Navellier’s “Next Biotech Doubler”

by Travis Johnson, Stock Gumshoe | February 25, 2014 2:39 pm

Sniffing out an Emerging Growth teaser pick

Louis Navellier likely had a good year last year, since the kinds of stocks he typically likes did very well (generally growth stocks, those with rapid earnings growth that beat estimates and grow at increasing rates … and often look expensive, with high PEs) — and he’s out now with a new ad about biotech stocks that he thinks will get you triple-digit gains.

Biotech teasers are on the rise these days, since we’ve been in a blistering biotech bull market for a couple years now — over the last year even the biotech index funds are up by 60-80% or so, and there have been dozens of huge winners that are up several hundred percent … mostly smaller stocks, of course, but even the biggies have done very well (Gilead (GILD) and Biogen-Idec (BIIB) come to mind, both are very large companies at or near $100 billion in market capitalization, and both have doubled over the last twelve months).

Just chasing growth in that sector would have put you in good stead over the last year, even if you had no skill or luck in choosing the best specific stocks — and an aging population in the highest-health-spending country helps to buttress future hopes for growth.

So we’ve now got pretty much an ideal backdrop for pitching biotech stocks, which — like mining stocks — have big individual boom and bust moves that attract speculators and traders, and lend themselves to good storytelling (curing disease, ending misery, huge secret discoveries by “lone wolf” scientists or prospectors, shocking gains, etc. etc.). I expect we’ll continue to see lots of overheated promises about the next hot biotech stock — and while I’ll often not be able to tell you much about the science or the real prospects, I can at least ID some stocks for you.

So what, then is Louis Navellier telling his subscribers to buy? He’s flogging his Emerging Growth newsletter in this particular pitch, and that’s about $1,000 a year, so I’m assuming you don’t much feel like subscribing just to find the stocks, right? Don’t worry, that’s why we’re here — his spiel touts three specific stocks that he’s recommending, let’s look for the first one now, the one he calls the “Next Biotech Doubler”:

“The Next Biotech Doubler…

“It’s NOT in the U.S. … or Europe … or even Japan…

“It’s in China, and it has the catbird seat for the next Avian Flu epidemic….”

Interestingly, some “plays on the bird flu outbreak” were also among the top performers on the Gumshoe tracking spreadsheets in 2013 — so is Navellier touting one of those stocks? We’ll find out shortly (That tout was from Tony Sagami, FYI, you can see it here[1] — the top performer in that list was one he mentioned for free, not a teaser, and was BioCryst Pharmaceuticals (BCRX) with a gain of more than 500%).

Here’s what gives Navellier’s pitch some urgency, the possibility of global pandemic flu mutating from Avian Influenza:

“Avian Influenza. Bird Flu. H5N1.

“It’s a virus that boasts a mortality rate above 60%. In China, it kills two out of three infected.

“And for the first time ever, the highly-virulent H5N1 has crossed into the Americas.

“One week ago, the first human infection of H5N1 was reported in Canada. But it won’t be the last.

“I don’t want to scare you, because we’re not at pandemic levels—yet. H5N1 still can’t easily spread from person-to-person. And until that happens, we’re mostly safe here in the U.S.

“But in the meantime, this virus is endemic in China. Tens of millions of birds have been slaughtered and disposed of to limit the spread of bird flu, but human cases there continue to surge because of the virus’ fast-mutation ability.”

And, of course, “one company” holds the key to solving the problem.

Isn’t it always thus?

“… there is just one company that has the technology and the know-how, not to mention the full support of the Chinese government to fight this potential epidemic.

“Buy Shares Today, Enjoy Double-Digit Gains In Six Months…

“…And Triple-Digit Profits in a Year

“Already, this stock is up 10% since the latest H5N1 case in Canada was released, and this is just the beginning of an explosive move higher for these shares.

“This company—I’ll call it our #1 Biotech Winner of 2014— is one of the most innovative Chinese small-cap stocks that I’ve ever found.

“It dominates its niche because it is consistently able to adapt and create vaccines for the latest infectious disease trends far faster than its giant pharmaceutical competitors….

“… the Chinese government chose this company’s vaccine over the lumbering pharma giants as the only licensed H5N1 vaccine for China’s strategic stockpile.”

Navellier even takes a moment to pile on the lone Wall Street analyst who’s trying to predict this company’s earnings:

“… there is just a single analyst following the company, and if you’ll forgive me for a moment, he’s had a history of being dead wrong.

