This pitch comes our way 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 it might sound a bit familiar — we actually covered this ad when we first started seeing it, back in December of last year, but we combined it with a second teaser story and a lot of folks missed it… and, more importantly, I’m seeing this ad come across my desk a lot more again this week, so I thought I’d re-post that part of the article for you.
The ad doesn’t seem to have changed at all since I wrote about it back in December, and the company Gilani is teasing is surely the same — so I just sliced my analysis and the Thinkolator’s answers out of our older article for you, also unchanged since mid-December (the “secret” stock itself is within a few percent of where it was trading then). Enjoy!
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.
“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.