“One tiny drug company … we think is the ‘surest thing’ we’ve ever found…” (Money Map Passport Club Teaser)

Sniffing out the urgent (October 17 catalyst event) Money Map biotech teaser for their "Passport Club"

By Travis Johnson, Stock Gumshoe, October 16, 2012

“Why I’m Ready to Place a $2,450 “Bet” on Your Behalf…

“Given what we’ve learned about one tiny drug company – and the documented 82% success rate within the category of drug it’s developed – we think this is the “surest thing” we’ve ever found…

“How this ‘wager’ could make you thousands of dollars (or more) in the weeks ahead….”

That’s how the latest ad from the Money Map folks begins — in essence, it’s a teaser pitch for their “buy once, get everything forever” offer, something that many of the big publishers offer. They charge you one very large fee (usually between $4,000-10,000) and you get all their subscriptions (or almost all, in some cases) for a small annual “maintenance fee” after that (usually $100 or so), in perpetuity. It’s great for them, because they get their money up front and they don’t have to worry about the typical deterioration of the mailing list over time as folks lose interest, let their subscriptions lapse, or cancel, and they usually offer no refunds or a very brief refund window on these “big deal” offerings. If you are one of those people who loves several of a publisher’s newsletters, and are confident that those letters will be around for five years or more and that you’ll still want to be a subscriber, they’re clearly a way to get a good discount — but, of course, a discount on a lifetime of something that you might not like in a year or two is not quite so appealing, nor is a basket of twelve newsletters to fill your inbox if you only like or use one of them.

But I ramble — the point is, in order to get you to sign up for these they often have a gimmick that de-emphasizes the large size of the one-time purchase you’d have to make. Money Map’s gimmick this time around, similar to past offers from Agora and others, is that they’ll send you a check so you can buy the stock they’re teasing (or do whatever you want with it, of course) — in this case the offer is that they’ll “place a bet” for you of $2,450. Or in other words, they’ll send you a check for $2,450. That $2,450 number is in the headline — it’s only after you read through (or listen to) three quarters of the ad and are invested and convinced by the spiel that they tell you that you’ll first be paying them $7,250 (in effect, I assume that pretty much everyone would just get the “instant discount” instead of the check and pay $4,800, but that’s not as fun a story to tell). Oh, and they also say they’ll give you a free iPad if you’re an upgrading member who already subscribes to one of their letters. And for this $4,800, they say they’ll offer a refund period of about six weeks (until November 30), with no mention of the 10% “refund fee” that so many publishers charge.

The main enticement, though, is that if you sign up for this “big deal” and spend your $4,800, you’ll get the info about the “tiny drug company” that they think is worth of your $2,450 “bet.”

Here’s how they get us interested at first:

“… now and again in the course of our research we’ll come across an opportunity that’s too small in trading volume or in market cap to share with readers of our various our VIP services, let alone tens of thousands of Money Map subscribers…

“Yet the potential for enormous gains are simply too great to pass up.

“So we save these opportunities, when we can, for our avid readers. I’m talking about those who follow our research the closest and understand the wealth-multiplying power of the high-octane gains associated with our premium services.

“I’m writing you now because such a situation has come up. It’s a highly time-sensitive opportunity that our research suggests could spike higher on the heels of an upcoming announcement… and go on to quadruple our money over the coming 12-24 months.

“You probably haven’t heard of this situation because it’s so small.

“But I can assure you… insiders are watching this situation unfold as I speak – waiting patiently for two key dates that could determine how high this stock goes.”

So it’s some sort of biotech, and it’s got a catalyst upcoming … here’s more on that:

“But before I tell you more about the company, I need you to understand that these tend to be fast-moving and volatile situations.

“For instance, we recently learned that the company we’re looking at now has a very critical date approaching – October 17th – that could be the first of at least three major catalysts that could drive this stock substantially higher very quickly….

“… this is such a lightly-traded company right now… it’s at such a crucial time in its development that if I give too many details and this report were to leak out and its name were known, too many people might pile in to the stock. A lot of investors (including Money Map readers) could get hurt as the price is driven artificially higher.

