Today we take a little gander at a pitch from Stephen McBride over at RiskHedge, he’s selling a new service called Disruption Trader (charter memberships “on sale” for $2,000, no refunds), and the sales pitch, as always, includes both a freebie idea and a “top secret” one.

That newsletter is new, so we don’t know much about it yet — apparently it’s the “upgrade” option for his Disruption Investor (which we’ve covered several times), and he says these are simple investments… they might be small caps or microcaps, but not options or more convoluted strategies, he says he’s just looking for “small American stocks that are growing at hyper speeds.”

So what’s being pitched? He leads us into the freebie thus…

“This stock is essentially ‘Twist 2.0.’

“It is, hands down, the perfect stock to own as the tech panic takes hold.

“Just like Twist, it’s creating an entirely new industry from scratch.

“Scientists believe its technology could cure human aging.

“And it’s an earlier-stage company—only 1/3 the size of Twist.”

Before we get too far I should at least tell you what he gives away “for free”, and that’s that this first stock is Quanterix (QTRX). We’ll get into what Quanterix does a little bit more in a minute, but what’s with this “tech panic” he’s talking about? Here’s how he describes it…

“Now, the tech panic is imminent.

“But it’s not a ‘panic’ in the way you might normally think of it.

“It’s a once-in-25-years event that will leave behind giant, overvalued stocks like Tesla and Amazon…

“…and see investors panic INTO a NEW generation of smaller, faster-growing stocks.

“Just like the last three times a tech panic transformed America.”

So that sounds like he’s teasing this phase of development as leading to another “FOMO panic,” where people invest willy-nilly because they’re afraid of missing out on the next big thing… and where some of those “next big thing” stocks actually do change the world have post amazing performance. I’d say we’ve gotten inklings of that already, with some of the crazy moves in electric vehicle stocks last year, but McBride goes on and compares this particular moment to three of the biggest market shifts in history…

“The first wave was in the 1920s, when personal cars were the breakthrough technology.

“The Dow gained about 160% in the 1920s…

“While Mack Trucks gained over 400%… Nash automakers gained over 700%… General Motors gained over 1,200%….

“Then in the ‘50s, the first generation of computers was the breakthrough technology….

“The S&P more than tripled in the ‘50s…

“… and Xerox and IBM gained over 2,000%… and Texas Instruments, a microchip maker, gained over 4,000%…..

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“Then in the ‘90s, the internet was the breakthrough technology.

“The S&P gained 270%…

“While JDS Uniphase soared 28,000%… America Online soared 70,000%… and EMC soared 72,000%.”

This is a popular marketing method, of course — we’ve seen ads over the years that promise that a new technology will be like investing in railroads before the golden spike, or buying Apple before the iPod, creating generational wealth from a dramatic shift or a world-changing technology. The challenge, of course, is that it’s hard to know who those big winners will be from any given technology, and it can also be hard to hold them through the wild gyrations those stocks make to get to those 1,000%+ returns (almost nothing goes up 1,000% without also falling 40-80% or more at least a few times, and people don’t generally like those falls).

McBride says that this might be an even more dramatic move a-comin’, because “we have more disruptive technology than we know what to do with.”

More from the ad:

“Dozens of emerging technologies are just now starting to be investable on the stock market—through an ordinary brokerage account—just like the internet was in the early ‘90s.

“Every week we’re getting new breakthroughs in…

• DNA breakthroughs
• Self-driving cars
• Edge computing
• Artificial intelligence
• Synthetic biology
• 5G

“This new wave of disruptive innovation is, hands down, the biggest and most transformative America has ever seen.”

McBride mentions several examples of stocks he has benefitted from, stocks that surged thanks in part to last year’s COVID shutdowns, and that caught my eye — mostly because a lot of those stocks have also been stocks I’ve owned (and still own), the big wins he mentioned included buying The Trade Desk (TTD) three years ago, Okta (OKTA) two years ago, Fastly (FSLY) and Livongo last year. All companies that I owned at the time (well, not Livongo — I own Teladoc (TDOC), which they merged with last year). So maybe we’re simpatico to some degree — or maybe we just both got lucky.

