“Odds are you never heard of this murderous disease that quickly kills more than 250,000 Americans every year.
“If your doctor correctly diagnoses it within 24-36 hours of its onset you could live.
“If he can’t… and most doctors can’t… your life is a coin toss.
“HEADS YOU LIVE TAILS YOU DIE
“But this company’s new breakthrough technology can, in just 2.5 hours, hunt it down and tag it so it can be quickly destroyed.
“Predictably, this company’s revenues are on the rise.”
How’s that for an opener, eh? It got my attention, that’s for sure.
This pitch for our next “millionaire-maker” stock came in from Alex Daley for his Casey Extraordinary Technology newsletter, and he gets our attention with a few pages of horrific stories about kids dying because they scraped their elbow … and about parents watching as they keep bringing their sick children to the doctor again and again for what doctors keep saying is the flu or a bug, only to die days later as the infection overtakes their body.
Horrible, right? Well, don’t worry — there’s apparently a solution to the problem that will save lives AND make us all rich! Here’s how Daley puts it:
“But there is change in the wind.
“Change that could easily save the life and limb of every man, woman and child who will someday acquire this disease.
“Change that could easily secure you a fortune.
“Already, the company that’s responsible for this remarkable technology and a host of other breakthrough technologies, has become a leader in a $50 billion market that’s growing 29% a year—a growth rate, by the way, that’s double that of Big Pharma.
“Obviously, a company such as this cannot stay hidden, a secret for long.
“Therefore, if you move quickly – before the thundering herd and institutional investors bid up this company’s underpriced shares to possibly ridiculous heights…
“You could see gains that could last you a lifetime – many lifetimes!”
OK … so I know, you’re dying to hear what the stock is — and we’ll get there. The disease they’re referring to as this unknown killer is usually called sepsis, though apparently the proper term is septicemia according to Daley, and it’s basically a whole-body infection that shuts you down or kills organs or parts of the body. That’s my idiot’s interpretation, I’ll let “Doc Gumshoe” chime in and share some more info on it in a moment.
And the basic spiel from Daley is that sepsis is quite treatable, but is very hard to diagnose early enough for treatment to work well. So the solution is better diagnosis, which is where his secret stock comes in.
“… if nearly $17 Billion is now spent every year in the United States alone in a near futile attempt to stem the scourge of this disease…
“Imagine how many billions of dollars such a test, such a tool would be worth to the company that creates it and owns the patents to it.
“Imagine how much money the company’s shareholders will earn.
“Well, imagine no more.
“That tool – that test – exists. A test the entire world has been literally dying for.
“And I’m about to introduce you to the company that developed it, and is selling it – and to the scientist who created it.”
Doesn’t it feel good to imagine that you’re both becoming incredibly wealthy and saving lives? Ah, it puts me right in the holiday spirit. So what’s the stock?
Well, here are a few more clues:
“… it’s not just a test for sepsis—which can now be detected at its earliest, unseen stages—that’s causing excitement…
“It’s the diagnostic platform on which the test runs that is also turning heads the world over….
“.. this diagnostic platform is designed to also test for cancer, heart disease, genetic ailments and how your genetic makeup affects your response to certain drugs – obviously of key interest to Big Pharma….
“… the sepsis test is already selling in Europe and Asia – it was only last year that it received FDA approval to be sold here—the first and only FDA approval ever issued for this type of sepsis test.”
And of course, you have to buy the stock NOW NOW NOW! (After all, they know that if you take your time and think about it a while, you’ll feel less urgency to subscribe to the newsletter RIGHT THIS SECOND and you’ll maybe go on and email your friend, or check your fantasy football team online, or do some shopping, and you’ll forget all about Casey Extraordinary Technology. The horror!)
Our final tidbits to push that urgency:
“the news of this breakthrough test is only now being widely reported.
“So while shares of this company have begun to accelerate – they’re still trading in the $2 range!”
