Let’s start with a little exercise… this is the pivotal sentiment of the latest pitch from Chris Wood in his ad for Casey’s Extraordinary Technology newsletter:
“The Stock Story I’m About To Share With You Is The BIGGEST Of My Entire Career”
How often, do you imagine, is something similar said in an ad for a newsletter?
Ding ding ding! You there in the back, you are correct, sir! The answer is “every single time.” Very good!
OK, fine, I should temper that and say “almost every time” — but you get the point. Newsletter ad copywriters are storytellers — their goal is to catch your attention, and to convince you that the ideas they’re peddling, usually a stock or a trading “system”, are compelling and rare and require urgent action.
Anything less than that, and they risk losing your attention — and once lost, it’s rarely regained… if you’re going to sign up for a newsletter that advertises like this, the publishers know that it will likely be in the flush of excitement over some heretofore mysterious investment idea that they’re peddling. That’s when your credit card slides most easily out of your wallet, when you’re licking your lips in anticipation of the feast of profits headed your way.
So these ads require some mystery, some notion that the person selling the service has secret insight to sell, and the promise of extraordinary gains (even if, as is usually the case, the lawyers force them to also include the “of course, all investments have risk” verbiage). My goal here at Stock Gumshoe, of course, is to get rid of the mystery… to get rid of or explain the urgency… and to let you consider an investment in a newsletter subscription the same way you’d consider buying a new toaster oven or washing machine. Maybe you’ll check Consumer Reports, maybe you’ll search online for reviews, maybe you’ll ask your friends, maybe you’ll just stalk around the showroom obsessing over the look and feel or other details… but you probably won’t buy it in a rush without considering what other options there are, whether the price is reasonable for your budget, or whether the features of that washing machine meet your needs.
That particularly matters not just because a newsletter subscription can be a substantial cost (Extraordinary Technology is $1,000 a year, for example), but because buying an advisory service based on a red-hot idea that has you excited means you’re also setting yourself up for a very biased relationship with that investment idea. If you’ve just paid $1,000 to learn about a stock, then if you’re like most people your brain is going to do anything it can to talk you into investing a lot of money in that stock so you can justify that newsletter purchase. You’ll look for anything you can that confirms the wisdom of the newsletter writer, and it will be even more extreme if it’s a stock you’ve never heard of before (that’s from anchoring bias — the first analysis you read about something is likely to set the basis for your understanding, and most of the time we suffer from confirmation bias that makes us seek out information that supports that anchored information).
So we try to get rid of the urgency, provide some counter to the hype, and let you take a hopefully more balanced look at whatever the stock or investment might be that’s being used as bait by the newsletter ad copywriter. Once you know what the stock is and have a little basic info maybe you will want to subscribe to that newsletter, that’s your choice. But I hope you’ll be better situated to understand the investment idea and consider it rationally if you know a little bit before you subscribe.
How’s that for a long-winded lead-in? Perhaps this is a good opportunity to remind you of our unique selling proposition here at Stock Gumshoe: If you pay us, we give you less! Our premium members, who we call the Irregulars, do get articles that are just for them, and access to my Real Money Portfolio, but the service that many of them find most valuable is our time-saving “Quick Take” box at the top that summarizes the basic info in the article.
Back on track: So what’s actually being teased? Chris Wood is touting “Reagan’s Law” and saying that only 60 small companies have taken advantage of it since it was passed in 1983… and, of course, that he has found the 61st.
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That “Reagan’s Law” term is a reference to the Orphan Drug Act, which was indeed passed in 1983 and which has helped to create some tremendous returns for some pharmaceutical companies, both large and small. Designation as an Orphan Drug means a drug is designed to treat a disease with a limited number of patients, which means there isn’t a profit incentive to develop drugs for that cohort, and in return for the investment the drug developer makes in addressing this relatively small market they receive some tax incentives, some relaxing of typical standards for clinical trials (i.e., perhaps they can run trials with fewer patients), and, probably most importantly, a period of marketing exclusivity regardless of what the patent life might be (including some monopolistic protection from subsequent new drugs, which would have to be proven superior to get approved).
