Every biotech-related teaser ad promises that you can make life-changing profits while also curing the world of a dread disease, of course — that’s why we love ’em.
But this one’s a little bit different — they are teasing a biotech company that is trying to develop new drugs, but according to the pitch this particular company is unique and extra-desirable because they have the technology to do drug discovery faster and better than the old time-tested ways.
Here’s how the ad puts it:
“it’s not a drug… surgical tool… new cancer treatment… nor anything else you might expect.
“Rather, it involves stunning technology that accurately designs new drugs to treat or even cure – many of the world’s most dreaded diseases.
“Better yet, it then lays out a blueprint for how to create these new drugs on a mass scale.
“We call it ‘Cures on Demand’….”
“A Shocking Medical Breakthrough is About to Shake a $956 Billion/Year Industry to Its Core…
“And Hand Early Investors Life-Changing Gains”
Now, they’d delight in sharing the news of this company with you … but first, they want you to subscribe to their new newsletter. This pitch is for the Healthcare Profits Alert from the Oxford Club — it’s edited by Marc Lichtenfeld, who has moved around within the Agoraplex of related publishers and launched or written for several different healthcare-related investment newsletters in the last few years … and they’re being putting this letter on the top shelf, with a $4,995 price tag.
Of course it’s “on sale” at the moment, since they’re just launching the letter, and it’s anyone’s guess as to whether any readers will ever actually pay that high list price (the trend, as I see it, is toward publishers having one or two super-expensive newsletters, and a half dozen cheaper or almost-free ones that funnel into ads for the “all in one” package deals or these super-premium letters where huge publisher profits are generated) — but the “charter” subscription rate is a still-pricey $895, so let’s see if we can ID the pick they’re teasing for a more reasonable price, shall we? Like, perhaps free-ish?
Right … well, the Thinkolator is game to give it a try. First, a bit more of the hypey overview from the ad:
“Imagine a world where drug companies can eliminate years of painstaking research to develop a new cancer treatment… cholesterol medicine… or anti-inflammatory pill.
“They simply use this technology and almost instantly find out the best new drug candidates.
“I know that sounds crazy, but it’s happening right now.
“It’s a completely new paradigm for the entire $956 billion a year pharmaceutical industry.
“And if this situation plays out as we anticipate, it could lead to the single biggest gains of any investment we’ve recommended in our 25-year history.
“A Northwestern University professor recently reported on the effects of just one of these new “Cures on Demand” compounds – in this case, a multiple sclerosis-fighting drug.
“He called the results ‘quite dramatic’ and ‘long-lasting’.
“And that’s just one of the many cures this innovation stands to create in the days ahead…
“This ‘Cures on Demand’ technology could soon send dozens, even hundreds of diseases, conditions, and maladies straight into the medical history books.
“In other words, it’s the mother of all drug breakthroughs.Are you getting our free Daily Update
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“And here’s the thing…
“We’ve been closely tracking the one tiny company behind this story for over three years.”
So we’re told that now the “stars are aligned perfectly” for this company and their technology — but they’re not well known yet, so you can still buy in cheap.
Criminy, this is a long ad — you can check out the whole thing here if you’d like to. I wouldn’t blame you if you don’t have the patience.
But this next part is really the key, explaining that our top-secret company is going to get rich by saving drug companies billions:
“They’re Closing the Books on Pharma’s Trillion-Dollar ‘Wild Goose Chases’
“From Hippocrates… to Madam Curie… right on up to today’s most advanced research labs… Drug discovery has pretty much been the same old story.
“Years, sometimes decades of trial and error, billions of dollars spent…
“And 999 out of 1000 times, it’s all for naught.
“A recent Forbes study showed that Eli Lilly spends about $4.5 billion in research and development (R&D) overall, for every new drug they actually bring to market!
“GlaxoSmithKline is even worse, at $8.1 billion…
“And AstraZeneca takes the cake, burning through a mind-boggling $12 billion per ‘success.’
“‘At $12 billion per drug, inventing medicines is a pretty unsustainable business,’ says Forbes biotech expert, Matthew Herper.
“‘But,’ Herper adds, ‘If a drug company could promise to invent new medicines for [millions instead of billions], its stock price would soar like Apple’s.’
“And that’s exactly what this Cures on Demand technology is primed to do.
“The days of billion dollar hunts for needles in haystacks are about to end.
“Thanks to one company, it’s as if we now have a GPS that instantly zeroes in on exactly where the needle is hidden.”