So who’s the stock? The Mighty, Mighty Thinkolator sez this is: Nanosphere (NSPH)
Which is indeed a wee $2 stock — slightly more at the moment, for a market capitalization of about $130 million. They’re far from being profitable, even with some of their tests marketed now, but there are a half dozen analysts covering the stock and they do have enough cash to keep them going for a while (that’s why they have so many analysts even though they’re a tiny company, they’re likely analysts from the firms who helped them to go public a few years back and raise more cash in a secondary more recently). They do have some revenue, and the analysts think that revenue will double next year to about $20 million after doubling this year to roughly $10 million, so that’s a nice trend and doubling year over year can build up quickly … but that’s not enough to turn them profitable in the foreseeable future (if, indeed, any future is foreseeable).
I’m not sure when the profitability switch will be turned — it basically depends on how fast they can sell their testing systems to hospitals, which are their target customers — the idea is to enable testing for lots of different pathogens and diseases within a couple hours instead of the current 10-24 hour (or more, if they’re off-site) standard that the company says is common for similar tests in hospital labs today.
It seems pretty compelling from their investor materials (you can see a fairly recent investor conference presentation from the company here), but, well, every company sounds good in the investor presentation. They are designed to be that most fabulous kind of money-minting company, the “razor and blade” firm: they sell the diagnostic computer/machines to hospitals, perhaps even at a loss, and then make it up with huge volumes of the cartridges and substrates that have to be used, at several dollars each, for every single test that’s done on that machine. So the margins are likely to be very good once they get to profitable scale, I just don’t know when that might be and haven’t looked into it very carefully yet.
So, interesting company — I don’t know what the world of diagnostics or diagnostic devices is like, or how testing is usually done, but I figure there are some huge companies in the business, too, and perhaps they have similar kinds of diagnostic tools.
Since this is a medical topic on which I know very little I asked our friend Michael Jorrin, aka “Doc Gumshoe,” to pitch in and see if he can share anything else to help us understand Nanosphere’s business, here’s what he said:
Sepsis / Septicemia
There is not the least doubt that sepsis, or septicemia, is an exceedingly nasty disease. About a fifth of people who get septicemia – otherwise known as blood poisoning – do not survive, and if the condition progresses to septic shock, more than half will die. Therefore, as the presentation from Alex Daley stresses, it’s rather important to get the situation under some kind of control rapidly, which, of course, requires accurate diagnosis.
Where I part ways with that presentation is that, whereas Daley characterizes the diagnosis of septicemia as difficult, such that many doctors go totally off the track, I would suggest that most health professionals are highly alert for septicemia and are able to identify it fairly quickly.
Daley put the spiel in the context of a case history – a kid gets what’s usually thought to be a minor injury and develops septicemia. But the diagnosis is missed and the kid dies. The health professionals looking at him don’t connect his minor injury – a cut treated with a Band-Aid – with his symptoms, which were far from minor, including a high fever, nausea and vomiting, leg pains, extreme weakness.
I don’t doubt that there are indeed cases like that, where a small cut gets infected and the infection spreads through the blood-stream resulting in the kind of catastrophic situation Daley describes. But I think that it would be quite rare for whoever is treating this patient to totally ignore the wound. Infected cuts hurt, for one thing, and they get swollen. My guess is that the kid in Daley’s story would have complained about his injury.
However, most cases of septicemia do not have mysterious causes. The appendix ruptures, permitting the body cavity to be flooded with billions of bacteria. Or a person sustains a serious injury, such as a compound fracture, which is insufficiently cleaned out. Most cases of septicemia take place in hospitals, and a lot of the patients are debilitated or immunocompromised. Persons with diabetes are especially susceptible to septicemia if they get injuries in their lower legs or feet, because their circulation is affected.
And the reason that septicemia is so frequently fatal is that it usually arises from major traumatic events, or in persons who are already vulnerable. We are not talking here about a mysterious disease that strikes people silently and about which the health-care system is not vigilant.
That doesn’t mean that the speedy testing platform Daley talks about wouldn’t be valuable, especially, as he goes on to say, if the same relatively small device can be used to test for a range of o