Today we check in again on Chris Mayer, he’s sending out ads for his Chris Mayer’s FOCUS newsletter ($2,500) over at Bonner & Partners, and his ideas are often interesting.
His big focus in recent years has been trying to back-test qualitatively to identify the things that made huge investment successes possible — and specifically to look for what ingredients went into making a long-term “100 bagger” investment.
Here’s a bit of the ad:
“After spending six months and over $138,000 on research… Chris discovered all the companies that paid out 100-to-1 or more in the 52 years between 1964 and 2014.
“By studying these companies, he was able to reverse-engineer a blueprint of what made them tick.
“Now, he’s taking it one step further – and in this exclusive presentation, Chris is going to tell us about his ongoing hunt for 100-baggers… and the company he has just discovered that he believes has the potential to pay you 10,000% – or more.”
So there’s your “giant long-term potential” tease… what else do we learn about this?
“… according to Chris’ research, these kind of 100-bagger opportunities appear on average seven times per year….
“… folks don’t believe these kinds of returns are possible for everyday investors without putting their money in something risky or highly speculative… like penny stocks or Bitcoin.
“But you don’t have put your hard-earned money in something risky or highly speculative to see returns of 10,000% or more… It’s possible to see those types of gains by investing in real companies… that solve BIG problems.”
That’s one of his criteria — “small company that solves a big problem” … we’ll get into that a little more in a minute, but first let’s get into the clues about the specific idea he’s recommending:
“I first was clued in to this company at a closed-door investing meeting in New York City. At the event I talked with a billion-dollar hedge fund manager, whose name I’m not able to reveal. What we discussed led me to look into the company.
“Naturally, that got my attention. This person has a really phenomenal track record. But what really piqued my curiosity was the fact that this particular stock was hiding in a historical 100-bagger hotbed.”
And what’s that “hotbed?” Pharmaceuticals… he runs through a bunch of comparisons to other companies, all name-brand big Pharma stocks that had massive runs driven primarily by one blockbuster drug. Like Pfizer (PFE), for example…
“You can literally see the spike from the news of Lipitor’s discovery in August 1995 to its release… and subsequent success as a treatment.
“And it’s important to note: The Lipitor effect was felt for over a decade… from 1996 to 2012, Lipitor became the world’s best-selling medication… ‘providing up to a quarter of Pfizer Inc.’s revenue for years,’ according to Crain’s New York Business.”
And Abbott Labs…
“HUMIRA became the second-bestselling medication in history, with total lifetime sales of roughly $109.2 billion.
“And Abbott Labs’ investors were rewarded with a 1,965-to-1 return.”
And he runs through several other examples of huge 1,000%+ gains from other big pharmaceutical companies, including Amgen and Biogen.
“I believe my new pick has an even wider moat that can protect company profits for years to come… helping it to become the next 100-bagger…..
“The company I found takes a similar approach… developing specialty treatments for patients with high, unmet medical needs… and that’s one reason I believe it could be a game changer.”
So what is it? It’s a company that he thinks will make a difference in the opioid epidemic…
“… by investing in this company, my readers can literally make a small contribution to saving millions of lives… as well as potentially ride the next 100-bagger….
“At least 66,324 people died of opioid-related drug overdoses during the 12-month period ending in May 2017 based on data released by the National Center for Health Statistics.
“For context, that’s more than the 58,000 soldiers who died in the entire Vietnam War… more than the 34,461 people killed in car accidents in 2016… and more than the 43,000 people who died from HIV/AIDS during the epidemic’s peak in 1995….
“… the surge in overdoses has brought down the life expectancy in the United States for the past two years.”
OK, so what else do we learn about this stock?
“I first heard about this stock at a closed-door investing meeting in NYC. A billion-dollar hedge fund manager, whose name I can’t reveal, inspired me to find it. I knew about her and her company from an associate.
“There were a handful of interesting companies mentioned at this invite-only event, but this one jumped out at me… because it promised a cure for the opioid epidemic… and this was something I instantly recognized had 100-bagger potential.”
