Today we’ve got a two-fer — two different big publishers are teasing different “liquid biopsy” stocks, and I’m no expert on the technology or the prospects for this diagnostic “trend” that we’ve been hearing more about… so I’ll just sift the clues, identify the companies, and let you chatter about their merits amongst yourselves.
The first pitch that got sent our way is from Shah Gilani for his Capital Wave Forecast ($1,850 “on sale”), whose spiel hints at a stock that can “end the 8 deadliest diseases known to mankind” with a “painless, 5-minute treatment” that is “set to roll out in 246,000 doctors’ offices — and unleash $30 billion in new wealth.”
And the second is from Stephen Petranek for his Breakthrough Technology Alert ($1,000 “on sale”), who teases that this technology is “the key to defeating cancer” and that a “breakthrough California biotech company will soon distribute ‘free shares’ of valuable stock!”
Let’s go through them separately… we’ll start with Gilani’s Capital Wave Forecast pitch… here’s a taste of that ad:
“Right now, a new medical breakthrough is on the cusp of changing mankind forever.
“It’s a new, revolutionary way to attack the 8 deadliest diseases that afflict people over 55.
“I’m talking about devastating killers like colon and pancreatic cancer. Lymphoma and even lung cancer.
“The world’s top scientists are calling it the ‘Holy Grail’… the dawn of an ‘Enlightened Age’… worthy of a ‘ticker-tape parade in New York City.'”
Sounds delightful, right? Not that the promise is any different than pretty much every other “breakthrough” biotech stock idea that gets teased, but it’s nice to dream about the end of cancer. I don’t want to take too personal a stance here, but I also dislike cancer.
So what is this technology? It’s really a diagnostic tool, they refer to it as “liquid biopsy”, and the big goal is the diagnosis of cancer long before it’s showing obvious symptoms — something that would be a particular benefit, it is assumed, for diseases like lung cancer and pancreatic cancer, where patients may not have any symptoms until it’s almost too late to treat them.
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“Liquid biopsy” means probably what you think it does — using a simple blood or urine sample to identify cancer (and even, in some cases, to enable “personalized medicine” and identify specific types of cancers or variations that are best fought with specific drugs), instead of a more invasive (and sometimes risky) needle biopsy or other test.
Here’s more from Gilani:
“This little-known breakthrough has reached its tipping point – a huge one – changing its current status as an ‘exclusive procedure’ in just a handful of locations around the world…
To one that some are referring to as a new Universal Treatment.
“Meaning you could soon simply ask for it in any of the 246,000 doctors’ offices and hospitals across the U.S. – making what’s about to unfold perhaps the fastest and biggest medical rollout in history.”
And that’s part of the pitch as well, that this “liquid biopsy” testing could spread to regular doctors’ office quickly and therefore spread diagnostic ability quickly, particularly for the areas of the country where oncologists are in short supply. That’s how Gilani builds up to that $30 billion number when talking about the market for these tests.
That seems like a pretty big stretch to me, but it’s not uncommon for newsletter pitches to turn what I think of as a gradual, maybe someday transition into a “this will all happen next year and make you rich” argument.
So which of the “liquid biopsy” diagnostics companies is Gilani pitching? Let’s check some of his more specific clues:
“… less than 12 weeks ago, it would have cost you upwards of $5,400 per treatment.
“But today, you can access these lifesaving benefits for as little as $299….
“Those who invest in this market early could watch their money multiply faster than rabbits – by 20, 40, even 50 times…
“As annual sales grow from just $100 million today to over $30 billion annually – a colossal jump of 29,900%.”
And then the letter, which is actually from Alex Williams, one of the publishers at Money Map Press, goes on to tell us all the things he wouldn’t have known were it not for Shah Gilani’s brilliance…
“I wouldn’t have known that this treatment could identify cancer in seemingly healthy people almost three decades before a symptom shows up.
