Here’s a bit from the email that Matt McCall sent out introducing his lastest teaser ad:
“When it comes down to it, there are really just three ways to get truly rich in the stock market.
- You can put thousands into the market every year, hold for decades, and retire with a fortune.
- You can get lucky and place your money with someone like Warren Buffett, who has made 20% a year since 1965, or
- You can tap one of the rarest and most lucrative stock strategies on Earth.”
Well, if you ask me everyone probably ought to be doing 1 and not screwing around with trying to outsmart the market… but that’s boring, of course, so most of us do all three of these things: Look for possible huge long-term compounding winners (like Buffett’s Berkshire Hathaway), put as much as we can into “the market” in general in a broadly diversified way, and use some of our investment cash to look for single-stock opportunities that are mispriced… including, sometimes, those that “tap one of the rarest and most lucrative stock strategies on Earth.”
That “most lucrative” strategy is royalties, of course, and it’s not magical… but it can be a great way to reduce risk and extend long-tail gains out into the future if you pick the right royalty investments. Most such investments are in the natural resources space, on oil wells and gold mines, but you can also buy companies that primarily focus on royalties on brands (Iconix, for example), technologies (Qualcomm), drugs (Ligand) and other stuff that can be trademarked or patented… heck, you can even “crowdvest” and buy royalties on the song catalogs of some performers these days. Here’s the chart that most investment pitches use when they refer to the magic of royalties — this is the return of Royal Gold (RGLD) since 2000:
I would use Franco-Nevada (FNV), but that chart is harder to use to make a point — they’ve been the gold royalty leader since the late 1980s, but they spent five years (2002-2007) as a subsidiary of Newmont after a three-way merger, before being spun out again as the independent company we know today.
And if you want the more sobering chart, we can check out Iconix (ICON) — this chart will prove to you that “royalties” is not an infallible strategy in every sector all the time, not by a long shot.
(And yes, for full disclosure, I did own ICON for a while during that ugly 2015 fall.)
But anyway, the point is: We’re being pitched a huge royalty idea here, and we wanna know what it is… yes? So let’s get right to the tease:
“The First Trillion Dollar Patent Will Release the Largest Royalty Payments Ever Known to Mankind
“And a Small Group of Insiders and Billionaires are Positioning Themselves to Receive the Richest Royalty Streams in Human History.
“INSIDE: How you can join them at the table, and set yourself up for a lifetime of huge paychecks, every year”
Sheesh, not subtle at all, right? So what is this patent on?
He references a few of the huge gains that have been made in the “royalty” space, with numbers that sound like they match up with Franco-Nevada or Royal Gold (both precious metals royalties — they buy royalties on mines before they’re built, then enjoy huge cash flow if the mines turn out to actually be viable and generate lots of production for a long time… or if gold prices rise a lot).
And he says this stock he’s pitching doesn’t look like a royalty stock today…
“This tiny stock is currently disguised as a different type of business… and virtually undetectable by any traditional methods.
“You won’t notice its life-changing potential in a stock screen—no matter how hard or how long you look.
“That’s why, up until now, only a handful of insiders and powerful bilionaires have caught onto the story and are quitely accumulating large positions in this stock.
“All because they’ve discovered what we have, a breakthrough technology that will result in the largest royalty paments known to man.”
So what clues do we get about this huge new royalty asset? Here are a few tidbits from the ad:
“With the right know-how you can jump on the royalty bandwagon without any effort on your part.
“This is why insiders at BlackRock, Wells Fargo, and Credit Suisse, have already purchased millions of shares in this one tiny company.
“All because this tiny company’s royalty payouts could be worth over $1 trillion in the next 30 years….
“… this company possesses a game-changing patented tool that is poised to revolutionize an industry far in-excess-of $15 trillion dollars….
“… this amazing technology caught the attention of Jeff Bezos, and other genius industry moguls Bill Gates, Jeff Bezos, Peter Theil, and Sean Parker.”
OK, so that pretty well settles it — this is some sort of health care/gene editing/gene therapy patent. And the further clues cement that point:
“… instead of using DNA to target drug treatments this breakthrough allows doctors to edit YOUR PERSONAL DNA to either (1) prevent disease and or (2) use healthy DNA to repair damaged cells.
“Do you realize what this means?
“The ability to edit DNA—to cut out the mutations that cause thousands of genetic disorders—will turn the entire medical world upside down.
“So instead of doctors treating cancer with chemotherapy or surgery, they simply cut the cancer-causing mutations out of your DNAs and replace them with healthy DNA that repairs the mutated cells.”
OK, so yes, this is a teaser about gene editing — which the ad simplifies as “cut and paste” for your DNA. Which is pretty much how CRISPR-Cas9 tends to be described in the media, and the level to which I understand the technology.
More from McCall…
“I call this breakthrough Genesis because it has the power to virtually rebuild every DNA from the beginning….
“… scientists have already used Genesis to stop cancer cells from multiplying and also to make cells invulnerable to the AIDS virus….
“… it has already saved the lives of two children with leukemia.:
Those and other examples he gives are all “gene editing” or “genetic therapy” treatments that have been used to alter or fix DNA and improve lives, in small numbers and in the earliest clinical trails, they’re not all necessarily treatments that depend on the CRISPR-Cas9 editing tool, specifically.