And then some real specifics for the Thinkolator to chew on…
“Their treatment was approved by the FDA in late 2017. And they just started selling this treatment in March of 2018….
“… they have a track-record of success developing treatments. In fact, according to our research one of their earlier drugs generated over $12 billion in sales and $6 billion in operating profit.”
“And they believe this opioid treatment drug will be much bigger.”
OK, so that’s probably enough for the Thinkolator… but let’s get a couple more little tidbits from the ad in first:
“Mike Derkacz, a 25-year pharmaceutical veteran, and current CEO and president of Braeburn said, ‘This new technology has the potential to greatly influence the way patients are treated today… [it can] free patients from the daily decision and reminder of the disease.’
“Bottom line: I believe this drug could become the predominant player in the opioid treatment world and turn into a multibillion-dollar medication in just a few years.
“In fact, the co-director of opioid research at Brandeis University said ‘It’s potentially a game changer… This could become the first-line [medication] for opioid addiction.'”
That all sounds impressive, right? Certainly we need more ways to combat this wave of addiction. So what’s the stock?
We do get a few other clues…. The company has a $4 billion market cap, the CEO is a 25-year veteran of the pharma industry who has developed multi-billion-dollar treatments before, their treatment uses a “new and improved” delivery method that creates a “moat” for the business, with patents, and they’ve built products before so they know how to ramp up a sales force and get doctors and patients to buy it.
Which means it’s time to pull the Thinkolator out of the garage and shovel those clues into the hopper. Haven’t had to really click it into gear recently, but this one requires a little chugging and churning… still, the ol’ beast still has some power left in her, so our answer does come dribbling out the other side — this must be Indivior (INDV in London, INVVY for the US ADR, each ADR is five shares).
The name might not sound familiar to those who haven’t explored the opiate addiction space, but it used to be part of a much larger company — Indivior was spun out of Reckitt Benckiser as an “addiction control” company, built around their suboxone opioid addiction product, back in 2014.
Mayer talks about this as one of his “coffee can” investment, a “buy and hold” strategy that he’s talked about for several years…
“So the idea in a nutshell is to find the best stocks you can and let them sit long enough to grow. Don’t put anything in your coffee can you don’t think is a good 10-year bet….
“Before I ever put a stock in my coffee can portfolio, I ask these four questions…
Is this a small company that solves a big problem?
Is it run by owner-operators or CEOs with skin in the game?
Does the business have competitive moats?
Does the business have unquestionable growth potential?”
So he presumably believes that this stock ticks those four boxes. I’ve not looked at Indivior in any detail before, but it has been a powerful player in the opioid addiction treatment market for a while, with strong sales of Suboxone and then, when the patent expired for that drug, for its sublingual film that’s used to deliver Suboxone (Suboxone is just the brand name for their combination of buprenophrine and naloxone).
And the ground continues to shift beneath that core product. There has been some bad patent news, most recently with the indication that a competitor’s sublingual film Suboxone doesn’t infringe on Invidior’s patents. That seems likely to depress market share, particularly given the wide variety of somewhat similar generic addiction maintenance drugs at competitive prices, but I don’t know what the actual impact will be since the whole sector is presumably going to keep growing as we work our way through (and hopefully out of) this epidemic… perhaps with some regulatory pressure if the cost of drugs impacts large-scale responses to the epidemic.
But the new drug that they’re excited about… or, really, the new drug delivery system, is a monthly injectable that’s intended to get rid of the maintenance problem — it’s challenging to have to take a drug every day, and some people would do better with a once-a-month regimen, even if it requires a visit to a clinic for an injection. That’s the subcutaneous injection Sublocade, which is an extended-release buprenophine and was indeed approved late last year by the FDA. You can see the description of their products, including Sublocade, here.
And given the steady decline in revenues over the years as Suboxone has endured competition, it seems likely that much of the hope for the future is built on this Sublocade product, which is just in the early ramp up of being sold to doctors and clinics and patients — and it will likely be a fairly gradual ramp-up in sales, I would imagine, because it’s a somewhat dangerous drug to administer and the clinics or pharmacies who dispense it have to be certified in their special program (if you inject into the vein instead of subcutaneously, it’s bad news).