So it is, at the very least, a great story. So who’s the company?
Well, we need a bit more in the way of clues before we can fill up the hopper on the ol’ Thinkolator this afternoon — sometimes I like to jump up confidently and proclaim our answers right away, but I just got clobbered at Monopoly by two six year olds and a nine year old, so I’m feeling a big humble. Think I’ll double check everything here before I spill the beans.
Let’s hear more from the ad about exactly what this company’s “cures on demand” technology does:
“… this company’s created a computerized version of the human cellular system… down to each molecule.
“They’ve ‘taught’ it everything there is to know about protein databases… gene mutation behavior… RNA splice variants… and much, much more…..
“This company’s scientists feed in the chemical and biological traits of a disease.
“The human cell simulator then creates billions and billions of ‘virtual’ drugs to try to fight the disease.
“For each drug, it calculates how fast it would act.
“It analyzes how effective it would be.
“It figures out side effects, both good and bad.
“It then rejects billions of these possibilities.
“And narrows down the possible cures to a dozen or so ‘winners.’
“They’ve just accomplished in days or hours what used to take years or decades.”
Then we get an example of one recent project of theirs, which should give us a few more clues:
“In one recent experiment, the company set up its system to search for special molecules that play a major role in treating cancer and many other diseases.
“Specifically, they were on the hunt for what doctors call “G-protein-coupled receptors.” These determine how various chemicals interact with the human immune system.
“The Cures on Demand algorithm generated 33 different molecule “blueprints.” The company then had its doctors create these actual molecules in a laboratory.
“An astonishing eight out of the 33 produced the desired result.
“In other words, almost 25% of its predictions were correct!
“Compare that to previous methods, where success is often literally a ‘one in a million’ shot.”
We’re told that this system keeps getting better with every simulation it runs, because it then learns from all those interactions as well … and, perhaps most importantly for investors, that “no other company is even close to creating a system like this one has.”
And we also learn that this company plans to maintain an ownership interest in all the new drugs their technology could help develop, through royalties. That always perks up my ears, since royalties have almost a magical halo here at Gumshoe HQ — who doesn’t like an ongoing stream of cash that doesn’t require any additional work or investment? Of course, they don’t always work out or generate cash, whether the royalty is on a gold mine or a drug or a patent … but when they do, oh, it’s just lovely.
Then a few more clues come rolling in …
“In just the early days of this technology, this company has already signed licensing agreements with some of Pharma’s most serious players, including Biosite, Medarex, Ortho-Clinical Diagnostics and Roche….”
And, of course, it wouldn’t be a teaser ad if we didn’t get an over the top promise of profits (along with a few more clues):
“There’s no reason this company won’t soon be involved in 10% of the $95.6 billion drug market.
“And let’s say they collect just a meager 5% royalty on that $95.6 billion dollars. That’s over $4.7 billion a year.
“Right now this company is tiny, with a market cap of just $200 million, and shares trading at around $5.
“So $4.7 billion a year in new revenue would instantly multiply the company’s value by a double-digit factor!
“The stock could easily jump from $5 to $30 or more. And turn less than $2,000 into more than $10,000, in a heartbeat.”
And yes, “soon” is one of those words that doesn’t really have a tight legal definition. But the bigger issue is that math — presumably the royalties they collect would only be on the drugs they’re involved with, so if they’re (eventually, in this hypothetical world) involved in 10% of the $95 billion market that’s $9.5 billion worth of business that has something to do with this company. If they earn a 5% royalty on all of that business, that’s not $4.7 billion a year for this company — that’s $475 million for this company in royalties.
Which would still be gobsmacking spectacular, of course, for a company that has lost millions of dollars a year throughout pretty much its entire existence, and which really does have a market cap of only $200 million. But $475 million is not $4.7 billion.
So yes, we’ve let the cat out of the bag — we know who this stock is. We fed all that info through the mighty, mighty Thinkolator and got a nice high-certainty answer: This is Compugen (CGEN)
And I had never heard of them before today, so take my thoughts with a big ol’ grain of salt and go researchifying on your own if you’re interested in this stock, please.
Compugen is an Israeli firm, and they call themselves a “product discovery company” — like many biotech research firms, they’ve been around for a decade or more and have generated the cash they need to survive through both selling shares and making research deals with pharma companies. They do lots of little incremental financing deals, it appears from their financials, and they run through roughly $4-5 million in cash per quarter without ever really generating any revenue. That’s not surprising, there are usually a few biotech research firms like this around who don’t really pour tens of millions into one specific drug campaign and thus risk going out of business instantly — at first glance it looks like there’s enough promise in the science that backers are there to help them keep losing money, but not so much promise that it has turned into sales or a lucrative takeover bid.