“I also wouldn’t have known that a recently IPO’d company in Massachusetts just built a ‘factory’ specifically designed for the continued advancement of this treatment…
“Or that Bill Gates, Yuri Milner and Google have invested millions of dollars in this company because they believe that this is the future of ALL CANCER TREATMENT…
“I wouldn’t have known that the world’s biggest cancer drug maker has already claimed a $1.03 billion stake in this same startup and plans to distribute their treatments to Europe, China, Canada, Australia, India, and Israel – eventually expanding their patient market eight times over the U.S. alone.
“And I would have had no idea that this particular company has the potential to reward investors with gains of up to 724% over the next 12 to 18 months.”
And finally, the little sum-up of enthusiasm about this “one tiny company” that Shah Gilani is apparently recommending:
“One Tiny Company Has Just Built a “Liquid Biopsy Factory” in Preparation for their 2016 Worldwide Rollout
“And this is your opportunity to profit from every single liquid biopsy test that rolls off the assembly line….
“This company’s founding advisors include high-ranking members of the Broad Institute at MIT, the Dana-Farber Cancer Institute, and Harvard Medical School.
“One is Chairman of the Board of Scientific Advisors to The National Cancer Institute and was named Discover magazine’s ‘Health Inventor of the Year.’
“Yet another was a principal leader of The Human Genome Project….
“Google Ventures, the tech company’s venture capital arm… grabbed an 8.7% ownership stake….
“Another hugely positive indicator is the investment from none other than Bill Gates, who backed the company in a $13.5 million round of funding.”
So that ought to be enough for the Thinkolator, right? Right, indeed — Thinkolator says this must be: Foundation Medicine (FMI), which is indeed a fairly recent IPO, and which sold a controlling stake to Roche back in January for about a billion dollars (only a quarter of that went to FMI in cash, the rest was spent to buy out existing shareholders in a tender offer at $50 a share, causing the stock to spike from the low $20s to just under $50 for a few months). Since the Spring, FMI has been much less rewarding for shareholders, it has fallen steadily, with a few substantial stumbles along the way, to where it is now (about $18).
There was a bit of bottom-fishing excitement earlier in the month when it dipped into the $16s, and the shares are up a bit today on fairly high volume, which might be at least partly because of Gilani’s big push… so the one month chart may give a feeling of optimism while the one-year chart illustrates nothing but doom and dismay. Roche’s billion-dollar investment is now worth about $350 million.
Will it come around from here? I have no idea. They do have a “factory” in Massachusetts, they do sell a DNA assay test for cancer called FoundationOne (introduced in 2012), Bill Gates did participate in a $13.5 million funding round with Yuri Milner and others, Google Ventures does currently own about 7% of the company after participating in funding rounds in 2011 and 2012 (it was probably roughly 8.7% before the new shares were created in the Roche deal). Just for further confirmation, Google Ventures currently has stakes in 27 life sciences and health companies — and Foundation Medicine is the only one that’s public.
They do also have a real business with real revenue, trailing revenue is close to that $100 million/year level ($86 million currently) — not nearly enough to make them profitable, as you probably guessed, but enough to take them seriously as a real business. Particularly since they have that $250 million in the bank to support their continued R&D and sales efforts as they develop their genetic cancer tests. Their cost of goods has come in at about 40%, so the gross profit even sounds pretty good at about $50 million/year — but once you add in the SG&A costs and R&D that gross profit disappears pretty quick, those operating costs are totaling about $135 million a year these days… and, in what is another indication of a company that may be a ways from maturing, the costs are starting to climb more quickly than revenue (over the past year, revenue is up 40%, operating costs are up 54% — that relationship was reversed in 2013 and 2014, when revenues were growing more quickly).
Why did the share crash back to earth after the effect of the Roche takeover settled in? I have no idea. Haven’t been following them, though Dr. KSS, who writes about biotech stocks for the Irregulars, didn’t like FMI over a year ago, well before the Roche deal, and has been consistently skeptical of them in subsequent comments this year.