“I want to avoid that at all cost.”

And October 17 is, of course, tomorrow … so if we’re going to figure this one out we might as well do so now, eh? Unfortunately, that means that there will be gazillions of Gumshoe readers (OK, fine — thousands … assuming there’s nothing good on TV) who could potentially drive these shares up if they want to buy it. But it’s OK, we know you’re smart enough to decide for yourself, we don’t have to hide the stock from you. Unless we can’t identify it, of course.

So in the interest of identifying the pick for you, how about a few more clues to get us moving? Here we go:

“Life-Saving Hope For 3,000 Young Americans

“This small drug company has created an important drug – the first of its kind – aimed at combatting a very rare disease that only affects about 3,000 Americans – and about 6,000 known cases worldwide.

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“It’s a disease that impacts mostly children and young adults.

“Untreated it can cause death before their 18th birthdays. Even with current treatments, very few people who have this disease survive beyond 30.

“But the company I’m writing you about recently demonstrated in late stage trials that it was able to reduce the impact of the disease by as much as 40%.

“Considering there’s currently no safe treatment for this disease, that’s considered by many to be a breakthrough.”

3,000 customers is not very many, but they do talk about that, too — this is pitched as an “orphan drug” candidate, which is an FDA program that encourages development of drugs for critical but extremely rare diseases, allowing companies to get an extended exclusivity period for their drugs (which are often also extremely expensive on a per-treatment basis). They’re also, partly because they attack vicious diseases that have no effective treatment, more likely to get FDA approval than your average drug.

More clues from the ad:

“We love those odds. Especially when you consider the terrific Phase III trial results this company has shown….

“… the disease this drug will treat is very rare.

“Fewer than 1 in 100,000 people will ever contract it. That’s about 3,000 people in the U.S. and another 3,000 in Europe for a total “accessible” market of about 6,000.

“That’s small – especially when you consider 27 million Americans suffer from heart disease according to the Center for Disease Control… or that more than 340 million worldwide have diabetes.

“But because this disease is so deadly, virtually everyone who has it is a potential customer for this drug.

“So let’s assume a very conservative 30% of those 6,000 people get access to this drug at an estimated cost of $300,000 per year…

“That’s $540 million in potential revenues.

“Given drug manufacturing industry’s average profit rate of 16.7% – that’s a net income of just over $90 million…

“With just over 25 million shares outstanding for this little company – that represents about $3.60 in potential earnings per share…

“But here’s where it gets exciting…

“Using an average price-to-earnings ratio of drug manufacturers of around 17.2, that puts the potential share price of this company at just shy of $72 per share:

“Based on the current share price – that represents a potential first year gain over 360%!”

So … any other clues? Well, not really — they do say that it’s a “rare blood-related disease”, but mostly they go on to talk about potential growth — comparing it to other orphan drug winners like Alexion’s Soliris or IDEC’s Rituximab, both of which were blockbusters.

And then we do get into the “catalysts” a bit more — the first one is the imminent decision from the FDA advisory committee:

“But if you want to be in this deal – I highly recommend you get in just as soon as you possibly can…

“That’s because within the next few days, a group called the Endocrinologic and Metabolic Drugs Advisory Committee (EMDA) is scheduled to meet to evaluate the effectiveness and safety of this company’s Phase III drug results…

“And to make it’s recommendation to the FDA.

“Now typically when the EMDA meets and offers a favorable review, it suggests that an FDA approval is virtually certain. That’s why typically the stock moves higher within hours of a positive recommendation being issued.”

And the second is actual approval by the FDA:

“… if this company’s ‘orphan’ drug is approved – and many industry experts are giving it a high probability that it will on December 29 of this year – the stock price is all but assured to go up – as high as $72 a share based on some very conservative first-year estimates – over 420% higher than the price it’s trading at today!”

They do, thankfully, also mention risks — since we all know the FDA has “surprised” investors by not approving drugs in the past:

“Now, just to be totally forthright, I want you to be fully aware of the downside here.

