“Potential FDA Approval could change your life” pitch from Matt McCall

by Travis Johnson, Stock Gumshoe | January 23, 2019 2:02 pm

What's being hinted at in ads for Investorplace's "Blockbuster FDA Approval Summit 2019?"

This is an odd one, so be forewarned.

A bunch of readers jumped in to ask me about emails coming out of Investorplace[1] that pitch a tiny private company heading into FDA[2] approval as the focus of their “Blockbuster FDA Approval Summit 2019” presentation… and yes, of course, the Mighty, Mighty Thinkolator can tell you what it probably is, but the details are a little sketchy.

So what’s the story?

Well, the email ads I’ve been getting are mostly signed by Louis Navellier[3], McCall’s colleague at Investorplace, and they spur dreams of massive gains from early investors in companies like Pharmacyclics and Celgene, where $100 became thousands as breakthrough products got FDA approval and were commercialized. The emails point to the signup page for the “Summit” they’ll be hosting tomorrow evening, so we don’t know exactly what they’ll say in the summit or which product they’re trying to sell (McCall helms a bunch of different newsletters)… but it’s probably his Early Stage Investor[4]. Anyway, we’ll follow the clues and see if we can tell you anything useful.

I’m sure those numbers they use to entice us with the returns from Celgene et al are accurate, by the way… but they are also outliers — as I’m sure you know, most drugs don’t get approved, and most approved drugs aren’t company-changing blockbusters… and, of course, those gains came over many, many years, you don’t flip a switch and go from $100 to $5,000 just because of a clinical result — after all, all these trials are watched by well-informed investors who are effectively betting on the result years before a drug is approved. Biotech clinical trial results or FDA decisions sometimes surprise investors a bit, causing the stock to drop 80% or rise 100% in a day if something unexpected happens… but 5,000% returns take a bit longer.

But what is the actual drug they’re going to be talking about at this “Summit” tomorrow? Here are the hints they drop in the email:

“… a new treatment currently in Phase 3 of the FDA review process could cause the company to soar.

“Insiders are already calling this new treatment ‘the biggest advancement in 50 years,’ and ‘an enormous scientific breakthrough.'”

OK, that sounds exciting… big advancements and breakthroughs can certainly make money, right? What else?

“… this new drug could save as many as 8.2 million lives annually. And since the government is backing it with ‘Orphan Drug’ status, it’s three times more likely to be approved.”

OK… that 8.2 million is, I think, just an older statistic about the number of people who die of cancer each year — the number is likely 9.5 million now as the population grows and ages (and as the number of people who didn’t die from other stuff increases with medical advances).

Which means we can pretty much ignore it — if science has taught us anything to this point, it’s that cancer is not a single disease and it is not going to be cured by a single treatment. The “magic bullet” is not an investment strategy.

What other clues do we get?

We get a couple quotes from doctors about how important this is, which serves to make it seem “real” …

“Dr. Sarah Leary, physician at Seattle Children’s Hospital, said ‘There is an urgent unmet need for this.’

And Dr. Chirag Patil, a director of one of the largest medical hospitals in the country, put it bluntly: ‘This works.'”

Then we get the final clue, which is what makes this an odd case:

“… the company that created and patented this new treatment is still private.”

“Private” just means it’s closely held and not traded — usually because it’s owned by a family or is backed by venture investors. Sometimes private companies grow to register and get a public listing and become available for easy investment by anyone, often they don’t. Most companies, of course, are private (and relatively small).

There’s apparently some secret way in, though, and that is apparently the focus of that “Summit” …

“Matt McCall[5]… has discovered a little-known way to buy shares on the public markets — before this company officially IPOs. You do NOT need to be an accredited investor to do this.”

“Accredited” just means “can afford to lose a lot of money” — most private fundraising is done from accredited investors, and most venture capital funds and hedge funds[6] also only raise money from accredited investors, a distinction that is made by the SEC. If you want to raise money from non-accredited investors, you need to register your company. That lets them put the onus of “responsible decisionmaking” back on the investor, since people who earn a few hundred thousand dollars a year or have a million dollars in assets (aside from a primary residence) are presumed to be “rich enough to know better” … or, at least, “rich enough to lose money.”

