That’s right, the end of obesity.
That’s what’s being touted by the new letter that as far as I can tell was just launched moments ago by Agora, which they’re calling FDA Trader and for which they apparently hired away Paul Mampilly from the Palm Beach Letter (OK, they didn’t really “hire him away” — Palm Beach is also an Agora affiliate, and the folks heading these letters move around all the time both between and within publishing houses).
So we have now yet another letter that tracks FDA decisions — a growing area of newsletter popularity after a year or two of huge performance for biotech stocks, and the ideal kind of non-correlated sector where the economy doesn’t matter so much… it’s all about picking the right investigational drug or the right company at the right price. Most of these letters, as with the “Most Profitable Calendar Known to Man” pitch from the new BioScience Millionaire service from Money Map Press, aim to track upcoming FDA decisions and similar catalyst points and recommend trades based on those decisions.
Whether or not any of these letters can put together good long-term results is certainly an open question — I’ve seen several such letters die in the years we’ve been tracking teasers at Stock Gumshoe, and it is tough to get an edge in biotech, particularly if you’re trying to trade off of FDA decisions in a short-term kind of way (lots of other people know when those anticipated FDA dates are, too, and lots of other people are doing the same calculus to determine what the new drug, if approved, should be worth… so when the approval comes, you end up with thousands of investors waiting for a pop, sometimes not realizing that with that many people waiting for the pop, well a drop as they all sell and move on to something else is just as likely).
So to make big winning short-term trades you often have to be either contrarian or lucky, though certainly if you follow the science and management well you might make money in the long term (that’s beyond my ken for the most part, which is why I’m delighted to have Dr. KSS and his band of merry followers tracking interesting biotech ideas).
Will Paul Mampilly make some good moves in this arena?
Well, I guess we’re about to find out.
His first teaser pitch for this new service touts an announcement from the FDA, apparently expected in about two weeks (June 17 is trotted out as a hot deadline), and it’s all about ending obesity… probably the most important affliction in the health care marketplace beyond Alzheimer’s. That’s “most important” not necessarily in terms of actual health, though obesity is certainly tied to bad health in many ways, but in terms of money — there is a huge avalanche of cash to be had for truly effective obesity or Alzheimer’s drugs or treatments, largely because such treatments have proven so elusive.
That hunger for an obesity “cure” has led to several stock spikes in years past — most recently we had the pitches for Arena’s (ARNA) Belviq in both 2010 and 2012… it turned out that the 2010 FDA calendar date was a head fake, with disappointing news, but the stock did eventually take off on approval and decent acceptance a couple years later, and ARNA is now a billion-dollar company. Still far short of the world-changing results hoped for financially, partly because of the limits of Belviq (it does not, unfortunately, make you skinny after a six week regimen of two pills a day… it just makes a bit more weight come off, and stay off, than without drugs. You still have to diet and exercise. Not quite magical enough to make it a $10 billion company just yet).
So that’s the backdrop: investors love anti-obesity stuff. And the potential market is obviously huge, at least theoretically, as we sit here now knowing what the drug or device is.
So now… what’s the tease?
“… grab a pen, get a piece a paper and write down the following date: June 17, 2014.
“Because something very special could happen on this date. Something that might change how you invest forever.
“In short, we are expecting the Food and Drug Administration to make a very special announcement…
“Now, I don’t know what you have planned already on this day. But here’s my advice…
“If you’re getting your car fixed on June 17, cancel it.
“A birthday party to go to? Send a card. Trust me, they’ll understand.”
This is what we call “building up expectations.” Now we’re pretty much guaranteed to be disappointed by whatever happens two weeks from today.
Here’s some more of the ad:
“… on this exact date, we believe the FDA will publicly announce (for the first time ever) a first-of-its-kind solution that could be the “end of obesity” in the United States.
“In other words, one of the biggest health problems facing us could be solved — once and for all…Are you getting our free Daily Update
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“If we’re right — and I have every reason to believe we are — we could see the price of one tiny stock go up 400% or more.
“I know it sounds fantastic. Because this could be wonderful news for your health — as well as for the health of your friends and family members.”
Every single biotech stock pitch worth its salt has some kind of line like that — right away, you can imagine not only being awash with riches but also (since you’re not just a greedy little troll) helping to make people healthy! One can almost picture the medal being affixed to one’s chest.