And yes, it may be true that only 60 small companies have gotten Orphan Drug status (I haven’t checked”, but it’s not restricted to small companies — lots of big Pharma operations also develop “orphans” (in 2015, almost half the new drugs approved were for rare diseases… in 2014, 18 of 41 new drugs approved had orphan indications).
The Orphan Drug Act has been beloved by pharmaceutical and biotech companies, as you might imagine, though it’s not without controversy — partly because some of those orphans have gone on to be huge blockbusters with much broader markets (Cialis, Crestor, Abilify, etc.). That’s not unusual or unique to the pharmaceutical industry, of course — set up a complex regulatory regime to incentivize good outcomes, and companies will figure out how to benefit from the letter of the law — but it has led to perhaps more headline risk in pharmaceuticals than you’d see in other industries with other legal frameworks, since drug pricing is often a matter of great political attention.
And yes, drugs with the Orphan Drug designation are more likely to get approved — some numbers are cited in the ad, but you can see a fuller picture of the data here… in general, drugs that are in Phase 1 clinical trials for rare diseases have about a 25% probability of eventual approval, versus about a 10% probability for all diseases.
So anyway… what’s the stock being hinted at? There are actually two of them teased in the ad:
“Today, I’m going to tell you about the next two opportunities I believe are going to skyrocket thanks to what I like to call ‘Reagan’s Law.’
“Bloomberg reports that companies taking advantage of ‘Reagan’s Law’ have:
‘Created a buying frenzy… valuations jump to the highest in at least 20 years.’
“So this could be the biggest year for ‘Reagan’s Law’ winners yet.”
I’ll check on them in order, let’s get to the clues about the first one:
“The company I’ll tell you about in just a second has not ONE but TWO breakthrough drugs that could benefit from “Reagan’s Law”…
“And if I’m right, it could grow more than 2,900%.”
The 2,900% number is made up by guessing at returns of some past stocks, so we can ignore that. But what’s the actual drug?
The ad pitches it as a special way to use monoclonal antibodies to deliver radiation to cancer cells…
“These “puzzle pieces” are sent throughout a person’s body.
“They attach to the unique shapes of cancerous cells.
“The “puzzle pieces” emit a special kind of radiation
“Because the radiation only kills anything attached to the antibodies, they only kill the cancerous cells that they are attached to.
“After a few days, the radiation stops and everything is flushed out of the body.”
That will probably sound a bit familiar to many of you who follow biotech, do we get any more clues?
“It has a market cap of only $74 million right now….
“The company I want to tell you about has not one… but TWO of these new cancer therapies in the works.
“One of them has a market potential for at least $1 billion in annual sales…
“The other could make between $300 to $600 million in annual sales.
“That means annual sales should be about $1.3 billion per year.
“On a conservative estimate of just two times sales, that would create a market cap of $2.6 billion. Market cap growth from the current $74 million to $2.6 billion would mean a stock increase of 3,614%. “
And two more specific clues that we can feed into the ol’ Thinkolator:
“These two drugs are still going through FDA approval.
“One is at Phase 2 trials…
“The other is in the middle of Phase 3 (the final trial)”
… and …
“Phillip Frost—the man CNBC’s Jim Cramer called ‘the Warren Buffett of biotech’ — has already invested $5 million into this company. So he is obviously not concerned about the FDA rejecting the drug.”
And finally, as is always the case for teased biotech drugs, (which often move dramatically on releases of clinical trial results), there’s a catalyst coming up this year:
“But the thing that’s most important for you to know is you need to invest in this company now because the FDA will announce the results of the trials of both drugs in 2017.”
