We haven’t heard from Dr. Mark Skousen for a while, so when a few folks asked me about his latest biotech pitch I decided to jump in… let’s see if the Thinkolator can get us some answers.
(Since we’re talking biotech, I should point out that he’s an economics PhD, not a medical doctor — and he doesn’t focus on biotech all that often in his teaser ads, in my experience.)
The first part of the pitch is all about how biotech in general will get a big boost from President Trump’s regulatory priorities…
“In the next few minutes, I’m going to show you how a relatively unknown piece of legislation – implemented by Donald Trump – could hand you a quick fortune.
“This legislation, like putting biotechs on steroids, is set to explode the value of several select stocks as much as 110-fold. And it does this for two reasons.
“First, it brings as much as $2.5 trillion pouring into the U.S. for investment.
“Second, it deregulates and allows dozens of biotechs to unleash their full profitability.”
That first part is about the expected “tax holiday” that might be part of the currently-being-debated tax reform bill, since pharmaceutical companies are the second biggest group (behind tech stocks) that holds lots of foreign profits overseas because they’re hoping not to pay US taxes on that money… bringing that money home with a tax holiday would make it perhaps easier and cheaper for those companies to do more research or, more likely, buy out more little biotech firms.
I’m a little skeptical of the size of that impact, since studies of past tax holidays have indicated that the overwhelming share of that cash goes to share buybacks, and big pharma… but it could help.
The second part is the regulatory shakeup that’s happening at the FDA, which Skousen thinks will result in faster approvals or other changes that benefit biotechs… here’s more on that:
“What you’re about to see is perhaps the easiest and most straightforward way to make a bundle on stocks.
“But the opportunity will be short-lived…
“Because, once Trump’s plan comes to light – and people see the amount of money flowing into biotechs – your chance will be long gone.
“I believe that anyone who delays getting in will have already missed at least half of the profit potential.”
Do keep in mind that these pundits (and their copywriters) are in the business of creating urgency. Every good ad from a newsletter includes a sharp reason to immediately subscribe, because those copywriters are fully aware both that most of us suffer from a severe case of FOMO (Fear Of Missing Out)… and that the longer you take to think over a purchase, the less likely you are to hand over your credit card.
Their job is making you think that we’re on the verge of missing out on the best investment idea EVER, and you have JUST A DAY OR TWO TO GET ON BOARD!!! And they’re good at that job, good enough to inspire lots of us little investors to act rashly even if we think we’re solemn and sober analysts who should damn well know better.
And the invented deadline Skousen is throwing out for us is, as luck would have it, today…
“After November 30, this could already be plastered on every newspaper and website across the country:
‘Biotechs deliver RECORD profits… Stocks up as much as 11,000%!’
“Once those gains are out the door, they won’t be available again… perhaps ever!
I saw you there, reaching for that credit card — wait!
Think like a lawyer for a minute… what might you have put into that sentence to make it sound like a promise without actually being a promise?
Well, you’ve got the “After November 30” … not a specific timeframe, that’s like saying “in the future, someday.”
And you’ve got the “could already” — which is fully speculative. You’ve got the “perhaps.” Man, once you get enough qualifiers in there you realize he’s not actually saying much of anything.
I’m not picking on Skousen particularly — I use qualifiers all the time, too, because I don’t know what’s going to happen in the future… though I don’t use my qualifiers to write things that sound like almost-a-promise that buying my next favorite stock means you’ll be getting 11,000% gains. Mostly because I don’t want you to think I’m a skeezy idiot, and I have no vested interest in making you choose one stock over another — I just want you to think for yourself and get a good range of perspectives.
And yes, there is regulatory news from the FDA this week, too — FDA Commissioner Gottlieb talked to Congress today about his plans for implementing some Congressional priorities from last year’s 21st Century Cures Act, and his comments were mostly about how to provide more pathways for “accelerated approval,” which, of course, would be a boon for biotech companies trying to develop drugs. That “accelerated approval” goal has been in the works for a while, the bill was hung up in 2015 but then passed by the last Congress with broad bipartisan (and lobbyist) support, and signed by President Obama, in December of 2016. Perhaps this Commissioner will be more aggressive in pushing it than others would have been, I have no idea, but it’s not a new initiative.
And, just to clarify the fact that newsletter ad copywriters will turn anything into a “deadline”, and that we shouldn’t take those dates too seriously most of the time, I looked back through the archives of “ads I didn’t cover” and saw that Skousen had an extremely similar ad over the summer with “August 15” swapped into that tease instead of “November 30.”
Then, of course, we get into the actual biotech investments Skousen is excited about… here’s how he starts dropping hints:
“I want to share with you exactly which stocks to buy in the next few minutes.
“There’s one in particular that is already seeing revenue explosions of 1,341%!”
OK, so that sounds kinda sexy… though remember, biotechs and similar R&D-focused firms often don’t have much revenue, so it sometimes is true that they have huge-sounding growth figures in a given quarter without those growth numbers actually meaning that much (often going from zero revenue to a small amount of revenue creates a tantalizing appearance of growth, but it’s the sustainability or acceleration of that revenue, and future growth, that’s usually much more important — unless it’s a drug developer that has something far more exciting in the pipeline, then it will often trade on the prospects of that future product regardless of what the current revenue numbers might be).