Still, it’s significant that they qualify as “pretty big” for a prospect generator in the biotech space — they have a market cap of almost $200 million in a business where there are a lot of ridiculous little pretenders with market caps down around $20-30 million. So even without knowing anything about the science, and certainly without following them for years or meeting with management as Lichtenfeld says he has, we can at least say they’re not ridiculous. They’ve run through about $180 million or so to fund their research over the last decade, but it’s been pretty steady.
And now what they have to show for it is this massive database that can help them target drug candidates, particularly in oncology and immunology, and it sounds like they have, over the last year or so, moved to be a bit more active in getting development going on their drug targets — here’s how they put it on their website:
“Unlike traditional high throughput trial and error experimental based drug candidate discovery, Compugen utilizes a broad and continuously growing infrastructure of proprietary scientific understandings and predictive platforms, algorithms, machine learning systems and other computational biology capabilities for the in silico (by computer) prediction and selection of product candidates. Selected product candidates are then advanced in its Pipeline Program to the pre-IND stage. The Company’s business model primarily involves collaborations covering the further development and commercialization of product candidates from its Pipeline Program and various forms of research and discovery agreements, in both cases providing Compugen with potential milestone payments and royalties on product sales or other forms of revenue sharing. In 2012, Compugen established operations in California for the development of oncology and immunology monoclonal antibody therapeutic candidates against Compugen-discovered drug targets.”
Which doesn’t really shout, “we’re about to make money!” But I can’t argue with the strategy, particularly the continued focus on licensing and partnering instead of actually developing drugs and running clinical trials. They might still fail, but it will cost less if they do.
You can see Compugen’s latest quarterly release here and their conference call transcript here — I tend to skip to the bottom line for junior biotechs and check how much cash they have, and how much they burned through in the last year, and on that front CGEN is in OK shape for 2013. They have enough money to invest the $16 million or so that they plan to spend this year on R&D and related activities. If business continues apace into 2014, without any notable partner or licensing deals that bring in cash, they’d have to raise some money then — but that doesn’t always hurt early stage biotechs as much as it does some other companies. After all, if you have no immediate prospects of revenue or earnings, what is it exactly that you’d be diluting by selling more shares? It doesn’t bring a hit to the book value or earnings or revenue per share, because companies like this can’t be valued with those conventional metrics. You need a telescope that can see a few years into the future — or a prognosticator like Marc Lichtenfeld — to give you a vision of the potential of Compugen.
Over the last three years or so, as they’ve been making incremental deals with pharma companies but not yet actually moving candidates through to clinical trials, and as they’ve begun more recently to focus on prodding some of their more compelling monoclonal antibodies into the clinic with the opening of their San Francisco office, the stock has bounced around in a range of roughly $3-6. Investors have seemed to be pretty optimistic over the last six months or so, though there’s always room for an abundant amount of caution — this is a $200 million drug discovery company with no clinical pipeline to speak of.
There may well be news of scientific successes and more pharmaceutical company deals, and a big deal with a big-name pharma company to drive a promising drug into clinical trials could certainly have a huge impact on the stock, but one would presume that it will be very lumpy — they’re not likely to be earning any royalties from approved and marketed drugs in the foreseeable future as far as I can tell.
Compugen’s goals for this year, according to their latest corporate presentation here, include the partnering of two of their compounds and the possible advancement of one of their compounds into initial human trials on their own (presumably to advance the compound far enough to get a far better licensing deal from a partner). If they can partner two of their compounds, particularly with strong ongoing royalties or significant milestone cash payments, that could easily impact the stock, as could a move into Phase 1 trials if they attempt to do that on their own for one of their drugs (presumably that would be their lead drug candidate, which is currently CGEN-15001 for autoimmune diseases and inflammation).
I might understand those partner deals or the stock reaction better than I’m likely to understand the science behind the company’s R&D and their potential innovation in the drug discovery space, but that’s like saying I understand Hindi better than I understand Polish — I can’t reliably order breakfast or ask for the bathroom in either language. I’ve never become particularly well informed on biotech investing, so I’ll just leave you to research Compugen on your own, see if it strikes your fancy, and leave a comment for your fellow investors below to help them along their own journey to discovery.