And here’s what he says about that first stock he’s pitching, which we already know is Quanterix…

“My #1 hypergrowth stock is pioneering a new industry that’s 1,000X more important than fake meat.

“Its industry was only just born this past November—when the world’s most advanced AI computer solved a problem that’s baffled scientists for 60 years.

“It was known as the ‘protein folding’ problem.

“Scientific journals called it a ‘conundrum of science.’

“But it’s finally been solved… and experts are calling it…

‘One of the most promising scientific breakthroughs of our age.’

“The stock I’ll share with you is the fast-growing leader in this breakthrough industry.

“In short, it’s the perfect hypergrowth stock.

“The company I’m targeting is Quanterix.

“… it’s the leader in a new field called proteomics.

“Its industry is, literally, brand new. And it’s growing rapidly. Sales are set to quadruple this year.”

OK, so there’s one idea we know he likes. But what’s the “secret” one? Let’s see what other clues he drops:

“Now, because proteomics is brand new, there are only two proteomics stocks on the entire stock market.

“They’re both very small.

“Quanterix is one. I’ll tell you more about the other in just a minute.

“You’ll want to invest in both.

“Because they’re both vying to become the ‘next Illumina.’

“Even just $500 placed in each of these stocks could easily grow to $10,000 or more.”

And we get the “ultimate FOMO” hard sales pitch, perfectly designed to get hearts racing for old fogies like me:

“… many folks watching this presentation will never get another opportunity like this.

“After a tech panic—stocks typically stagnate or fall for decades.

“So if you’re older than 50, it’s almost guaranteed this is the last tech panic you’ll see before you retire.

“Maybe even if you’re 40 or older.

“Keep in mind, after the tech panic of the 1920s—markets went nowhere for 21 years….

“You can’t sit and take a “wait and see” approach if you want to quickly build your wealth in the tech panic.

“You’ve got a relatively short window to make all the money you can while hypergrowth stocks rip higher.”

What else do we get by way of clues? Not so much, frankly, this is all he adds:

“I just learned that legendary venture capital firm Andreessen Horowitz is using a backdoor merger to invest tens of millions in proteomics.

“Vulcan Capital—a VC firm created by Microsoft co-founder Paul Allen—is in the deal too.

“As I said earlier Ed, windows of opportunities like this come once, maybe twice in your investing life.

“Right now, you have an opportunity to take a small amount of money… a small slice of your portfolio… and really move the needle on your net worth.”

I’m pretty sure that this “back door” he’s talking about is Nautilus Biotechnology, which is still venture-funded and has the backing of Andreessen Horowitz and funds from Paul Allen and Jeff Bezos, who are all luminaries and have thrown tons of money at a lot of big idea biotechs in the past (some worked out, many haven’t, as with all venture capital investments). You and I can’t invest in Nautilus, so what is it that McBride is hinting at?

Thinkolator says Seer (SEER) is the likely stock that McBride is teasing here — until this week, as far as I can tell, it was the only real publicly traded proteomics “pure play” equipment/technology stock other than Quanterix. They went public last year (a few yeras behind Quanterix), they have sold a couple of their systems to researchers, and they are trying to build up their business in selling their Proteograph products for proteomics testing, but the business is really just getting off the ground on that front — they have a $2.7 billion market cap at this point, at $44, but in the last quarter they had just $336 thousand in revenue, by far their best quarter ever (the full year was $656,000).

The good thing, I guess, is that revenue growth should be incredible from these levels. And they do have enough money to spend a couple years building the company up, they raised about $300 million in the IPO in December and another $103 million last month, so they have more than $500 million in cash now. That’s a strong starting position, even if it’s very likely that they’ll need it all to build up to eventual cash flow and commercialization, which will take at least several years. They used about $30 million in cash last year, twice what they burned the year before, and I’d guess that number will double again for 2021 and 2022, but even if that’s true they’ll have plenty of cash.