So now let’s see if we can ID the favored stock here… some clues from Skousen (and yes, it’s still the same stock he was teasing in that “August 15 deadline” a while back… so some of the hints may be a bit stale, despite the fact that the ad hit my inbox today):
“How this Single Company Will Save Hundreds of Thousands of Lives… And Reward Its Shareholders with a Massive Payday in the Process….
“The company is based in the Northeast of the United States, and they have three separate revenue streams.
“The first focuses on diagnosing and preventing heart rhythm disorders.
“The second generates cash by selling their cardiac imaging technology to pharmaceutical companies.
“And the third is through equipment sales to hospitals and healthcare providers.”
And apparently they’re profitable, per the ad:
“The company has massive profit margins… and generates a mammoth 49% return on equity.”
So what is it that the company does?
“They’ve created a new cardiac imaging technology that can alert doctors long in advance of a heart attack that something isn’t right….
“It’s been called the “gold standard” and over 1 million patients are now using it….
“Analysts are estimating over 40 million people could soon use their treatment. And that’s just here in the United States.”
So, hoodat? This is, sez the Thinkolator, very likely BioTelemetry (BEAT), which has been an active “story stock” for a couple years… and just so happened to have a big move today, thanks to their partnership with Apple to provide cardiac monitoring services in conjunction with the Apple Heart Study. That’s a study that hopes to use Apple Watch tracking (they’re launching a special app for that) to find undiagnosed irregular heart rhythms… and it makes sense that they’re partnering up — that’s right in BEAT’s wheelhouse as a provider of mobile heart monitoring equipment and services — though that doesn’t necessarily mean that it’s going to have a near-term impact on BEAT’s revenue or income (this is a “study”, after all).
But still, getting associated with Apple is great for little companies, at least in the heady days of the first press releases, and BEAT popped by about 10% today on the news (it closed a little below that, but still up very nicely). That was a fine balm for BEAT shareholders, I imagine, since they’ve been suffering through a weak share price since last Summer — I don’t know why the shares have been weak after they surged in 2016 and earlier this year, but the two likely causes are the recent acquisition of the Swiss company LifeWatch and, perhaps more importantly, the fact that the widely decision decision by Anthem in 2016 that helped to raise expectations has not yet created the ludicrous growth that perhaps some shareholders expected.
They have clearly become a better company over the past few years (they had some disastrous years in the past, particularly back when they were still called CardioNet), both with the approval of their last remote monitoring device last year (the MCOT, Mobile Cardiac Outpatient Telemetry, a little device you can wear over your heart for a month that uses a smartphone to monitor you 24/7 for cardiac irregularities — with BioTelemetry being paid for the monitoring service), and with the LifeWatch merger that they hope will help them to consolidate the market, but the stock also went up rapidly, so perhaps it just got too expensive. Sometimes the lack of more exciting good news is enough to slow down a growth stock, so it could be anything… and there was also a “bear attack” on the stock when it was near the highs over the Summer, so that didn’t help.
That Anthem decision, by the way, is where the “40 million” number comes from — that’s about how many customers Anthem has, and analysts and investors were excited last year when Anthem decided to start covering remote real-time cardiac monitoring, which would presumably drive a lot more business BEAT’s way if doctors start signing lots of people up. And yes, BEAT does routinely say that they’ve served a million patients to date, so it checks those boxes… and at times it has had a ROE of 49% (it was 49.75% for 2016, though over the past four quarters it’s now at 25%, perhaps more reason for the stock to have fallen). The one clue that stops me from saying this is a 100% certain match is that crazy 1,341% revenue growth number — BEAT has never reported revenue like that in its quarterly filings, though perhaps some sort of adjusted revenue or product revenue has hit that number in the past.
If you want a little more certainty, Skousen also says this:
“It has three separate revenue streams when it comes to heart disease.
“But it’s also created a new treatment for Diabetes that we haven’t even mentioned yet.”
Those three streams are their three major divisions, of which mobile heart monitoring is the one that gets the most attention and the real focus of the company — and the diabetes stuff is not particularly important to them, though they did acquire a diabetes management platform last year.
And, for those who like to follow the Clown Prince of CNBC, Jim Cramer also covered them a few times in recent months — he liked the stock last I saw, and if you want a bit of background he did have a decent interview with the CEO last month that you can see below…
So what’s going to happen? That I can’t tell you — the stock is still up nicely over the past year, though well off the highs in the mid-$30s back at the Summer peak, and analyst expectations are pretty impressive for near-term growth, so it’s not irrationally priced on the face of things. The expectation is that adjusted earnings (not GAAP) will come in at 84 cents this year and grow pretty markedly to $1.20 next year and $1.44 in 2019, so that’s solid 40% growth followed by 20% growth over the next two years. If that comes to pass, then paying 24X next year’s earnings is not ridiculous… but do note that these kinds of little device/diagnostics companies can be very volatile around news of insurance reimbursement and competitive products, and I know nothing about those things here.
And with that, dear friends, I’ll leave you to chew on BioTelemetry — think this surge from the Apple deal will be sustained, or that they’ll stake a strong position in the growing cardiac monitoring business? Think other competitors will lap them, or that they’ll get swamped in the big move to “collective health?” Let us know with a comment below.