“Accredited” is also a self-reported status, with no official check or verification, so it doesn’t really mean anything or have any teeth… but it is there to protect individual investors from getting scammed by unregistered flim flam operations.

But still, that is a reasonable clue — there are crowdfunding[7] operations and other groups that raise money from non-accredited investors, including some seed funding/startup groups (there are tons of them, here’s a quick overview article[8] if you’re curious), but that’s not often the path a company is on if it’s in late-stage clinical trials and a commercial product or an IPO is even a remote near-term possibility… generally those kinds of companies are funded by venture capital firms or industry partners who take meaningful equity stakes and also offer partnerships or guidance.

And then we get one final clue in the P.S….

“Business Insider says this miracle substance is ‘the most valuable liquid in the world.’ And now the $7 million firm that controls it is headed towards FDA review in 2019 and a potential 12,042% revenue growth.”

So now we get into the oddity.

Yes, the Thinkolator can of course tell you the name of the company working toward this FDA approval… that’s Blaze Bioscience, which is indeed a private company.

Need some confirmation? OK, the quote about it being the “biggest advancement in 50 years” comes, no surprise, from the founder of the company[9], Dr. Jim Olson of the Fred Hutchinson Cancer[10] Research Center.

And the “enormous scientific breakthrough” quote is, like the “it works” one, from Dr. Chirag Patil, who’s been the principal investigator in Blaze’s clinical trials at Cedars-Sinai[11].

Blaze Bioscience is advancing their imaging agent, called BLZ-100, through clinical trials — it’s a “tumor-specific peptide conjugated to a fluorescent molecule,” and it got quite a bit of press a few years ago when it was first going into clinical trials because of the fact that the peptide was discovered in scorpion venom, which makes for good headlines[12].

And yes, scorpion venom is mighty expensive. It has indeed been called “the most valuable liquid in the world” by Business Insider[13], though that’s not terribly relevant. Everything I read about this treatment, which Blaze calls “Tumor Paint,” indicates that the base of this stuff was found in the death stalker scorpion venom, but has been synthesized. Which means they don’t have to milk a million scorpions to get enough supply to commercialize it. There are lots and lots of other researchers looking into scorpion venom (and other venoms), many of which have clear biological potential.

It is also in Phase 3 trials… well, Phase 2/3 at least. Fierce Biotech covered the trial initiation here[14] and also provides some background.

We have to include some caveats here, though — first, I have no idea where this “$7 million” comes from in the clues. Blaze certainly isn’t generating any revenue, and has raised about $35 million so far. And since they don’t have any revenue, and of course don’t report any financial data at all since they’re private, the notion of 12,000% revenue growth is meaningless.

The inspiration for BLZ-100 was children with brain cancer[15], since brain surgery[16] is one particular area where it’s even more important to remove cancer cells without removing anything extra, but it would theoretically work the same on any solid tumors. The basic idea is that this BLZ-100 is injected into the brain, and it binds to cancerous cells… and it’s also modified to fluoresce in some wavelengths, so the doctor during surgery uses a special machine to visualize the “fluorescent” cancerous cells and help make sure, in real time, that a precise surgical margin is established when removing them. A subsidiary of Blaze Bioscience, Teal Light Surgical, also developed the device, which I guess is really a kind of camera.

This is not the only company trying to develop real-time imaging for the operating room, and there are quite a few others that are using relatively small camera-based systems that uses different kinds of technologies or different imaging chemicals — mostly because the more advanced X-ray or MRI or whatever other kind of imaging is just too bulky, time consuming or intrusive to use during surgery. I should note right up front here that I have absolutely no idea which of these imaging techniques or systems is likely to be most effective or get adopted, though they are relatively safe from the reports I’ve read so presumably a bunch of them will end up being FDA approved at some point… which one(s), if any, achieve commercial significance is another matter entirely.

