What’s Navellier’s “$22 Biotech Stock to Hit $44?”

"Buy Before Friday" sez latest Emerging Growth Teaser

By Travis Johnson, Stock Gumshoe, October 8, 2013

The latest hyperbole making the rounds is vintage Louis Navellier — he’s pitching a fast-growing biotech stock that he says has already netted his readers 392% gains …

… but that you have to buy it before Friday because it’s going to double again!

So what is it?

Well, he shares plenty of clues with us so the Thinkolator ought to be able to make quick work of this one … what’s the pitch?

Here’s a little excerpt:

“The greatest biotech revolution the world has ever seen has triggered a mad dash by institutional investors, money managers, and broker houses into a number of developmental-stage biotechnology companies….

“The chain reaction is about to hand my Emerging Growth readers another 100% profit in this top biotech play in the next 90 days….

“The reason is simple:

“This company’s treatments for colitis, angioedema, and travelers’ diarrhea could triple—that’s right, triple—the company’s 2012 revenue.”

It has certainly been a hot year for biotech, with even the broad biotech indices up by 50% or so since January — so what’s the $22 biotech stock that Louis thinks is about to double again?

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Well, he’s saying he’ll tell you for $295, a price that will jump to $995 after midnight! OK, that’s just a misdirection — in his promos in recent years they pretty much always sell this one for $295 a quarter and $995 a year.

How about those who want some answers that are a bit more, well, free? I guess that’s why you’re here, no? Don’t worry, we’ll get you an answer in a moment.

Some more specific clues for you:

  1. “On January 14, 2013, the FDA approved its colitis treatment—pushing share prices 11% higher.
  2. In the five months since the company’s colitis treatment was launched, the company has seen sales jump $22 million, and we expect revenues to double again by year’s end.
  3. What’s more, the company’s new acid reflux product has one key advantage over its competitors: It offers the longest lasting acid control in the market—nearly 19 hours. The results will drive millions more in annual sales and earnings, not just for the next 90 days but for years to come.
  4. In addition, the company’s anti-diabetes agent just received a huge endorsement from the AACE (American Academy of Clinical Endocrinologists), whose guidelines doctors use in prescribing. With the annual diabetes market estimated at $35 billion, that’s like winning a $100 million lottery every year as tens of thousands of doctors begin to prescribe this company’s new treatments over the competition.
  5. As if that weren’t exciting enough, the company’s angioedema treatment just received orphan drug status from the FDA. As a result, the company will now receive millions of dollars in tax incentives, plus enhanced patented production and marketing rights—not to mention subsidies for its clinical research.”


And he says its up 392% since he recommended it in March, 2012 — which sure ain’t bad so far. So who is this mysterious company?

Well, frankly, with that many clues Mr. Navellier had to know that we aren’t exactly pushing the limits of the Thinkolator’s mighty powers (OK, fine, I’m sure he never thinks about us at all — but let me have my feelings of grandeur) … this stock is … Santarus (SNTS)

And it has indeed had a remarkable couple of years of stock performance — so it could easily be a 400% gainer since Spring 2012 as Navellier teases, even after coming back down a bit from the $28 area where it topped out over the Summer. It is just under $22 a share, thanks to a dip today as a lot of higher-risk and Nasdaq stocks are getting hit. Whether it’s going to hit $44 in short order, as Navellier thinks, I dunno … but it is the perfect match for his clues.

This is a specialty pharmaceutical company with most of its products approved and fairly early in the sales ramp-up that they anticipate, which is why the earnings are growing abruptly. They are in-licensers — meaning that they buy drugs that are discovered or developed by others, and get approvals for those drugs, sometimes drugs that are already approved in other countries, and sell them, so they don’t have a really deep pipeline of “hidden assets” but they can always buy into promising new drugs for that growth in the out years (and they’re not blowing tons of money on early stage science). They are trying to leverage drugs that they can sell into relatively small groups of physician specialists (like gastroenterologists, for example), not big general drugs that they would have to market with TV ads.

