Marc Lichtenfeld, who we’ve covered a number of times in this space, focuses largely on biotech investments — he’s teased a number of them for a variety of different newsletters that he has helmed or contributed to, but it looks like he’s now launching a new letter from the Oxford Club called FirstLine Investor Alert.
Does that mean his Access Group newsletter(s) (Access Group and First Access) that used to be published by White Cap Research didn’t do so well? I have no idea, all of these publishers tend to cut letters if they don’t develop an avid following, but I don’t know what kind of performance they demand before they re-up an editor for a new letter launch. Past teaser picks that came in stamped with his name have been a mixed bag thus far, particularly the medical ideas, though some of those picks (like Cytori Therapeutics and Mela Sciences) have enjoyed pretty nice price performance for at least a litte while before being clobbered.
Regardless, folks are queuing up at the door here to ask the Oracle of Oh-Please-Tell-Us who Lichtenfeld is picking, now that he’s again teasing mega-gains from biotech stocks.
His latest ad talks about the “$4 Trillion Money Slam” that will hit the market, basically telling us that the aging and still relatively wealthy baby boomers will generate such a demand for healthcare spending, at the same time that huge advances in genomics and other areas of biotech extend lives and treat dreaded diseases, that fortunes will be made.
And he pitches several companies, but I wanted to look at this one first because it sounded particularly enticing to your friendly neighborhood Gumshoe (don’t worry, I’ll get to the “regenerative medicine” and the “crush ‘Terminator’ cancer” picks in a future piece if there’s any interest).
The one we’re looking for today is focused on genomics and personalized medicine, which has been talked up many times in teaserland before (remember Frank Curzio’s “$1,000 pill” teaser from last Summer? That pick is now back to right about where it was when first teased, just FYI). Here’s how this new teaser ad perks up our ears:
“… this market … could reach $100 BILLION in the next decade according to a recent Forbes research report.
“And, as Marc told me last week, one small company is in the catbird seat.
“More than 10,000 physicians in over 60 countries have already ordered more than 200,000 of its breast and colon cancer tests.
“It’s also working on a pipeline focused on detection of prostate and renal cell cancers, as well as additional stages of breast and colon cancers.
“And get this: It’s just been announced that the Stage II colon cancer test will be covered by Medicare.
“I don’t even need to explain how huge that is.
“Right now this company’s trading at about $28, with a market cap of well under $1 billion. Yet Marc’s research shows it could rake in $250 million next year alone.”
Well, as someone who has lost a loved one to colon cancer before many of the new drugs, tests and treatments were available, I can’t help but be interested in anything that focuses on this awful disease. So who is it?
Well, feed up the Thinkolator and, voila! This is Genomic Health (GHDX)
Yes, they did just get their (pretty expensive) colon cancer test approved for Medicare patients, one of many approvals they’ve gotten from different national insurance groups around the world for various tests — but that was back in September, so the “news” is most likely reflected quite nicely in the stock. Their product is the “Oncotype DX” cancer test, used primarily for breast and colon cancer to help doctors understand what type of cancer it is and what treatment might be most effective or what risks of recurrence might be. Or at least, that’s my scientifically illiterate understanding of the test.
“Marc’s research” may well show that it “could rake in $250 million” in 2012, but if that’s the case his research may be disturbingly close to the in-depth level of my study — which indicates that the high analyst estimate for next year is $248 million in revenue (average is $236 million) … so making a prediction that the number will be 1% higher than the high Street estimate is not exactly earthshaking. And they will likely post over $200 million in sales for 2011 when they report in a few weeks, so that’s the context for the “rake in $250 million” quote.
And those are sales numbers, of course, not profits. The company also updated its forecast for 2011 when it last released quarterly numbers, saying that they expect to post earnings of about $8 million. So for an $800 million company, that means investors are currently paying roughly 100X earnings. Analysts think that earnings will grow by about 50% per year into the future, with a forward PE of about 65. So you could certainly argue that for that kind of valuation, in a competitive and fast-changing business, they dang well better be posting revenue increases of 25% per year.
There are a bunch of other companies with genetic tests that are intended to help guide oncology decisionmaking, though GHDX appears, from my very quick glance, to be the largest player in their diseases (I could be wrong). The name that usually hops to the tip of my tongue when talking about predictive testing is Myriad Genetics (MYGN), which is about twice as big and far more diversified with an array of tests available — Myriad is far more profitable than GHDX, and is priced closer to the market average with a PE in the teens, but is also, as you might expect, growing far more slowly and not as easily boosted by “blockbuster” test releases or approvals. And there are plenty of other genomics and testing companies available as well, of course, including the large machine makers like Illumina (ILMN) and Life Technologies (LIFE), the broader diagnostics testing companies (also large caps) like Quest Diagnostics (DGX) and Lab Corp of America (LH).
It seems inevitable that the era of personalized medicine will continue to push more for more genetic testing, more predictive results, and more patient specific diagnoses and treatments — but that doesn’t necessarily mean it’s an easy road to profits (just ask Dendreon (DNDN), poster child for personalized cancer treatment). Still, when it comes to high-tech medicine I am consistently tempted by services companies and equipment companies, it seems like the companies that sell the tests or the screening equipment that makes it all possible ought to be fertile ground in the hunt for big stock winners. Whether GHDX is going to be one of those winners I don’t know — I’m quite sure that Lichtenfeld is teasing them here, and they are posting some huge growth numbers, but I’m equally sure that I wouldn’t know an assay machine or a genetic test if I drove over it in the driveway. If you’ve got a finger on the pulse of the oncology testing industry, by all means, feel free to fill us in with a comment below.