And then he jumps forward to guess at the size of these royalties that will be coming:
“You only need look at the market sizes of the diseases DNA editing could cure. Then you’ll see why the royalties will be so big….
“Arthritis: $30.4 billion by 2025
Cancer: $161 billion by 2021….
“Together you are looking at an annual market value of $494 billion. Over 30 years, you’re looking at nearly $15 trillion.
“Even if this company’s DNA-editing technology captured just 10% of these markets, you’re looking at value at royalty payments of $1.5 trillion.”
A royalty that captures 10% of a products revenue is HUGE, particularly in medicine — often royalties are in the 1-3% range, so it’s hard to imagine a tool with widespread use generating royalties like that… but I guess you never know. I haven’t seen any mainstream guesses as to the royalty value of the big CRISPR-Cas9 patents, though such guesses might be part of the massive patent lawsuits that have been fought over them in recent years.
But let’s move on — what is the actual company being touted here? There are several in the CRISPR-Cas9 space, assuming that’s what he’s talking about, and there are others still who are doing gene editing using other technologies. More clues…
“We’re are just the beginning of the first human trials. By investing now, you will be getting in on the ground floor of one of the biggest breakthroughs in medical history.
“Already Bayer and Celgene have staked out major positions in our no. 1 pick along with Wall Street’s top insider, brokers, and institutions.”
Then a few hints about the pipeline and the stock performance:
“Our top pick in this sector has the first-ever treatment that genetically alters a patient’s own DNA to fight cancer along with a pipeline of programs to fight sickle cell anemia, hemophilia, muscular dystrophy, and cystic fibrosis.
“Together, the company possesses one of the greatest pipelines of DNA cures in the industry.
“We’ve already seen the stock’s price jump 252% over the past 12 months. With nine life-saving DNA products headed toward commercialization, we expect the company’s stock to jump another 252% over the next two years.”
And then he drops some hints about a few of the specific institutional holders, including NEA Management Company with 3.2 million shares, Abingworth with 1.95 million and Clough Capital with 890 thousand shares… so yes, the Thinkolator can get right to your results: This is Crispr Therapeutics (CRSP), one of the “big three” of the CRISPR stocks that are affiliated with the early researchers who made breakthroughs in this space.
No, it’s not up 252% over the past year anymore… though it certainly has been at that point in recent months, and it is still a strong performer as long as you go back at least six months — it’s down about 35% since the highs of late spring, but has still outpaced the other major players since they all went public a couple years ago. Here’s the chart comparing CRISPR Therapeutics with the other two major CRISR R&D stocks, Editas (EDIT) and Intellia Therapeutics (NTLA):
CRSP recently started a clinical trial in partnership with Vertex Pharmaceuticals (VRTC) for CTX001, which is a treatment for beta thalassemia, and they’re also planning to start a clinical trial in sickle cell anemia this year, and they just raised a bunch of cash to help fund these early trials (that capital raise was probably partly to blame for the recent fall in the stock price), so they’re pretty well capitalized.
I don’t know how things will progress with their clinical trials, of course, and everything CRSP is doing (as with NTLA and EDIT) is extremely early stage research and, in their most advanced programs, the very first initial human trials of these kinds of therapies. I expect we are a very long way from any royalties being generated from the foundational patents of any of the key players in CRISPR gene editing, but yes, they could of course be huge one day — whether we end up with one winner or three at this point is a complete mystery to me, but this slide from CRSP’s investor presentation sums up how they see the IP situation:
I do know that lots of folks have advocated buying stock in one or the other of the big three CRISPR stocks, but for my part, if I were interested in wagering on the long-term importance of this technology, I’d just buy all three… they each are clearly spending lots of money on trying to develop drugs to prove their leadership, and they each have licenses to some of the foundational patents that most people agree are important and will no doubt be fighting in court for years over future patents.
That’s not an area where I’m ever going to develop enough expertise to pick a winner, and there is no obvious winner in terms of financials or clinical trial progress at this early stage. CRSP is right now the biggest and has the most cash, but NTLA and EDIT are not far behind and they all have strong partners or investors and plenty of cash for their imminent R&D and clinical trial needs. So I’d go with all three or none right now… and personally, for me it’s still “none.”
But that’s the statement of someone who has almost given up on understanding this little sector of the biotech world… and I’m sure we have plenty of readers out there who understand CRISPR-Cas9 and the other gene editing tools and patents better than I do, and could easily have a stronger sense of the pacing of clinical trials and the number of years it might be before any of these breakthroughs could result in mainstream (and highly profitable) drugs or treatments… so if you’ve got an opinion or clarification or idea to share, please do so with a comment below. Thanks for reading!
P.S. Yes, in case this all sounds familiar, we’ve seen very similar “this is going to end all disease and make us rich” pitches for all of the gene editing stocks over the past year or two from lots of newsletter pundits — including Jeff Brown, who started touting all three as “God Key” stocks almost a year ago, Michael Robinson, who has now been running a teaser ad focused on Editas because of its wins in some of the patent lawsuits for more than a year … and in case you thought those three were the only possible winners, Ray Blanco just a few weeks ago touted the older gene-editing technology of Sangamo Therapeutics in his “the world will stand still” prediction (it didn’t). The stories are fantastic, the hope is enormous, the financial future of the whole magilla is still quite fuzzy in my mind.
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