Today we look, for a change, at a UK company — this teaser comes in from the folks at Fleet Street Publications (the British partner of our favorite newsletter megalopolis, Agora), in an ad for a letter called Dr. Mike Tubbs’ Research Investments.
The letter appears to focus on breakout technology and biotech stocks, with a pitch that Dr. Tubbs is an expert at evaluating R&D projects and picking the stocks that will turn that R&D into earnings. Which means that, sort of along the lines of Patrick Cox and his Breakthrough Technology Alert (published by the Agora mother ship), subscribers are probably going to be hearing mostly about new technology stocks and new biotech drugs.
And that’s the case today, with this “Formula A-04” that is apparently a “radical” advancement. Here’s how the story begins in the teaser letter:
“’Formula A-04′ — A drug so potent all competitors will be IMPRISONED for 14 years if they dare copy it!”
“13 years ago the Home Office granted a British company the licence to develop an extraordinary new drug…
“Before the end of July, the little-known company behind it is due to FINALLY launch to the largest market in Europe…
“But buy in today and you could see your investment soar as the launch triggers a potentially rapid phase of growth…”
One nice thing about the teasers from across the pond is that they are apparently required to have much sterner disclaimers right at the top of the letter … and they cite the sources that they quote at the bottom of the letter. Which would probably help anyone who’s interested to sniff out the real answers — though I know from my days as an academic that most folks never check the footnotes or sources, so I suppose your friendly neighborhood Gumshoe’s job is safe for now.
The letter tells us that this stock has three potential profit drivers:
“Short Term: Before the end of July, ‘Formula A-04’ is due to launch to the largest market in Europe, which could send shares through the roof. Profit potential: 55% in 12 months
“Medium Term: A second ‘trigger’ is already on the horizon and could be the key to a $3 billion cancer market. Profit potential: 500% in 2-3 years
“Long Term: A pipeline of 8 drugs, all derived from ‘Formula A-04’ – for diseases like epilepsy, diabetes, inflammation and cancer – could turn this tiny firm into a billion pound pharma giant. Profit potential: 1,000% in 5-10 years”
And this one sounds far sexier than the usual chemical compounds — we get a picture of razor wire fences not of white labcoats:
“… a radical new painkiller that’s so potent you’d be imprisoned for 14 years if you dared to copy it.
“I’m serious. If you were to even begin to research how it’s made, you’d need a special licence from the Home Office to prevent you being prosecuted.
“In fact, the few scientists who ARE allowed to produce it commercially are only allowed to do so by specific Home Office consent.
“Every existing sample of its core element is registered and genetically ‘fingerprinted’ to ensure it can be tracked down if stolen…
“The location of the compound that houses it is kept secret and under 24-hour surveillance…
“And when the drug is moved, it’s escorted in high-security vans.”
So why the surveillance and high security? This drug also apparently has a fun side:
“That’s because the drug is derived from a very potent controlled substance… a substance even major pharmaceutical firms are not legally allowed to study… something you or I would be imprisoned for several years if caught cultivating.
“It’s a substance that holds the key to the potential behind the drug I’m calling “Formula A-04” for the purposes of this report.
“Well this company is the only business in Britain to have such a licence – and is allowed to cultivate it for commercial purposes.”
So they’re working with this “controlled substance,” and apparently it is proving to be promising as a pain killer for Multiple Sclerosis patients, and maybe for cancer patients as well. The “Breakthrough” is that this compound works on a different receptor in the brain, we’re told:
“Rather than attaching itself to ‘MU’ receptors in the brain – the same receptors opiate painkillers like morphine and codeine are associated with – this drug offers pain relief by ‘binding’ to something else…
“It’s a part of the brain that’s scientifically denoted as ‘CB1’… stimulating a response that other drugs can’t and significantly ‘dimming down’ pain.
“In fact, this ‘CB1’ receptor can only be stimulated by ‘Formula A-04.’
“It’s a radical, revolutionary and truly unique way of treating pain and disability. And only one company in the country can legally develop it.”
So this first driver is that the drug will apparently be introduced for MS in Germany (yes, that’s the “largest market in Europe”) sometime in July, and they expect sales right away:
“… the business has already started ‘stockpiling’ supplies to meet what it thinks will be massive demand.
“Our conservative estimates suggest that could generate £21 million in royalties….
“Our company has licensed one of the largest pharmaceutical companies in the world to commercialise the drug beyond Europe.”
And we’re told that that second breakthrough would be if they are able to get the drug approved for cancer pain …
“If approval is granted for cancer treatment – and if everything goes to plan – we believe you could see your stake multiply by three, four or even five times within the next two years.
“See, our estimates suggest that if this firm could establish a foothold in just 5% of this cancer market, yearly sales could top £963 million.”
And in addition to the more prominent disclaimers, the UK newsletter hypesters also tend to be a little stronger in their “caution” language … while still, of course, painting a very rosy picture:
“Investing in this firm – as with all investing – comes with risks attached. This is a relatively small company that could be on the verge of a BIG breakthrough. But that doesn’t guarantee you profits. In fact, like any investment in shares, your capital will be at risk.
“You’re also unlikely to receive any dividends for the foreseeable future (any profits are likely to be ploughed back into more Research and Development and used to fuel future growth).
“What’s more, it’s possible one of the drugs in the pipeline may fail in its clinical testing (although the first drug due to hit the German market soon has already passed all its clinical trials).
“So it goes without saying that you shouldn’t be investing money in this unless it’s spare capital you can afford to lose”
After that, of course, we have to have a little more optimism — so they close us out with the third potential profit “breakthrough”:
“You might well find this difficult to believe, but there’s even more potential to this company.