And as far as the cost of the test, I have no idea where Gilani gets his $299 number — perhaps that’s an example from a different company in the “liquid biopsy” space, but Foundation’s tests are genetic assays and they’re expensive — the basic FoundationOne test is $5,800, the blood cancer-focused FoundationOne Heme is $7,200. That’s a long way from the $100 neighborhood where it might possibly become a widely used screening tool — and, of course, we’re also not quite at the point where a blood test can necessarily tell you where the cancer is in the body.
There’s an interesting article on the whole “liquid biopsy” cancer testing movement here, from MIT Technology Review back in 2014, and that might help to give you some more idea of both the promise and limitations of these tests — I am not very well informed about FMI or any of the others, but I do know that there are lots of companies pursuing this kind of “liquid biopsy” and more advanced genetic testing of blood and urine to search for and screen for abnormalities and illnesses… it seems exciting and provides some hope for earlier detection of cancer or other diseases, but presumably costs would have to come way, way down — and perhaps quality would have to improve — for much more widespread use of these tests in the general population.
Still, having Roche back you with a controlling investment stake isn’t a bad thing, and they are in fine shape as far as the balance sheet goes, so you can make your own call about the speed with which they’re likely to grow… and grow into the cost structure that they currently have. I’m pretty sure they won’t go from $85 million to $30 billion in sales next year, as Gilani’s ad implies, and I’d have to have some confidence that they have some kind of plan to triple revenue without tripling operating expenses in order to see this as a scalable business, but that doesn’t mean they can’t be a good investment — just that it’s not a “no brainer” and the odds are long that it will return 700% or whatever made-up number is used in the ads, at least in the next year or two. Analysts are predicting about 30% sales growth next year, which is nowhere near enough to turn it into a sexy dynamo of a stock — they can be wrong, for sure, but I’m positive that they know more about FMI than I do. Beyond that, I’ll leave it to you.
Because I’ve got another liquid biopsy stock to check out for you — this one hasn’t generated quite as much interest among Gumshoe readers as Gilani’s ad, going just by the number of folks who forwarded the email to me (incidentally, please do forward any interesting teaser ads you see to ILoveStockSpam@gmail.com — that’s one way we find out what our readers want to see covered), but it’s certainly got its share of hype and promise.
Here’s how that ad opens:
“Breakthrough California Biotech Company Will Soon Distribute
“FREE Shares” of Valuable Stock!
“Keep Reading to Discover How to Claim Your ‘Free Shares’
“You MUST Act Before 4PM EST on Monday December 21st…”
And they use one of the common tropes of newsletter teaserdom, the “this mysterious building” pitch where they show Google Earth images of the bland-looking headquarters of our secret company, only to conjure up glorious fantasies about the wealth being generated therein. Here’s a bit of that, for those who like that sort of thing:
“This may look like an ordinary office building to the naked eye.
“It’s located on the beautiful tree-lined streets of northern California across from the headquarters of a Super-Bowl-winning professional football team.
“And just a few blocks away you’ll find a regional office of the powerful US Food & Drug Administration.
“Yet while it may look like just another building, few people realize a major medical revolution is taking shape behind these brick walls.
“It could save the lives of millions of folks stricken with cancer.”
That must work well at generating interest from potential subscribers, because copywriters use this trick all the time. I have no idea why it works, but I do appreciate the fact that I can double check the Thinkolator results by looking up the Google Earth images myself.
And who wouldn’t want “free shares?”
“For an extremely LIMITED TIME, you can get in on the ground floor as one company is doing the unthinkable – they’re simply giving their shareholders even more ‘FREE shares’ of valuable stock.”