Navellier uses a mechanical screening process to identify stocks, and his system loves earnings and estimates momentum — when earnings are jumping faster and faster each quarter, and when estimates are jumping to keep up. So the risk of these kinds of picks is if you keep buying them but the huge growth numbers fail to repeat. I don’t know that to be the case with this particular company, to be clear, and it may well be that their continued rollout of new drugs and their pipeline of additional compounds and label expansions will let them keep growth rolling — just wanted to point out that when heavily teased Navellier stocks have been unsuccessful in the past it’s been because the company just finished a big growth spurt due to big new orders or contracts and wasn’t able to grow past that plateau for whatever reason (I’ve owned a couple of those stocks, too).

The drugs described in the teaser are exactly what Santarus is working on, and the Colitis drug has brought some nice revenue growth this year. At the moment about half of sales are from their two gastroenterology drugs and half from their two Diabetes drugs, you can see the full details here in last month’s presentation to an investing conference.

They have blown away analyst earnings estimates in the last few quarters, but expectations have risen as a result and the analysts are now predicting 70% revenue growth this quarter and 33 cents per share in earnings, with expectations now that they’ll earn a bit more than $1.50 per share next year — which for a $22 stock is still pretty cheap if you think the earnings are going to continue to grow. I don’t know much about the company, I had never heard of them before when I started typing this note an hour or two ago, but my initial impression is that analysts are skeptical that the growth can continue — their two gastroenterology drugs face patent expiration in 2016 and 2020, the prescription growth trends don’t look dramatically awesome in their investor presentation, and a big portion of their net income this year ($55 million) came from a tax credit.

Still, they have been growing actual operating earnings nicely too — and they should have net income of about $75 million for 2013 (that’s the midpoint of their guidance, minus the $55 million tax benefit), so you’ve got a growing company with a market cap of about $1.4 billion and perhaps some promising drugs (they estimate annual sales potential for their approved drugs as being $600-700 million), so that means you’re paying a reasonable 19X estimated 2013 real earnings at this price (1.4 billion divided by 75 million). Reasonable, that is, if they can keep the growth up — revenue was less than $300 million over the last 12 months, so if they’re right about the sales potential of their approved drugs it might work out well … but it’s your money, so only you can make that call. Check it out, put on your thinking cap, and let us know what you decide with a comment below.


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Eyedoc2
Guest
October 12, 2013 3:51 pm

I bought shares of United Therapeutics (UTHR) in Feb 2012 @$50 (probably influenced by Value Line – available at our public library) and two days later Stock Gumshoe published the reveal of the same stock from a Navalier tease saying he (Navalier) expected it to double when earnings reported a week later. It collapsed after that report and I bought more in April 2012 for $42 and held on. (Not what Navalier would expect you to do when he’s wrong.) I sold some for $69 in July 2013 to lock in some gains. (pigs get slaughtered says the Mad Money TV guy). Now it is selling for over $80! So in this one case, Navalier was wrong but the stock turned out OK after 18 months. (Still not a double until it hits $100.) I’m just glad I didn’t buy solely on the Gumshoe revelation of the Navalier tease because I would have bailed when it dropped. Homework is needed no matter what the GURU’s say. Good luck, but use your head.

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takeprofits
Irregular
October 12, 2013 6:54 pm

Your experience is not at all unusual, “pigs do indeed get slaughtered” which is why I continue to advise taking profits based on two crucial factors: 1) your degree of due diligence and resulting faith in the fundamentals of the company and its management, balanced against market sentiment at the time. Nobody gets it right 100% of the time, indeed I have had junior stocks (high volatility) drop 50% after I bought them and still deliver a 50% or better profit after a year to 18 months, sometimes PATIENCE can be a stronger ally than knee jerk emotion based reactions to temporary market fluctuations.