“See, even as research into a second painkiller designed to ease the pain of chronic cancer sufferers went on… a whole series of other possible uses of the drug were discovered.
“Treatments for epilepsy, glioma, metabolic syndrome, diabetes, neuropathic pain, chronic inflammation and anti-cancer properties– I could go on.
“Each one has swelled the firm’s drug pipeline even more, creating new and unchartered ways to profit.
“Now it goes without saying that many of these treatments are still in the early stages; it’s doubtful all of them will make it to market.
“But each one ‘locks-in’ a little more moneymaking potential.
“Any one of them could hugely benefit this firm, bringing huge new revenues in over the longer term.”
So … answers? Well, you could get ’em by signing up for Dr. Tubbs’ newsletter for £ 400, of course (that’s about $640 over on this side of the Atlantic) … but if you’re here I imagine you’re looking for something a bit more, let’s say, “free-ish,” right? Happy to oblige … this is GW Pharmaceuticals (GWP in London, GWPRF on the US pink sheets).
And yes, as you’ve probably already figured out, the drug — which is called Sativex — is derived from cannabis. Which reminds me, it’s time for my afternoon snack.
The shares of GW Pharma have been on a tear for the last month or so — they got positive news about Sativex approval for a number of European markets in March (including Germany), which was largely expected since it was already approved in Britain and Spain, and then, in the news that provided a real pop, they made an agreement with Novartis to market the drug in several other countries around the world — that’s seen as key largely because Novartis is expected to have a great MS business built around their new drug Glevinya, so perhaps, as the company implies, add-on sales for Sativex as a symptom reducing drug would match up well with Glevinya’s disease-modifying properties.
So that’s where we are now. They are progressing on the cancer pain indication as well, with an early phase III study being paid for by their partner Otsuka Pharmaceuticals. They have pretty impressive partners — Bayer markets Sativex in the UK and Canada (where it’s already approved for cancer pain), Almirall in Spain and the EU, Otsuka in the US, and Novartis in much of the rest of the world — doesn’t look like they have a partner for Japan and China yet, but I’m not sure. GW Pharma in most of these agreements manufactures and supplies the Sativex, and the partners are paying for much (or all) of the product development costs and expected to make milestone payments and royalties to GW. You can see their major partner deals here, and their development pipeline here.
I like the model, it allows them to have pretty strong leverage to what might be a very big drug if it gets heavily prescribed for cancer pain without spending an overwhelming amount on the expensive latter phases of the approval process, so you get a company that’s pretty small with exposure to a business that might be quite large. Of course, it’s not as much of a hugely leveraged bet as if they had spent the money themselves and kept all the rights to the drug instead of getting royalty or partner payments, but lots of companies who have that kind of ambition end up getting sunk by a failed clinical trial.
I have no expertise in evaluating these kinds of companies or products, I’m afraid, so I can just tell you that this seems quite certain to be the stock teased, and that their business model is appealing. And yes, there is probably some barrier to entry given the additional regulatory oversight that working with cannabis implies — that’s why their secret cannabis farms in the UK are kept under wraps with tight security — but I imagine that patent protection of the specific compounds and applications would probably be a stronger barrier than the simple fact that the drug is a cannibinoid.
The market cap is a bit shy of $300 million, and the company is currently selling product and making a profit … though the two aren’t exactly connected. Sales are very low so far, since they’ve only had a couple relatively small markets and it’s a new product — product sales did double in the six months ending March 31, but that was to only GBP 1.9 million, a number that’s dwarfed by the R&D payments that they get from their partners, mostly from Otsuka. They seem to have plenty of cash on hand at about GBP 28 million, which should be a nice cushion considering that their R&D payments from partners cover a large portion of the overall R&D budget, and their actual product sales can theoretically be made at a profit even in pretty low volume (cost of goods sold and administrative expenses together were lower than their actual products sales), so that’s encouraging. You can see their interim report with all of the sales details and their operational updates here.
And while the pipeline does have several different products, it’s also worth noting that when all the products are based on the same (or very similar) compound applied to different diseases or indication, as these largely seem to be, then the drug safety risk is more concentrated than you might ordinarily assume for a multi-compound pipeline — if there’s a surprising health risk for one of the projects in their pipeline, the risk might apply to the other projects as well. Not that I expect one or have any idea what the risk profile is, it’s just a general concern to keep in the back of your mind when biotech companies build what looks like a diverse pipeline off of a single platform or idea.
Will Sativex (or “Compound A-04” if you prefer) really take off as a pain treatment? Well, I hope so, there’s always room to better ease the suffering of cancer patients … and it sounds like their treatment of MS symptoms might be quite promising.
They seem to be on pretty steady ground financially with strong partners, so I have no idea whether or not the stock will take off, but it’s certainly more compelling looking than some of the early stage biotechs that we see teased — after all, we get plenty of pitches for companies that are years from selling anything, and GW is at least making sales and has approvals for a market (MS symptoms in Europe and Canada) that could possibly get them enough sales to sustain the company as they hope for bigger markets, particularly the US cancer pain market, in the years ahead. Whether or not you see them gaining 55% in a year on sales in Germany as Dr. Tubbs does, or possibly 1,000% in a decade on approvals of other compounds in their pipeline, well, that’s your call. If you’ve got a thought to share as you weigh the pros and cons, let us know with a comment below.
P.S. Stock Gumshoe will be largely closed down for vacation for the July 4th holiday week after the new Friday File comes out for the Irregulars tomorrow, so enjoy your time away from our biting blather!