That happens with some regularity in the stock market, of course — and there’s nothing “Free” about “Free shares.” Most people call them spinoffs or carve-outs, it’s what happens when a company decides that one of their divisions would be more valuable or get more investor attention if it were separate, and they split it off on its own — generally they give the shares of the new company to existing shareholders, though sometimes they also IPO them and sell shares to new shareholders if they need the cash. Calling these “free” shares is a little silly — the value of the subsidiary or division is already reflected in the stock, at least theoretically, and the total value of the two companies should be very similar to the value the combined company had just prior to the split.
In practice, spinoffs are often very good investments — both because it is possible to “create value” by giving a subsidiary it’s own race to run without worrying about the parent or losing focus, and because some people find “pure play” and more understandable companies more valuable (and, perhaps as importantly, because spinoffs are often cheap in the months after they’re spun off because they’re orphans that a lot of the parent company investors don’t want and no one else has heard of them. But that’s a general assertion, it means that buying 500 spinoffs is probably better than buying 500 companies at random… it doesn’t mean this one Petranek is pitching is guaranteed to succeed… or that it will be better to buy it pre-spin (by buying the parent) than to buy it in a few weeks when lots of folks who got the spun-off shares are trying to sell them.
But I’ve gotten off track a bit — what, then, is our company? More clues:
“The company you’re about to see is one of the most creative companies in the world.
“Not only for their breakthrough technologies… but because of the amazing ways they’ve decided to reward their shareholders.
“For example,just last year they did something similar to what I’m showing you today…
“During a 73-day window of opportunity in 2014…
“Exactly 6,537,779 ‘free shares’ were distributed.
“And within 9 months, anyone holding 1,000 shares could have sold them for $14,770.”
That’s a reference to Asterias (AST), which was spun out of Geron and BioTime last year and did peak at $14.77 a share. It was a ridiculously complicated spinoff, with warrants and shareholdings back and forth, and with other capital raises, so I’m not sure exactly what you would have had to buy to have 1,000 shares of Asterias… but if you got Asterias because you were a Geron shareholder, that would mean you’d have had to have 24,000 shares of Geron to get 1,000 shares of spun-off AST (at the time it was ASTY, it traded OTC for a little while) — GERN was around $2.00-2.50 at that time, in mid-2014, so that would have been about $50K. It might well have worked out well, since those GERN shares have about doubled over the past year, but you would have had to be pretty nimble to sell AST at $14.77 — it was a short, sharp spike to get there during those earlier headier days of ebullient biotech stocks (six months ago), and the stock is now in the $4 range.
So is this a pitch for buying Geron (GERN)? Probably not, Geron owned about 20% of Asterias because they helped to create it when they effectively gave up on their human embryonic stem cell research and sold that division to BioTime (BTX). BioTime is the more likely target here — particularly because Breakthrough Technology Alert has been hyper-happy about BioTime for more than seven years (under at least three different editors). Their longtime fondness for the stock is not necessarily a bad thing, folks who bought on the first tease in the Fall of 2008 would have gotten shares at about a dollar, so they’re happy… those who saw a similar pitch from this same newsletter in March 2011 when the stock was at $7.50 or so are probably less pleased, the shares are around $3.50 now.
The hype has been absurd all along the way, of course, no one has gotten “life-changing wealth” from this stock like Petranek’s predecessor Patrick Cox was saying four, five, seven and eight years ago… but absurd hype is par for the course, and the stock has been profitable for some of those shareholders.
What are these “Free shares?” Well, that confirms that we’re being teased about BioTime — they are indeed doing another spinoff, this time of their diagnostics division OncoCyte. The shares will be spun off with a record date of December 21, but according to the press release from BioTime you don’t actually have to own BTX on the record date to get the shares — the OncoCyte shares right will convey with BTX shares until the distribution actually takes place, which they think will be on or by December 31.