It seems pretty ludicrous that a company which barely has a first-stage commercial product went public and has a near-$3 billion valuation, but, well, I guess that’s a sign of the times. That’s actually pretty similar to the amount of revenue Illumina (ILMN) had when they went public 20 years ago, and that worked out really well for ILMN… eventually.

We should offer here the public service announcement that Illumina also went public during a wild technology-focused bull market in 2000, not so different from our current one in its enthusiasm for pre-commercial technology stocks, and once that market crashed it took ILMN five or six years to get back to where it traded in 2000. It did go up 2,000% or so over those 20 years, but even after that collapse in 2000 there were a few more 40-80% “pullbacks” in the share price, it sure wasn’t a straight line.

Here’s the CEO quote from Seer’s press release:

“Since January, we have brought on two new collaboration customers, signed three commercial agreements, and entered the second phase of our commercialization plan. We, along with our partners and collaborators, have presented exciting data generated from our platform at four different scientific conferences so far this year. The emerging data using the Proteograph Product Suite is giving glimpses of the vast undiscovered proteomic information that only unbiased, deep studies can begin to unlock. Seer is uniquely positioned to transform access to the proteome, empower our customers to make novel discoveries, and enable them to have a profound impact on science and medicine.”

And he tried to outline where they stand in their fourth quarter conference call last night:

“Our Proteograph Product Suite can sit upstream to any mass spec, addressing a long-standing unmet need for efficient deep unbiased proteomics at scale. Similar to the way next-generation sequencing brought about a sea change in our approach to genomics, transcriptomics and biology, we believe Seer’s technology has the potential to effect a similar, if not a more, profound change. As we have previously shared with you, we began commercialization of a Proteograph Product Suite in late 2020. Our commercialization strategy comprises three stages, starting with a collaboration phase, followed by limited release and culminating with broad release.”

What is the actual product? Here’s how they describe it on their website:

“The Proteograph™ suite of products includes optimized reagents and consumables, automation, and software. Its protocols integrate seamlessly with nearly all existing mass spectrometers. Our product suite is designed to enable you to complete a proteomics study with an unprecedented combination of speed, efficiency, and data output.

“The Proteograph workflow is optimized for multiple samples in a single run and includes quality controls to ensure robust measurements. With it, you’ll accurately survey thousands of proteins with precision—and without sacrificing nuance—in hours. The Proteograph solution delivers the quantitation, accuracy, precision, and reproducibility you need to tackle proteome studies of varying sizes with confidence.”

So that seems to be the differentiating factor for Seer, that they have developed a nonoparticle product that can be used to develop a protein sample, and then the testing can be done in any mass spectrometer (instead of needing an expensive and specialized machine, like an Illumina gene sequencer for DNA analysis). Sounds quite brilliant to me, but, then again, I had never heard of proteomics before this morning, and I really have no concept of the competitive positioning among these early providers of protein analysis technology.

How does Quanterix compare? Here’s what their website says:

“Quanterix is a company that is digitizing biomarker analysis with the goal of advancing the science of precision health. Our digital health solution, Simoa, has the potential to change the way in which healthcare is provided today by giving researchers the ability to closely examine the continuum from health to disease. Quanterix’ technology is designed to enable much earlier disease detection, better prognoses and enhanced treatment methods to improve the quality of life and longevity of the population for generations to come. Our technology is currently being used for research applications across several therapeutic areas, including neurology, oncology, cardiology, inflammation and infectious disease.”

Quanterix is certainly ahead of Seer on the commercialization front — they’re very early stage, too, but they have several instruments and assay kits available for sale (that Simoa stands for “Single Molecule Array”, which they pitch as very like liquid biopsy technologies we’ve seen in the past, for testing and research) and do contract research with their accelerator partners. They actually have some revenue, analysts expect revenue growth in the 30% neighborhood in future years, and they’re not going to be profitable anytime soon but they should have enough cash to get through at least a couple more years of advancing the science and building their product installed base and getting more researchers and partners involved.