So who is it? This is, sez the Thinkolator, Actinium (ATNM). They are a very small biotech, with a market cap of currently about $80 million, and they are focused on the targeted delivery of radiation treatment using monoclonal antibodies. And they do have two relatively advanced trials underway, in phase 2 and 3, for Iomab-B and Actimab-A (both are addressing subgroups of leukemia patients).
I don’t know what the prospects are for Actinium, and I don’t follow biotech closely and certainly can’t opine on the medical merit of these things (mostly because I know very little), but Actinium has been discussed often on the biotech threads helmed by Dr. KSS (he covered it in great detail a couple years ago, but it pops up regularly still), and I know some of our readers are interested. The stock was very volatile a few years ago, they had a big run up in 2014 that also apparently included some clumsy paid stock promotion (which is usually not a great sign, but sometimes fine companies do dumb things), and it was after that rise and fall that Dr. Phillip Frost, best known these days for his constant insider buying at Opko Health (OPK), participated in a $5 million offering of shares. I don’t know whether he still owns shares or not, it’s not one of his major or well-covered holdings if he is still involved (Forbes had a piece a few months ago running down Frost’s holdings — he doesn’t have a simple holding structure and doesn’t do 13F filings like hedge fund and institutional investors do, so it takes a little legwork).
So that’s one, and according to their letter to shareholders late last year they have been expecting data by mid-year on both of their lead drugs — generally interim data, but that could certainly still move the market one way or the other.
What’s the other? More from Wood’s pitch:
“… if you take action quickly, I’ll let you in on another huge opportunity in the pharmaceutical industry…
“Non-Addictive Painkiller Set to Take Over a $42.2 Billion Market”
This is a drug that’s being pushed to replace opioid painkillers, which is obviously a big deal and a large area of focus for pharmaceutical companies (and the government, given the epidemic of heroin and prescription opioid addiction in many parts of the country). More clues from the ad?
“Margaret Hamburg, M.D., former FDA commissioner, said:
‘The FDA is extremely concerned about the inappropriate use of prescription opioids, which is a major public health challenge for our nation.’
“And one miracle pain killer is ready to do just that…
“For one thing, it’s non-addictive…
“This new type of painkiller enters the brain slowly, so it doesn’t release dopamine, or give the user a sense of ‘euphoria’ like OxyContin or other opioids.
“Plus, this pain pill is less likely to cause death by overdose…
“That’s because it could prevent respiratory depression, the main cause of death for painkiller abusers.”
OK… how about some more specific clues that we can feed to the Thinkolator?
“Dr. Lynn Webster, former president of the American Academy of Pain Medicine, calls this drug ‘an exciting development in pain management.’
“And the FDA has even awarded ‘Fast Track’ (or expedited) status, so it can get approved and get to market more quickly.
“Right now, the medicine is currently in Phase 3 clinical trials. Results from those trials should come out in the first half of 2017.
“And that’s when we should see the first “surge” in the stock price. But it won’t be the last….
“We expect the share price to double (or more) easily within the next 18 months….”
Well, he’s at least been right about this one so far — this is Nektar Therapeutics (NKTR), which has already jumped dramatically since this ad started running a couple weeks ago (the first variation I saw of this ad was March 18, which was a Saturday, and when the stock opened up on Monday morning it was already up by almost 50% thanks to good Phase III results).
So that’s the big news, and the jump was as large as it was because it was a little bit surprising — Phase III trials generally have a pretty high probability of success, so expectations often color the stock’s performance when data comes out, but Nektar had some negative results in prior trials for this same drug that might have kept the expectations a little lower.
They do also have a fairly large pipeline of drugs in development, and quite a few drugs that have already been partnered with big pharma companies, but the stock price action is enough to tell you that a lot is riding on this particular drug as a potential blockbuster pain medication. Whether it will be successful or not, I have no idea, but feel free to share your opinion with a comment below.
And that’s all I’ve got for you today — so go forth, researchify, and let us know if you’ve got a yen for Actinium or Nektar… and, as always, try to learn enough to think for yourself before you go chasing any hot little ticker (or newsletter). Thanks for reading!