And it’s also not a “treatment” — this is an imaging drug and system, there is some potential to use this cancer-targeting capability of this particular chlorotoxin to also find and kill cancer cells and therefore be part of an actual treatment… but that’s further off in the future, at least as far as Blaze is concerned — this first product they’re trying to get approved is strictly providing imaging to support surgeons.

But getting back to that “private” bit… Blaze Bioscience raised enough money, apparently, for its early stage clinical trials… and apparently raised enough to get them through to this latest trial that’s underway right now. They are not likely to jump right to an IPO anytime soon, I would imagine, though anything is possible and it would presumably take an injection of capital to commercialize the imaging agent and camera/computer equipment they’re trialing.

The funding for Blaze, so far, comes from venture capital sources — reportedly they’ve raised about $33 million[17] so far. According to Crunchbase[18], the primary funder has been the angel/VC group Keiretsu Capital.

So I don’t imagine there are “crowdfunding” opportunities for Blaze Bioscience, even if you were so inclined, but there are at least a couple other companies behind the scenes here… and I suspect one of those is probably what McCall is pitching as the way to “buy in” before Blaze goes public.

Who is it? Well, the two meaningful publicly-traded candidates I can identify as connected in some way to Blaze Bioscience are Eisai (ESALY) and Denali Therapeutics (DNLI).

Denali was covered here for a different tease a while ago[19]… they are a high-profile biotech startup that signed an R&D deal with Blaze Bioscience back when Denali was also private, in 2016[20]. I don’t think that deal has led to anything clinical yet, but not much is written about it so I don’t really know. Arguing in favor of Denali, despite the fact that it has nothing to do with the clinical work Blaze is currently doing with BLZ-100, is the fact that they could arguably be said to have close to $7 million in annualized revenue, possibly matching that part of the clue.

And Eisai is a more direct partner with Blaze on this BLZ-100 — Blaze licensed the key tumor-targeting chlorotoxin from Morphotek[21], an Eisai subsidiary, back in 2015, and will receive milestone payments and royalties from Blaze if it continues to progress… so if anyone really owns a patent on this particular scorpion venom-derived stuff that McCall is dropping quotes about, it’s arguably Eisai. And the license announcement[22] indicated that it was only for imaging, so perhaps Eisai retains rights for this in drug delivery if that ever becomes meaningful.

So that’s perhaps a bit more likely… though Eisai, a major Japanese pharmaceutical firm, is also quite large, with a market cap of $22 billion and sales of more than $5 billion, with lots of hope for growing anticancer drugs like Halaven and Lenvima, and nothing Blaze does is going to impact their income statement in the foreseeable future (it’s not meaningful enough to even be mentioned in their filings).

What else could it be? I’d be delighted to hear other conclusions. Perhaps I’m missing some other little supplier or partner for Blaze.

Blaze’s BLZ-100 imaging agent and camera is clearly what’s referenced by all the quotes in the ad, but it’s not directly investable and if anyone “owns” the patent on the particular synthesized toxin derivative they’re using from scorpion venom, it’s presumably Eisai, the company Blaze licensed that toxin from. There are lots of scorpion (and other) venom providers, none of which seem to me to be financially meaningful or publicly traded… and so far it seems the chlorotoxin derivative can be synthesized anyway, so maybe that relegates the venom to being an R&D expense.

Maybe Eisai is a reasonable investment if you think Lenvima and Haloven are likely to see increasing sales… maybe Denali is worth a punt based on the prospects for their (still early stage) work on neurodegenerative diseases like Alzheimer’s and Parkinson’s. I wouldn’t buy either based on this Blaze Bioscience early-stage work with a cancer imaging agent, and only Eisai seems directly connected to that… but I also don’t generally buy clinical stage biotechs, thanks to my lack of expertise at evaluating the science or predicting their financials, that doesn’t mean they’re bad investments.

That’s all I’ve got for you on this one, dear friends… maybe the story will change once they have their “Summit” tomorrow night, we’ll see, but those are the only two publicly traded investments I can legitimately connect to Blaze Bioscience in any way. If you’ve got other thoughts, please let ’em fly with a comment below.

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