So I don’t really know what the risk/reward scenario looks like for Indivior. They seem to me a two-trick pony at this point, with probably-declining or flat Suboxone sales and hopefully-rising Sublocade — they do have other addiction-control drugs in their pipeline, for cocaine and alcohol, but those are very early on (preclinical or phase 1), and they also are expecting a response from the FDA on its expected approval for RBP-7000, their Schizophrenia drug, but they don’t talk much about that one and I don’t know what the revenue contribution is likely to be if approved.
They do have very high gross margins, since a huge part of the cost of the business is maintaining the sales force and managing and distributing the drug, producing it is not expensive at all — which means that any improvement in sales that doesn’t require a dramatic increase in selling expenses would jump right to the bottom line, but that doesn’t seem likely to happen immediately. I assume that the cost of building a market for this new injectable will be considerable, and that the returns would come a bit later on if they are able to again take a controlling market share in addiction treatment.
And, of course, there’s plenty of risk to that market share — they are first with this injectable extended-release drug, but they probably won’t be last… Braeburn, which is not publicly traded, also specializes in different delivery systems for buprenorphine and has a 6-month implant that was approved by the FDA back in 2016, and they’re also in the process of re-filing their new drug application for similar subcutaneuous buprenorphine injections that can be given either weekly or monthly (they got a Complete Response Letter from the FDA last time, requesting more information, but re-filed last week and expect to know more by the end of June). I don’t know if there’s a fundamental difference between the products from Braeburn and Indivior, or whether one or the other has a stronger sales force that should give them the edge if they end up having competing products in the market, but they sound similar to me — both use a subcutaneous injection that essentially forms a gel under the skin and slowly dispenses the drug into the bloodstream. Braeburn is private but its partner, Camurus, is public (CAMX in Stockholm), and therefore Camurus explains the situation to investors more clearly than Braeburn does — they say they’re still targeting marketing approval for the US, Europe and Australia in 2018, and they explain their FluidCrystal technology here.
The gels are different and proprietary (Atrigel for Indivior, FluidCrystal for Braeburn/Camurus) — Braeburn’s uses a smaller needle and they say that it doesn’t require refrigeration, so perhaps that will matter, but I don’t really know if the differences are enough to be significant to patients or providers… the basic intent and the basic solution to the problem, combatting abuse and daily inconvenience by depositing a slow-release “depot” of the drug under the skin is essentially the same from an outside perspective. And, of course, Braeburn’s drug is not actually approved and might not ever be.
Indivior currently has pretty low growth forecasts from UK analysts, with guesses that that they will boost revenues by only about 6% this year and another 4% in the following year, presumably because of pressure on Suboxone sales, though they do see earnings growing a little more than that, with earnings growing about 10% this year and another 5-10% next year. So that’s going in the right direction, and they could certainly beat those estimates if Sublocade is a big hit in the second half of this year, or if their sublingual Suboxone manages to maintain some market share without big price cuts, but it’s not a picture of overwhelming growth.
But then again, it’s not priced as if it’s got overwhelming growth, the stock trades at a forward PE of about 17, which is about average for the market (but substantially higher than some of the less-popular mega-cap pharmaceutical companies — Pfizer, for example, has a forward PE of about 12 and similar growth forecasts to Indivior).
So to make a call on this one, you probably have to decide where you fall on the forward guessing game: Will sublinqual Suboxone keep high market share without too much price erosion, and will the injectable Sublocade be successful and create revenue growth for them again? If so, they’ll probably do well, given the sad fact that they have a large and growing global market… if not, whether because of competition or regulatory pressure or whatever else, the shares are likely to wither without revenue growth. It’s not a stock I’d put in my “coffee can,” given the relative lack of other products and the high regulatory risk, but that’s just me.
And, of course, what matters is what you think — it is, after all, your money. So what’s your guess? Great things ahead for Sublocade and Indivior as they fight this ugly epidemic? No? Maybe? If you’ve got any insight or thoughts on this market or any of the stocks, feel free to share with a comment below. Thanks for reading!
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