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Harold
Guest
October 19, 2013 12:27 pm

Mr.Walker.
I suggest that you go to the out house and
Sit for awhile and think about what you just said.
Your cheap enough to Walz In on a free parade and then you complain about it!
Your still looking at the old Sears catalogue out in your relief hole!
Maybe you can find something better to complain about out there.
These people that you have disrespected are people that try to help
You. These people know the market inside and out.
So I suggest you apologize or stay away. Your not going to help your
Portfolio any, and believe you me, how do you think Sears made a living?

Ben Gunnarson
Member
Ben Gunnarson
October 31, 2013 1:19 pm

I find the response from investors interesting…

Mick
Member
Mick
November 3, 2013 8:31 am

If you’re buying SNTS….hold for a least 12 to 18 months to see positive results.

Slick Rick
Member
Slick Rick
November 3, 2013 9:59 am

Bio Pharma stocks have many pitfalls like burning through cash fast , and perhaps the worst an FDA denial, which can send the stock down sometimes 50% or more.
Prehaps it is better to concentrate on the firms that supply the “Picks and Shovels” to the biopharma industry. Which would be the tools those companies need for doing their research. One such company which stands head and shoulders above the crowd is NeoGenomics NEO. The company is profitable and going forward could be extremely beneficial to your portfolio! Here is a chart of NEO http://finviz.com/quote.ashx?t=neo&ty=c&ta=1&p=d

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Dennis
Member
Dennis
November 3, 2013 10:27 am

All things aside …what I find a red flag on this stock is when a newsletter says you must buy before earnings after CEO and other insiders have recently sold shares. I would throw caution to the wind and either hedge your position with puts or sell day before earnings then reevaluate after earning call. Why would insiders sell if earnings were going to be good ?

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Dennis
Member
Dennis
November 3, 2013 10:45 am

I am going to revise my last post after just looking at the insider transactions for last 6 months. There have been 49 insider sells of 6.099 mil shrs to only 1 insider buy of 185k shrs. With that in mind scratch hedging position with puts …. If i were in this one i would liquidate position before earnings as shorting this stock before earnings would make more sense based solely on insiders dumping last 6 months

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takeprofits
Irregular
November 3, 2013 12:20 pm

Sound observations from Dennis, insiders usually know more about a stock than any mediocre analyst will find. The stories are usually so “dressed up” like putting “lipstick on a pig” that mostly novice investors are fooled. Even management of some mediocre companies are not above “dressing up” their companies fundamentals.

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DrKSSMDPhD
November 3, 2013 12:59 pm

Myron and Dennis: I just cannot emphasize enough. From a GI MD’s perspective, this company should be held between thumb and forefinger. Lousy portfolio of products that no one else wants to sell, charlatan marketing techniques, absence of long-term strategy. I have said for quite some time that all of its supposedly positive earnings news are just window-dressing to allow insiders to dump shares for a profit. Zegerid is utter nonsense, and rational GIs never rx it. There is no market for budesonide, bromocriptine and XL metformin. I cannot believe anyone would be dumb enough to buy Santarus shares: this company has no future at all.

takeprofits
Irregular
November 3, 2013 2:49 pm

Well KSS, no danger of my buying this stock even, if I was fooled into thinking there is a lot of money to be made. It is an ethical issue with me. I simply do not believe that chemicals in the form of drugs (injected or swallowed) are the answer to building good health.
Our waiting rooms at doctors offices and hospitals are FILLED with people having “lifestyle diseases” which are almost 100% preventable by a change in lifestyle. People universally do not seem to understand that what they breathe, drink and eat, anything they put into their body either builds health or it builds disease. Probably 75% of the packaged / processed food in the supermarkets are best avoided, health comes from the FRESH fruit and vegetable sections. Processed meats (nitrates and nitrites) are particularly damaging as are, anything that needs chemical preservatives, artificial colours and flavours etc.
The bulk of your diet should be NATURAL foods that will spoil, just eat them before they do. When the second ingredient on a drink or food product is SUGAR it is not something that you want to ingest if you value your health.

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Just Joan
Member
Just Joan
November 4, 2013 1:34 pm