“Last quarter, this analyst expected the company to report a loss. Instead, the company reported a modest gain—surprising some 300% to the upside. And handing us hefty gains in the process.

“The quarter before that, wrong again. To the tune of a 133% earnings surprise.

“Before that, a 60% earnings surprise.

“So rather than getting better, this poor overworked analyst is actually getting worse!”

Navellier’s system relies in part on analyst surprises, and consistent “beats” of analyst estimates, so I guess it’s no surprise that this came to his attention — though one should never rely much on estimates when they come from just a single analyst, the value of analyst estimates and forecasts usually comes from the aggregate information and from the range of guesses (and a company’s ability to do better than average estimates).

A few more tidbits for the Thinkolator:

“… this analyst is STILL expecting the company to report a loss in the next quarter. And I have to say, I think we’re on the verge of an even bigger earnings upset.

“That’s because the company is no one-hit wonder. It stands to benefit—and massively so—as H5N1 continues to rear its deadly head, or if we see another outbreak of H1N1, but it also has a number of other profitable vaccines for diseases like hepatitis A, hepatitis B, influenza and SARS.

“And its latest vaccine is set to fight the Chinese epidemic of EV71, or Hand Foot and Mouth Disease, as cases continue to accelerate—from just over one million in 2010 to more than two million in 2012. There is no other treatment for EV71, and the company just completed its phase III clinical trials with strong results.

“What about its pipeline? Vaccines for pneumococcal, rotavirus, rabies, varicella, and rubella.”

So who is it? Well, we feed all of that into the hungry, gaping maw of the Mighty, Mighty Thinkolator and learn that this is almost certainly … Sinovac Biotech (SVA), which was one of the other solutions to one of the stocks teased by Tony Sagami last year and has done well since (up 75% or so). This is a China-focused vaccine company, their main products are vaccines for Hepatitis A and B and seasonal flu, and they also have a lump business in bird flu and swine flu vaccines (the customer is the government for those, so sales depend on whether or not the government is stockpiling during that quarter). Lately, the revenue driver has been their seasonal flu vaccine, Anflu, which generated about 40% of revenue last quarter (the two Hepatitis vaccines together were 48% of their core sales for the quarter — the rest was mostly the Panflu H5N1 vaccine for government stockpile, which they tally separately from the “normal” revenue.)

And yes, the lone analyst who provides an earning estimate for the current quarter has not exactly been on target — though I don’t know whether the company provides any real guidance or not, and I can’t imagine how hard it might be to guess at vaccine demand in Chinese cities, or to guess what portion of the business will be given to Sinovac. That analyst estimates another loss next quarter, and a second analyst piles on to provide an average estimate of a larger loss next year as revenue climbs from $70 million to $80 million and the company is expected to lose five cents a share. The average analyst price target is between $6.50-7, about where the stock is right now.

It’s a pretty good business, it appears, with several high-volume vaccines approved and another pending approval for a probably smaller market (The EV71 vaccine) — and it has very good gross margins, so it should be able to become profitable. My quick glance gives me the feeling that any potential spike in price would probably depend on more chatter about pandemic flu, or on sales ramping up more than has been the norm lately, but the basic underlying business in Hepatitis and flu vaccines is growing and should be enough to create sustainable profitability if they keep the rest of their costs down … maybe not growing enough to justify this valuation, but it looks like a viable business from this distance. I’d prefer to buy Chinese companies on the cheap if at all, particularly if I don’t really know anything about their management or how the marketplace works for their products, as is the case here, so I’m not super excited about the shares … but these kinds of vaccines should create a solid business in a large and densely populated country where vaccinations against infectious disease should be expected to be hugely important over time.

So there’s one idea for you, it looks like Navellier’s second pick is Ligand (LGND), a pharma royalty stock that I’ve covered a lot for the Irregulars and own personally, so I’ll get to that one in more detail and try to find the mysterious third pick for you tomorrow. Enjoy!


Endnotes:
  1. you can see it here: http://www.stockgumshoe.com/reviews/asian-century-the/stocks-that-can-benefit-from-the-new-bird-flu-outbreak/

Source URL: https://www.stockgumshoe.com/reviews/emerging-growth/navelliers-next-biotech-doubler/


  1. Matt Somerville
    Feb 25 2014, 03:01:17 pm

    There seems to have been a fair amount of insider selling for LGND since Feb 12th/Feb 14th but I’m pretty young and dumb and was wondering what you and others thought. Thanks

  2. 6153 |
    Travis Johnson, Stock Gumshoe
    Feb 25 2014, 03:12:59 pm

    There has indeed, though much of it is from a large institutional insider. Frankly, if I were an insider with LGND shares dominating my portfolio and had seen my shares quadruple or more in the past year I’d sell some, too. They were also selling at $30+ and $50+.

