Patrick Cox and his Two Recent Teaser Picks

By Travis Johnson, Stock Gumshoe, November 16, 2012

Neither of the two picks that Patrick Cox has lately been teasing are new — but I’m getting a lot of questions about both of them so I thought I’d provide a couple quick answers on this lovely Friday afternoon.

Both of these teaser ads are designed to encourage investors to subscribe to his Breakthrough Technology Alert, which has tended to focus on biotech stocks but also sometimes dabbles in other technology areas, usually in both cases his companies are low on revenue and high on ideas or breakthrough potential if their product does what they think it will do. That’s typical of tiny biotech and tech stocks, as you’ve probably noticed.

The first one is the “Robert has Alzheimer’s” ad — you can see it here if you like, it is a story of a company with a new treatment for Alzheimer’s that , unlike the current standard treatments, goes after slowing and stopping the disease itself, not just helping with symptoms. Here’s a brief bit of the spiel:

“The story of the tiny company that could offer real hope for Robert is a double-big story because this company’s research is so unique. In fact, it’s completely novel. It’s new.

“Plus – this company’s best Alzheimer’s treatment has already completed Phase I trials.

“And in breaking news, the early results are astonishing. This, from a breaking press release…

“The confidential status of the new data has been lifted now that a formal presentation has been made at Neuroscience 2012 in New Orleans…”

“[Our drug] demonstrated its ability to restore mitochondrial functionality, and prevent oxidative stress and apoptosis (cell death) in a scientific study at the University of Montpellier… Mitochondrial dysfunction caused by amyloid peptide toxicity has been consistently reported as an early event in Alzheimer’s physiopathology and a telltale sign of the disease, appearing before amyloid-beta plaque deposits and memory deficits in patients.”

“That’s a bit complicated, I know. Allow me to simplify…

“This company is showing promise of stopping the onset of Alzheimer’s before it’s taken its deadly grip.

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“This is a matter of public record.

“If the evidence the company has so far holds up, we could be very near the end for Alzheimer’s.”

Cox goes on to say that you have to get in early, that this is a 96-cent stock that might enter a new clinical trial soon after these encouraging results and really, why wouldn’t you buy it since it’s so cheap?

And yes, he’s still touting Anavex Life Sciences (AVXL), which he has teased several times — I last wrote about them in May when Cox’s attention was helping the shares recover from a dip and go from 60 cents to well over a dollar, but he started hinting at this one a year and a half ago, at least, back when the shares were around $3.

So it hasn’t exactly been an easy ride for investors — again, not a shock for a biotech stock, most of them lose money and continue selling more and more stock to fund their research, and most of them hit snags along the way that slow or kill their research programs or clinical trials. It’s not a pretty business, but the occasional 1,000%+ winners keep investors coming back in the hunt for breakthroughs … and, of course, we all want to see better treatments for scourges like Alzheimer’s Disease and cancer.

Anavex did have a successful phase 1 trial, they did present good results (that’s where their quote in the teaser is from) at a conference this year, and there seems to be some hope that they will move forward into more trials, either another phase 1 trial or phase 2. That’s for their primary drug, Anavex 2-73, though they do have several compounds for other central nervouos system diseases and problems that are in the preclinical phase and — their next most advanced one is being manufactured in some scale now so they can test it on large animals, so that’s a ways away from hitting the clinic. For Anavex, right now, it’s all about 2-73.

But actually, that’s not true — first it’s about getting out of the black, then it’s about 2-73. They can’t afford to do anything at all right now, as far as I can tell, they’re a couple million dollars in the red with “accounts payable” and have no cash on hand for continuing operations as of their last quarter, which was five months ago now, so I have no idea what they’re doing. They don’t seem to have sold stock, they haven’t announced anything financial, so my suspicion is that they’re trying to keep investor interest high enough to either do a big equity raise or a partnership deal with another pharma company from a position of at least some mild strength. They’ve announced in their last several SEC filings that there is, as you would expect, substantial doubt about their ability to continue as a going concern — that’s largely because they depend on new cash inflows, and cash inflows depend to a great degree on clinical success, and the same thing appears on a lot of biotech 10-Qs and auditor statements.