It should start trading either that day or shortly thereafter as a separate company, either OTC or on the NYSE — they’ve applied for a listing on the NYSE with the ticker OCX. You’ll get 1 shares of OncoCyte for each 20 shares of BTX you own, and I have no idea how OncoCyte will be priced on that first day of trading — but yes, to buy OncoCyte before it starts trading separately you’d have to buy BTX, and buying 20 shares of BTX to get one share of OncoCyte means it would cost you a fair amount to build up a large OncoCyte position (each $70 or so investment in BTX today will get you a share of OncoCyte). Not free, but how much it really costs will depend on how OncoCyte is priced and what happens to the BTX share price after the spinoff (probably not a lot — OncoCyte is not their most important asset by a long shot, and they’ll go from owning 76% of OncoCyte to owning 58% of it.
And OncoCyte is indeed a “liquid biopsy” company, though they’re nowhere near as far along as Foundation Medicine — they’re not, for example, actually selling anything yet. The latest BioTime investor presentation indicates that their diagnostic tests for cancer have not yet reached the “R&D Validation Study” phase… I don’t know what that means, but it sounds pretty far away from “generating revenue.”
Petranek says this about OncoCyte:
“Telomeres are biological ‘caps’ found at the end of chromosomes.
“They protect the DNA in chromosomes much like the caps on the ends of shoelaces protect the shoestring and prevent it from fraying.
“As we age, our telomeres get shorter and shorter as the cells repeatedly split and divide until the point where the DNA can be damaged more easily and cause disease.
“It’s similar to the way the cap of a shoelace wears out over time. As the caps age and wear out the shoestring frays and unravels resulting in permanent damage.
“Scientists at Harvard and Northwestern have recently discovered a distinct pattern in the changing length of telomeres that can identify and possibly even predict cancer.
“What’s IMPORTANT to understand is this…
“The small private company I’ve been telling you about has developed cancer diagnostics that look at telomerase genes as the biomarker to identify cancer.
“Even better, as I just told you, these cancer biomarkers can be identified through simple blood and urine tests.
“Wouldn’t it be great to avoid the pain and discomfort from current cancer diagnostic tests…
“And still be able to identify and possibly even predict cancer earlier and more accurately with a simple blood or urine test you could take at an annual physical?
“I expect these breakthrough cancer tests to be widely used by every doctor’s office in America. And it could happen in as little as just 12 months from today.”
And he says that this cancer diagnostics market is worth $100 billion and expected to climb to $168 billion by 2020… and that this “small private company” he’s teasing us about can take a meaningful chunk of that market…
“The small private company I’ve been telling you about today projects it can generate:
– $500 MILLION annually from its bladder cancer test
– $525 MILLION from its lung cancer test
– And a whopping $2.5 BILLION from its breast cancer test.
“That’s a total of $3.5 billion in annual revenues protected by a strong portfolio of patents.”
Will it? Beats me. But I don’t see any indication that this is coming anytime soon — or that these tests have a strong chance of being introduced to the market and used by doctors within the next 12 months. I could be missing something, or I might be more skeptical than you are, but I assume it will be a while.
Oh, and in case you want a picture of that “ordinary office building,” I did in fact go to Google and double check that street view image — here’s your unbiased peek at the headquarters of BioTime (and OncoCyte), courtesy of Google:
So yes, Petranek is clearly teasing BioTime… and frankly, I’ve given up on trying to understand that company — they’ve been around forever, they have some valuable subsidiaries (their Asterias shares are probably worth $100 million if they haven’t sold any this year), they have a visionary leader who is a giant in regenerative medicine and stem cells, they keep forming new subsidiaries and spinning them off and partnering things with various other companies, and they continue to sell stem-cell related materials and license stem cell lines and generate some revenue… but they’ve been public since 1992, and it’s only been in a couple of those years recently that they’ve had sales that cover even a tenth of their operating expenses… and they’ve been teased as the smart bet for regenerative medicine for so long that it’s all a fog of hype for me.
Which means that I’ll now pass it back to you, dear readers — I’m sure some of you remember past BioTime teases, or may even be shareholders who follow the company more closely… what excites or repels you when it comes to BioTime (or Foundation Medicine, for that matter… or OncoCyte)? Let us know with a comment below.