  3. MICROBIOBOB
    Feb 25 2014, 04:24:38 pm

    H5N1 transmits poorly, if at all, from human to human, but, only from birds to humans. The case in Canada was in someone who got the infection from poultry in China and travelled to Canada. Perhaps, immunization of those exposed regularly to birds may be justified. If the right mutation occurs, then human to human transmission may be facilitated.

  4. vivian lewis
    Feb 25 2014, 05:06:38 pm

    The latest bird flu is called H7N9 because it has different markers than the older version, H5N1 and the original H151.
    Like seasonal flu, bird flu also mutates from year to year. H7N9 seems to be more likely to transmit human-to-human.
    There is also a new variant of SARS which is spreading in the Middle East; the vector is camel spit. (I cannot make stuff like this up.)
    By the way I am one of the few people who managed to catch a seasonal flu (in the winter of 1968-9 when I lived in Paris where flu shots are not a big thing.) It was awful. I could barely move in my bed. Moreover I had a new baby and my husband was covering a war somewhere. You don’t want to fail to get your jab every year.
    However, one good thing is that if you have had seasonal flu you have some resistance to the later versions for about 50 years. I am coming to the end of that period soon.
    My then-baby is now a money manager and he runs my corporate profit sharing and pension plans. One of the things I would not let him ever do is sell my once-Australian and now-US company that makes a generic flu treatment which competes with Tamiflu. It makes more sense than a Chinese producer of flu jabs under government contract. You don’t think Beijing would overpay, do you?
    I also have an idea for camel spit SARS which I think is less of a threat to the world. You want to beware of llamas too because they are related to camels and spit too.

    • Gary Flowers
      Feb 25 2014, 07:35:36 pm

      I am wondering if you would share with us all what your wonderful company is that competes with Roche and Tamiflu. I was not aware there was an FDA approved generic for Tamiflu.

  5. 65 |
    advantedges
    Feb 25 2014, 06:53:02 pm

    Interesting comments, Vivian… we will sure avoid those Camels and llamas!
    Meanwhile, I have owned SVA for a while. That little dog is a dangerous stock, and has been hyped before. I am not sure what Navellier is doing recommending it, because he usually only recommends mid or large cap biotechs, like AMGN, CELG, or perhaps JAZZ. Look at JAZZ after hours and you can see what bad news does to a stock!
    That being said, I appreciate his recommendation of the small cap SVA and wish all of luck who own it going forward!
    BTW, I may buy more JAZZ on this weakness, and more SVA and maybe LGND. Why? because for other Pharma and Biotech companies to grow, they need to buy out those who have new products and innovations. Enough Said!

    • 6153 |
      Travis Johnson, Stock Gumshoe
      Feb 25 2014, 07:22:06 pm

      As I noted above, hoping to get to it tomorrow. Assuming the Thinkolator is up to the challenge. Up to my elbows in subpoenas and taxes at the moment.

      • Sam
        Feb 25 2014, 08:15:48 pm

        Travis,

        Thanks a lot for responding my response. I am so curious about the third teaser that I did not read the last line in your article and I apologise for that. I am sure that you won’t have any problem to solve it.
        Sam

        • 6153 |
          Travis Johnson, Stock Gumshoe
          Feb 25 2014, 11:08:26 pm

          Thanks. Not involved in either side of any potential lawsuit, thankfully, but still a pain in the neck.

  6. Gyula Soos
    Feb 25 2014, 08:00:48 pm

    I think I beat the Thinkolator on this third one. It is:

    Santarus Pharmaceuticals (SNTS : Nasdaq)

    Just thinking…But all fit, charts and price and all…

  7. 24 |
    Rosalind Rogoff
    Feb 26 2014, 12:12:19 am

    I bought BCRX in 2011 and sold in it in 2012. Now it’s three times what I sold it for. Oh well, that’s the story of my life.