So you’d kind of expect a biotech company with what look like pretty good Alzheimer’s clinical trial results like this to have moved forward aggressively to line up more clinical trials, and that hasn’t happened yet — or at least, it hasn’t been talked about in their filings yet — so I suspect that they’re pretty focused on financing and possible partnership deals right now. That means this is a time of heavy uncertainty for Anavex, in my opinion, since they could do a dilutive stock offering that erodes current investors’ positions and drops the share price, or they could do a partnership deal that gives too much away, or they might not be able to do any deal at all and they’d be in default of their promissory notes or accounts payable contracts and things get grim quickly and they need rescue funding. I have no idea what will happen, but they’re due to release their next quarter right about now so I expect news will be forthcoming. Last quarter they said they expect to need $5 million to proceed with the development of their lead drug until next Summer, and that seems laughably low to me given that they must already be close to $3 million in the hole on a cash basis by now (accounts payable/current liabilities versus cash on hand), but we’ll find out soon enough.

This is a $25 million company, so raising a few million more, however they do it, will have a substantial impact — but of course, if investors or other pharma companies get enthused about a real cure for Alzheimer’s and their drug is better than the stock market is giving them credit for right now then $25 million is a drop in the bucket. An effective Alzheimer’s drug that changes the course of the disease could conceivably have sales of over $25 million a day. Of course, it’s also going to take at least five more years, I’d wager, for a drug in Phase 1 trials right now to get approved for Alzheimer’s even if all the trials go well — this is brain chemistry, and the FDA is likely to be cautious. That’s a lot of “if’s”, and that’s why it’s a $25 million company that appears to me to be desperate for cash.

So … drug presentation at the New Orleans Conference seemed to be good, but it looks to me like they need to raise more money really fast. If I were them, I’d wait until the Friday after Thanksgiving and announce that they’re selling 10 million shares of stock at 50 cents a share to a deep-pocketed pharma company, but perhaps I’m being too cynical.

I really do hope that the drug ends up working, by the way. Best of luck to them. And if any of you have invested in or researched Anavex, I’m sure we’d all be delighted to hear.

Oh, and I promised two stocks, didn’t I? The other one is Star Scientific (STSI), which he’s touting very aggressively again on the back of their Anatabloc anatabine supplement. The company has fallen hard because their settlement from patent litigation was not as good as many were hoping (that’s on the tobacco side of their business, they began as a tobacco curing technology company, and tobacco is the source of their anatabine), and, though there are sales of Anatabloc and it’s getting some distribution, it’s a long, long way away from having good enough sales to justify a market cap of several hundred million dollars or more. So for Star Scientific, they’re hoping for breakthrough news in their clinical trials that advances the cause of anatabine in treating inflammation and, yes, Alzheimer’s, but investors have clearly gotten a bit worried — STSI was also in a bit of a cash crunch and they raised some funds through a skeevy warrant exercise with some insiders. I haven’t looked into their recent “real” news of late, but there is a lot of chatter going on in the comments section following my last article about Cox’s almost endless teasing of STSI so you can jump in there if you like.

I still have a few call options on STSI shares that I expect will expire worthless, but do not own any other stocks I’ve mentioned above and won’t trade in any stocks mentioned for at least three days.


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r1drama
Member
r1drama
November 16, 2012 4:14 pm

Travis; I’m really liking the “Irregulars Quick Take” box. It’s nice to be able to grab the summary when the day can be so full of demanding reading. I’m finding myself jumping to the quick take as soon as your blog hits then diving into the commentary later in the evening when I want to relax and absorb. I truly enjoy your views and have spread the word on “Gumshoe” to many of my friends who, by the way, have become irregulars. keep up the great work.

