“59 Chemists Corner Game Changing Ideas” Georges Yared

By Travis Johnson, Stock Gumshoe, July 20, 2008

Anyone who has been wandering around the halls here at Gumshoe University for any length of time will know that Georges Yared has been getting a heck of a push from the publisher of his new newsletter of late — if you haven’t gotten an ad for Game Changers, your spam filter is better than most.

This spring Yared was hot and bothered about MELA, the skin cancer detection device company, and this new teaser wraps in a little bit of a healthcare twist, too — and allows Georges to drop the name of everyone’s favorite rapid growth healthcare tech company, Intuitive Surgical.

So what is it, you ask? Now be patient — you know your friendly neighborhood Stock Gumshoe will oblige with the name of this top secret teased stock, and you won’t have to pay a dime … but you do have to read just a few more paragraphs (no skipping ahead!)

Georges tells us that this is a tiny company, operating in the Tidewater of Virginia (we can debate that in a few minutes), that is under the radar of investors everywhere but is quietly developing “game changing” technologies in defense, health care, and a bunch of other areas.

And he specifically tells us that the company has 59 PhD chemists working away in their labs. I would have been equally impressed with 49 or 99, I suppose, but doesn’t 59 just sound comforting?

Here’s a tasty bit of the spiel for you …

“A tiny company in the Chesapeake Tidewater has so many breakthrough ideas, it’s almost unfair. Not just ideas, you understand: market-ready products…. Market-ready products for truly VAST markets, too.”

And we get a few specific clues:

“This is the company that licensed its fiber-optic technology to the robotic surgery company, Intuitive Surgical. Intuitive blew the doors off Wall Street last year with a 283% gain.”

Just FYI, ISRG’s share price has doubled in the year since this deal with our teased company was announced, but it had very little, if anything, to do with the added fiber optic technology capability that the license is bringing to the da Vinci robot.

And some more clues:

“This is the company that just announced a better way to test for heart disease in women. The old way couldn’t ‘see’ into women’s smaller capillaries, which is where heart disease symptoms can lurk.”

And one more:

“This is the company that developed a safe ‘contrast agent’ that, injected or drank, show up damage to soft tissue on the MRI screen. Note: old contrasts agents were toxic!”

And he adds in that they have technologies for curing male baldness, and for developing organic solar cells, etc. etc. etc. Sounds pretty nice, eh?

“… just goes to show what 59 chemists, under great leadership, stuck away among the crab pots can do!”

So what on earth is this little company that has so many scientific advances and products oozing out of its pores?

We call on the mighty Thinkolator, which has not been really tested to the limits of late, and a few moments on the “spin” cycle are enough to reveal that this is …

Luna Innovations (LUNA)

Tiny it is, indeed — a market cap of $60 million. Georges wants you to buy it if it falls under $5 this month, and he says it has been quite volatile (he’s right about that, at least — you could have bought it at both $3 and $10 in the past year). It was under $5 for most of this past week, but shot up on Thursday and Friday with the market recovery and, one assumes, some urgent prodding from Georges to all of his acolytes. It closed on Friday at $5.60.

So what on earth is this little company? Well, I mentioned the Tidewater things — they are actually headquartered in Roanoke, VA, with a few offices spread around the state (including in Blacksburg, Charlottesville, and other University towns). If Roanoke is “tidewater”, someone forgot to tell that to the large mountains that nestle the town — but we can leave that debate to people who really care about such things.

I am certainly impressed with the company’s vast array of “ideas” — they sell a few products, and they have a large number of potential product ideas and concepts, but the number of actual available products is pretty small, even for a $60 million company. Their revenues are growing fairly nicely, at a 20-30% clip each year, but they appear to be quite far from actual earnings — no surprise for an R&D company.

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They issue press releases with some regularity, mentioning significant deals, but there’s no particularly great way to value the company — surprisingly enough, they do have two analysts who follow them, one hold and one sell, with a price target of $10 and a prediction that they will lose slightly less next year than this year. Not bad, but not exactly unqualified enthusiasm, either.

With companies like this, where a large amount of their revenue comes in the form of research grants, many of which are from the government and are attached to somewhat secretive projects that it’s very hard to put a price tag on, you really have to either invest with some long term faith in their diversified portfolio of potential products, or have some pretty detailed understanding of one or two projects that you believe will be really “game changing” technologies, in Georges’ words. I don’t have either, but that’s in part because I haven’t looked in much detail at the company’s filings or portfolio.

So if you give them a look, feel free to let us know Georges notes that hte deal with Intuitive Surgical will bring in $100 million in revenue for the next couple years, and that the diagnostics business (which appears to be the furthest along of the non-defense products) should grow at 50%. I don’t know enough to agree or disagree — he calls the potential male baldness drug the “windfall”, though at this point that is a very early project, they call it a “nanomedicine prototype” that has grown hair in mice.

Georges thinks the shares should be at $20 next year