  8. SouthernX
    Feb 26 2014, 12:12:36 am

    In the tradition of Travis I put on my “thinkolator cap” (mine is more “stinkolator”) regarding Ms Lewis’s Aussie equity. (Actually, I remembered it from years ago during the “original” bird flu pandemic hype.) It is Biota, ASX:BTA (now delisted), BOTA:NASDAQ.

    SouthernX

    PS Travis, your article, and reader comments on Prana, PBT:ASX, was First Class! My task now is to determine risk in this stock. Thank you from Darwin!

  9. Jim
    Feb 26 2014, 12:49:30 am

    Surprised no one mentioned NVAX. I have a double on it already since Oct. and it is projected to double again. Novel way of creating vaccines.

    • Sam
      Mar 2 2014, 12:27:19 pm

      DOUBLE? Can you imagine, how many folds if you bought options like me. Thanks a lot Jim, for your thoughts, “it is projected to double again”. I am going to exercise half of my options when they expire.

  10. yum Wong
    Feb 26 2014, 10:55:03 am

    Surprised no one mentioned INO. They have vaccines for human and as well as animals. However, they are on still in preclinical, phase i and phase ii trials.

  11. Steve
    Feb 27 2014, 05:15:23 pm

    I know that biotech investments are a solid choice. But I am so conservative I have yet to do it myself. I think I will continue to watch the market and wait a bit longer.

  12. 6433 |
    glenn newberry
    Mar 7 2014, 08:59:49 pm

    Doctor KSS was looking to get some exposure in the vaccine market.Ran across a company in China that really looks interesting and promising.The company is called Sinovac Biotech(SVA) and trades on the Nasdaq.Their EV-71 vaccine which is in phase 3 just posted results in the New England Journal of medicine and with outstanding results for hand,foot,mouth disease that is a big problem in Asia in infants and young children.It is also the first worldwide company to receive approval for H1N1 influenza vaccine and is manufacturing it for the Chinese government. It is also the only company to supply H5N1 pandemic influenza vaccine to the governments stock pile program and also have been granted a license to commercialize seasonal flu vaccine for Mexico.They are developing a number of new pipeline vaccines.They seem to to be on top of their game.Thanks,Glenn

  13. karmaswimswami
    karmaswimswami
    Mar 7 2014, 09:30:46 pm

    Glenn let me look into Sinovac.

    I think Alan has a great point. There’s that Beatles line “there’s nothing you can do that can’t be done.” With RNAi we are really moving toward a time where it looks more and more like there may be no disease we can have a sporting chance at fixing…but at what price? Medicine is a funny business. Drugs and devices are not priced at something that covers costs and a profit for the company. They are priced based on one thing only: what will the market bear? This is why competition amongst drug makers does not makes drugs cheaper. This is why it is naive for people to predict Abbvie’s HCV drugs will beat Gilead’s because they will be cheaper. Yeah, they’ll be a nickel cheaper.

    Medicine in this country is not something where demand drives capacity. It is totally the opposite. That’s how it’s been forever in the US. If the town of Resume Safe Speed Oklahoma gets a CT scanner, its prices are x. If 3 more scanners are installed, the price for a scan is Y. And as a rule, Y > x!

    Obamacare will have you being seen by noctors not doctors, with treatment based on algorithms, guidelines, and oversimplified approaches using the cheapest means available. Authentic patient synthesis, sorting out complex problems, as takes years of training will be supplanted by PA’s and NP’s who treat based on flowcharts, algorithms a monkey could implement, and 2 years of education.

    I have found myself in recent weeks lying aware at night and picking a disease at random, palavering over its molecular pathways and dreaming up new targets for RNAi, ways to fix diseases so that drugs aren’t needed anymore. Healthcare may have to go to more spending upfront to stave off longer term expense. Stem cell therapy and ddRNAi may be entities that cost more at the outset but that pay back hugely in things that do not come to surgery, transplant, hospitalization, and courses of even more expensive drugs.

  14. karmaswimswami
    karmaswimswami
    Mar 9 2014, 10:00:13 pm

    to Glenn newberry; I am waiting to hear back from a close friend in Taipei who has worked directly with Sinovac. But my first take is that it looks highly undervalued.

  15. David B
    Mar 9 2014, 10:41:19 pm

    At first blush Sinovac (SVA) looks to have had very solid growth in revenue and profits in 2013 over 2012 which is certainly encouraging. The stock price has been all over the place in the past 12 months and doesn’t currently reflect the solid growth they have showed. Their core business in vaccines seems logical and solid and going in the right direction scientifically. I’ll be quite interested in what your connection has to say Karma as my first read is in line with yours that the company is currently significantly undervalued.
    This could be our first deep value play if the information pans out.