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Cathy
Member
November 16, 2012 4:40 pm

IF THERE WAS A BREAKTHROUGH IT WAS COUNTING THE MONEY FROM THE NEWS LETTER PUTTING HOPE INTO HOPE MEANS YOU BETTER LITE A LOT OF CANDLES AT CHURCH. IWAS ON ON MY DUE DILIGENCE BUT I SENT YOU THE QUESTION TO MAKE SURE AND YOUR NEWS IS ALWAYS ON THE UP AND UP GOOD OR BAD . If a news letter wants to not have there guarantee used so much they should cut all the drama and deal with facts, those that reinvent the wheel everyday and play the same ads for months do not make the money they used to. Before they could give there guarantee and hold your money till you called back and do short term investment what the bookies call juice but they are digging a hole for the few that speak the truth, after all the markets are a modern day VEGAS and the rooms in Vegas are pretty cheap right now. I like how you rate the bookie news letters but who or how many really give an honest recommendation with out the investment speech at the end. WHO DOES THE GUM SHOE give credit for there honest and integrity more that the money back givers that can’t get the short term interest at the bank and the only way they can give money back is being above average on option’s or hit divy,s just to make ink for there paper or electricity for there computer. Honest and integrity mean at least they help you learn why you loose. Any thoughts on Tom Hutchinson or does he have one leg longer than the other, he seems to not be so dramatic and more rational even knowing these change in minutes unless you long haul, in other words who is or how many are worth having to sit in front of your screen or waiting for your smart phone to dump or buy. You are pretty straight up and at least show both sides of the painting and I commend you for that .You will have my subscription for that alone. Thanks!

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john gallo
Irregular
November 16, 2012 4:47 pm

I have owned Anavex and sold it when It wasn’t making much progress. I think in the long run if they can hold out it will be a vg investment; but like Travis said, it may be 5 years away…I have it on my radar and hope they are successful ..

misterht01
Member
misterht01
November 16, 2012 5:02 pm

Just hoping and the cost of the candles for the church alone can kill a man..

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Mark H.
Irregular
Mark H.
November 16, 2012 5:24 pm

I purchased AVXL on Cox’s recommendation some while ago; it’s down over 25% from my purchase price (a good chunk of that in today’s trading). I likewise own STSI; I’m down almost 60% on that stock (and that’s after it was up almost 10% today). Every other stock I”ve purchased on Patrick Cox’s reco is down significantly (the worst, ISCO, is down over 80%). From my experience, the only value to be drawn from his recommendations is to short them (or, at the least, wait ’til the price drops 25-50% from his time of recommendation).

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George
Member
George
November 16, 2012 5:35 pm

Sometimes I wonder if the majority of these newletter writers even review the stocks they pump, or if they instead just pick a random one out of the hat and build a story from there.

Fullyinformed
Member
November 16, 2012 6:34 pm

The problem with a lot of these types of stocks is there is no real way to protect yourself as options when they are available are thinly traded and tend to be expensive. This is why decades ago I left and stay with large cap dividend paying stocks. That said, I have a lot of friends who subscribe to the various newsletters that push these types of stocks and they purchase put options when available. For example I note today that a lot of put options traded on STSI at the $1.00 strike – a total of 1600 contracts for 5 cents by the looks of it. Then on the call side 1000 call options again for 5 cents at the $3.00 for January. Obviously some people enjoy playing these options on penny stocks. I wonder how many are selling the options short just for the income?

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Stephen
Guest
Stephen
November 16, 2012 8:00 pm

Cox’s BTA Report service isn’t bad, IF your truly in for the long haul. I’ve held it for 3 years, and it’s been a very interesting newsletter, as well as profitable. And the “risky” biotech’s you all speak of aren’t as hopeless or ineffective as one might think. Staying with them is what fun’s all about.

Bob
Guest
Bob
November 17, 2012 2:17 am

Don’t be in a rush. With very few exceptions, if you just wait you can get into a Patrick Cox pick at one half to one third of the price of what the stock is at when he recommends it. He just goes for “gee whiz” science with no regard to the financial viability of the businesses he recommends.

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pmredmonton
Member
pmredmonton
November 17, 2012 9:28 pm