OK, so we know that obesity is obviously endemic in the United States, we know that “curing” obesity would obviously be good and would likely make someone quite wealthy. What, then, is the solution that has some kind of FDA date coming up on June 17? A few more clues:
“… there could be more than 1.4 billion adults alive on the planet right now whose lives are at risk — and could benefit from remarkable new treatment developed by this tiny penny stock…
“And that’s why I wanted to get you this message as soon as possible.
“Because a tiny public company based in St. Paul, Minn., has already discovered a solution to this terrible problem…
“No, this company is not selling supplements or exercise equipment.
“They are not even developing a drug…
“Instead, they have invented a tiny medical device that can ‘turn off hunger’ in your brain.”
That means we’ve probably got enough clues already. But just in case, let’s check and see if the Agora folks have any other tidbits to throw our way….
“The Tiny Device That Cuts the ‘I’m Hungry’ Signal
“For the first time ever, there could be an anti-obesity device on the market that uses electricity to suppress hunger by blocking the nerve signals between the brain and stomach.
“In short, this device controls how the stomach expands when we start to eat. It uses an electrical stimulator to block signals from the vagus nerve, the nerve that connects the brain to the gastrointestinal organs, regulating hormones and other factors.
“As Kiplinger’s magazine reported in a write-up about this company, ‘cuts the ‘I’m hungry’ signal before it transmits from stomach to brain.’
“And Popular Science put it this way: ‘[This device] blocks vagus nerve signals by zapping the nerve with electric pulses. Patients… have shed up to 30% of their body weight’….
“The ‘obesity blocker’ is the size of a small watch, and is implanted in the left chest area through a procedure that takes a couple hours. You go home the same day after the procedure is complete.”
OK, fine, we can let the Thinkolator loose on this one: This is EnteroMedics (ETRM).
EnteroMedics is a small company, market cap around $130 million, and they have really just one product: the Maestro implant, which is described as somewhat like a pacemaker that stimulates the vagal nerve in some particular way (called VBLOC therapy) and therefore curbs the appetite. The company has been on a long, long road developing this therapy, and the Maestro has been granted a CE mark in Europe (analagous to FDA approval) and a similar status in Australia, which in many cases means approval in the US is more likely — particularly for medical devices, where the bar has often been seen as lower than it is for pharmaceuticals (that’s not necessarily true for all devices, of course).
And yes, there is something happening on June 17 — that’s the date of the FDA Advisory Panel meeting for Maestro VBLOC therapy. Such meetings are followed closely because the report of the panel always carries a lot of weight with the FDA, though a positive advisory panel meeting does not guarantee approval (nor does a negative one guarantee rejection). So you won’t find the Maestro advertised by your local hospital on June 18.
That’s about all I know about Enteromedics — I’m writing this in the late night hours because I have commitments with my children tomorrow, but I dropped Dr. KSS a line to see if he’s got any thoughts he wants to share on the company (we’ve got another piece from the Dr. coming out probably late today, so he might well be busy). Don’t know if he likes it or not, but it’s in his wheelhouse so I presume he’s heard it touted many times in the five+ years (and $200 million, roughly) they’ve spent trying to get US approval.
Yes, five years. Not that they’ve been under the FDA’s microscope that entire time, I don’t know what the path has been like for them in any detail, but the original Maestro device was approved for use in Europe more than five years ago. The second generation of the device was approved about three years ago in Australia and in Europe. Which would seem to be encouraging, and it looks like they still have major studies going on to measure the efficacy of the device that perhaps are leading folks to be patient in jumping onboard to use it… but from my quick scan of their numbers they have seemingly generated no revenue since they first got the CE Mark in 2009. They do have commercialization partners in Australia and in some Gulf countries, but as of the 2013 annual report no real sales and no commercialization progress in Europe. Where there is plenty of obesity, though not to the scale we’ve perfected in the United States. Which indicates that they’re not spending money or much effort to commercialize VBLOC Maestro in any other country, perhaps recognizing that the mother lode market is the USA.
And yes, they’ve said that if the device is approved in the US, they can move to commercialize it by late in 2014.
At that, I’ll leave you to it. Wiser minds than mine can discuss whether the implant is a worthwhile idea, whether it might ever make money, what the clinical trial data might mean for potential approval and market size, and what might happen to the stock price if and when the FDA says nice things about it on June 17 (or if it approves the device some time later_. All I can tell you is that yes, it looks like Paul Mampilly’s FDA Trader is trying to make a name for itself out of the gate on the back of ETRM and its FDA Advisory Panel meeting in two weeks.
So Whaddya think?