stock, I expect, if they haven’t made any big deals with pharmaceutical companies by late this year.

But that’s probably the immediate upside potential, beyond the possibility that they might get exciting news from one of the current KLH vaccine trials that leads to a rapid increase in demand for the molecule — they say they are “actively exploring multiple, current avenues of co-involvement with 7 of the 15 largest biopharma companies.”

And for a $40 million company, a joint venture deal with a larger pharma company can easily provide enough cash to keep them going for quite a while — and spur some increased investor love.

I have no real sense for what the market for this KLH will be in the end — certainly demand could be very high if there are effective vaccines for Lupus, Breast Cancer or Rheumatoid Arthritis that use this molecule, but it’s not clear to me what the physical capacity is or what the pricing would be in that world if higher demand… or whether the mass market demand for this compound would lead to new ways of synthesizing it and therefore sidestepping the limited capacity of Stellar’s mollusk farm. They have managed to get these creatures to reproduce in captivity, so they’re managing multiple generations of them and can increase capacity over time, but I can’t imagine that they can increase capacity all that quickly.

The only folks I saw actively selling and quoting prices for KLH for labs were selling it for about $10/mg, I have absolutely no idea whether their variety is as good as Stellar’s (or maybe it is Stellar’s, I dunno), but at that rate a kilogram, Stellar’s annual capacity, would be worth $10 million. If Hodge is right and this stuff is good enough that it sells for $35,000-900,000/gram, then that means their annual kilogram of KLH production could pull in somewhere between $35 million and $900 million a year in revenue.

So that’s a pretty wide range, potential revenue somewhere between $10 million and $900 million … which doesn’t count any royalties they might get for their proprietary products or from joint ventures if they really proceed with developing their own compounds for clinical study, as they indicate they might.

So far, though, revenue is more like $250,000 over the last four quarters … which means the low end of that estimate would be hugely dramatic growth for Stellar. Of course, whether or not they can ever reach that low-end guess is an open question — it looks really interesting, I can see that they’ve invested a lot (including government grants) to build this sustainable aquaculture and processing capacity, but with science still proceeding and the vaccine trials still pretty early, I can’t even halfway guess what the company should be worth or whether their product will stand out as a crucial component and see increased demand even if prices rise.

But that’s the long-term imagining about Stellar’s future — most likely, the stock will bounce around like a cork as news flows regarding any of their clinical trials or joint venture deals with pharmaceutical companies, so I wouldn’t expect to see the shares trade on some fundamental valuation based on revenue or earnings anytime soon. File this under “speculation” and be prepared for a bumpy ride if you decide to get on board, I expect that Nick Hodge’s attention (and the attention of our merry band here at Gumshoe Nation) will make the stock bouncy even without any fundamental news (average trading volume combined in Canada and the US is not often much more than $100,000, which is very, very light — don’t count on getting out of a position at a reasonable price if you want to sell in a hurry).

If you’d like to hazard a guess as to what the stock is worth, or whether it’s worth a nibble, feel free to use the friendly little comment box below.