So both of these companies are indeed trying to take a role somewhat like Illumina’s in DNA sequencing, developing consumables and machines that are intended to make protein analysis faster and more effective and, eventually, cheaper and widely available.

There are others in this field, of course, and it is pretty early days — we noted that Nautilus Biotechnology is one of the venture funded ones, and you can add SomaLogic to that list (also private), along with probably plenty of other companies that I’ve never heard of. But there is also a third company positioning itself similarly in this space…

Olink Holding (OLK) also just went public (prospectus here), and, like Quanterix, they’re quite a bit more advanced than Seer on the commercialization front — the IPO did not raise any money for the company, it was just an exit for selling shareholders, which never feels great, but I don’t know what the back story is with them. They had $54 million in revenue last year, which represented growth of about 30% over 2019, and their proteomics platform, like those of Seer and Quanterix, seems primarily to be used by researchers at this point. According to YCharts, at this point they have a market cap of $4 billion — so that’s a valuation of about 75X trailing sales. Which makes the smaller Quanterix seem like a bargain, they’re at “only” 20X sales.

I have no idea which one of these players might win and become the “Illumina of Proteomics”, and, of course, there’s a very good chance that the big leader in ten years won’t be one of these guys — perhaps they’ll be bought, maybe one of the still-private companies in this space has a much better technology (I definitely wouldn’t know), perhaps some bigger project from Agilent or Thermo Fisher Scientific or one of the other giants will “win”. It does seem, from skimming through their filings and presentations, that they’re all focusing on building up relationships with key research leaders at drug companies and universities, hoping to establish some acceptance that will lead to becoming the “standard” tools of the trade, filtering down to other researchers…. and they all know it’s going to take a long time, and they have somewhat different products and strategies, so while they’ll generally be in competition they are mostly breaking new ground. They don’t have to tear each other down yet, getting to that level where they’re fighting for customers seems to me, as a distinct non-expert to be many years off in the future.

Maybe I’m wrong about how long it will take for this to make an economic impact on these companies, but it’s clearly very early days for proteomics and for proteomics stocks — which means that if they’re going to take over the world and gain 10,000% in ten or twenty years, well, it’s probably OK to take your time, breathe in and out for a moment, and think it over… you don’t have to catch the first 20%. There will be really big down days as well as up days in the future, these stocks are nowhere near trading on a rational fundamental valuation of their cash flow (or even their future revenue), they’re trading on dreams of a future and on sentiment, and dreams and sentiment can change a lot faster than revenue or earnings.

Not terribly different from where CRISPR stocks were five years ago, or genetic sequencer stocks 10 or 15 years ago, I guess. Which means that if I were really interested in this little niche sector, and wanted to try to build a position, I’d probably try to build up a little basket of several stocks in the sector, watch them for progress for commercial development and see what happens as new entrants come public, but not focus too much on trying to pick one winner from the bunch. It would take more brains than I’ve got to really assess which company has any kind of technological or customer-appeal advantage… If picking one, I’d probably have to wait a few years and let the market tell me which, if any, of these companies is going to become a leader, and maybe hope to catch it during one of the almost-inevitable downdrafts that will come.

That’s just me, though, and what I’ll be doing with my money — some stuff falls into what Warren Buffett calls the “too hard” pile (or for me, the “I’m too dumb” pile). These are cool stories, and an impressive-sounding technology… think one of these players stands out? Is proteomics something you want to invest in? It is, after all, your money you’re working with. Let us know with a comment below.

P.S. I missed this the first time around, sorry, but some readers called my attention to the fact that Nautilus Biotechnology has agreed to go public through a merger with ARYA Sciences Acquisition Corp III (ARYA). Looks like the valuation will be about $2 billion at a $13 price for those SPAC shares, haven’t looked at the forecasts or presentations for ARYA yet.

Disclosure: Among the stocks mentioned above I own shares of Amazon, The Trade Desk, Okta, Fastly and Teladoc. I will not trade in any covered stock for at least three days, per Stock Gumshoe’s trading rules.