  16. 41033 |
    Dr. KSS, MD PhD
    Dr. KSS, MD PhD
    Mar 10 2014, 12:04:57 pm

    To Glenn Newberry: Glenn, Sinovac may be a buy here. My sense is that their EV71 vaccine will certainly be approved if for no other reason than that NEJM ran a major study of it, and the Chinese love these “big face” affairs. The Chinese government will be inclined to approve it just because NEJM ran the study.

    EV71 is the main cause of hand/foot/mouth disease, and is a non-polio enterovirus that can cause meningitis and death. It has occurred in the EU and US, but is more common in south and SE Asia, and seems to be growing more virulent, more likely to cause clusters of death in young children.

    Here is a good Indian review article on it, aimed at doctors but fairly accessible and with good pictures. http://www.ijdvl.com/article.asp?issn=0378-6323;year=2013;volume=79;issue=2;spage=165;epage=175;aulast=Sarma

    Prior to this I would have not been interested in Sinovac because its vaccines were quite me-too: HAV, HBV, Pneumococcus. But they are the only ones with an HFM vaccine. It is hard for these to be blockbusters as people generally get only one or two doses, but the HFM vaccine is likely to be heavily subscribed to.

    How to value Sinovac? Tough to know. By American standards of biopharma, it is cheap at a $350 million market cap. It is unclear how much discount it should get for being in China. And it probably faces having to run trials in quite a few places (Singapore, Malaysia, Taiwan, Indonesia, India, for starters) to get the EV71 vaccine approved. But China’s demand for it will be considerable if its “health corps” rural doctors are educated about HFM.

    • 6433 |
      glenn newberry
      Mar 10 2014, 01:39:31 pm

      Thanks Doctor KSS,great post and article on this terrible disease as usual.I am inclined to start taking a position in this on dips because on EV71 approval this stock will take a nice turn up.Double or triple who knows?But definitly a legit company with a nice future.If you should here back from your source please post.Do you think I am very far off of my evaluation? Cheers,Glenn

  17. 41033 |
    Dr. KSS, MD PhD
    Dr. KSS, MD PhD
    Mar 10 2014, 02:08:23 pm

    Glenn: I heard back from her. Surprisingly she did not know of them. I honestly had thought she had done business with them as regards clinical vaccine trials, as she heads a committee that oversees a big new cooperative effort for drug trials between Taiwan and China. She has run trials for dozens of mainland companies. She heads this for Taiwan and is quite knowledgeable. That she did not know of them may be a boon, as it implies that even in the Asian world this one is relatively unknown. With the EV71 vaccine that will change. They go from one of several makers of immunizations to a maker of the only immunization for one illness.

  18. 41033 |
    Dr. KSS, MD PhD
    Dr. KSS, MD PhD
    Mar 10 2014, 02:39:43 pm

    David B and others: my initial thought about Sinovac ran somewhat along these lines. A thought experiment. And I present this in love and admiration of Asian cultures, as someone who has lived in Asia and as someone formerly married to a woman from Asia. Suppose you asked China, Japan, Thailand, Korea and Vietnam to choose one representative that reflects how their culture thinks. And suppose you called all 5 representatives together. You gave each representative a loaf of bread, and asked them to have at it with a knife. What do you think would happen? Here is my take (and no, I am not stereotyping or speaking ill of anyone).

    The Japanese person would find a way to create bread slices that are 1 nanometer thick and almost too gossamer thin to handle. The Thai person would carve the bread ornately and beautifully, and the slices would be just gorgeous. The Korean person would hesitate, and then ask, Why must I slice this bread? The Chinese person would study the bread and come up with the absolute fastest simplest way of generating slices, perhaps uneven, but expeditious. And the Vietnamese person, while others are deliberating would just silently get it done, slice the bread up while no one was looking. When I heard about Sinovac’s vaccine my first concern was that maybe corners had been cut, expeditious steps done to easily generate a quick vaccine. But from the NEJM article, I think they have done a fine job.

  19. David B
    Mar 21 2014, 07:26:42 am

    Sinovac SVA crushed it on earnings and revenue and was up over 16% yesterday. This company is definitely one to watch. Their HFM vaccine will be a blockbuster for them, especially in Asia. They are hitting on all cylinders even without revenue from HFM.

What These Icons Mean