“If the company’s drug gets a bad EMDA panel review or is not approved by the FDA later this year, shares could go down.”

And they also hint that there’s a “trade recommendation strategy” that can give you “leveraged” gains, which implies to me that they’re also recommending an options trade on some expected pop in the shares following FDA news, either the advisory panel decision or the actual FDA approval (one hopes), or perhaps both.

So what’s the stock?

Well, there are actually two drugs for homozygous familial hypercholesterolemia (HoFH) going before the FDA advisory panel this week (yes, the Endocrinologic and Metabolic Drugs Advisory Committee) — and they’re shaking up as somewhat opposite, with one getting a positive-sounding preliminary staff report before the committee meeting and the other getting a much more worrisome report.

The stock that’s having a good week so far, and that has the EMDA meeting tomorrow (Wednesday the 17th) and seems likely to be the solution to this teaser, is Aegerion (AEGR). The preliminary report to the committee indicated that the side effects should be manageable for their drug, which is called lomitapide. You can see the briefing information for that drug here, or all the documents related to the EMDA meetings this week here.

The one that’s having a bad week, with their EMDA meeting on Thursday the 18th, is ISIS Pharmaceuticals (ISIS), which is developing a drug called mipomersen in partnership with Genzyme (which is now part of giant Sanofi, SNY). That drug raised several larger concerns, from what I can tell, in the staff report to the committee — including liver tumors and a large number of patients who halted treatment during the study due to adverse effects.

AEGR also has a “PDUFA date” of December 29, so that’s a further clue that they’re the teaser pick being touted here.

PDUFA dates, if that term is new to you, just refer to the “guideline” dates for the FDA’s review of new drug applications — when a drug is submitted for the regular approval timeline, it’s supposed to result in an answer within ten months; when it’s “fast tracked” they shoot for six months. The date is not a hard deadline, and the FDA can and does take longer when they want or need to (I suppose they can also give an early answer, though I don’t remember hearing about that happening), but lomitapide has an expected response date of December 29, and investors cling to dates even if they’re not guaranteed. The acronym stands for Prescription Drug User Fee Act, if you’re curious, it’s the basis law that gives the FDA power to charge fees to companies in order to fund the review process, and sets other standards for that process.

So the first key date for AEGR was Monday (yesterday), since that’s the day when the relatively hopeful report for the committee was put up on the FDA’s website. That helped the stock climb a good 15-20% from the Friday close (it was also up on Friday as folks anticipated the meetings this week, so it’s up about 30% in three days now), which brings the stock up to just above the highs it reached last Spring, when the application was submitted to the FDA (there were some big drops in the share price then as well, partly because some investors had hoped for the six-month “fast track” review).

If you want to obsess about the actual meeting and what they discuss, it looks like Adam Feurstein over at TheStreet will probably be live-blogging it, as he did for an FDA panel today for a different drug — you can find his stuff here. The stock has been higher than this in the past, by the way, but you have to go back more than a year for that, back to when they were getting their Phase III results and inspiring some investor enthusiasm before the long slog of actually filing for FDA approval.

Call options on AEGR indicate that options buyers are expecting the stock to move at least 10% more by Friday, when options expire this month, so that would be the easy way to get leverage on whatever chatter comes out of the advisory panel meeting — assuming that something definitive comes out of that meeting right away it could easily move the stock by Friday, and investors seem to be far more positive on AEGR’s lomitapide than they are about ISIS’s mipomersen — which is significant not just because of the stock movement this week, but also because both of these are high-potency drugs with significant side effects that are targeted for a very small number of patients … if the market were split between them and they didn’t have other potential drugs or potential extensions for these drugs, it might be tough to justify the stock price of either.

For what it’s worth, ISIS is larger (about a billion dollars, versus slightly under a half billion for Aegerion), and is a “platform” company with a dozen or so different drugs in development (mostly partnered) using their antisense technology, and Aegerion at the moment is really a “one drug” company that seems to have everything riding on lomitapide, so it’s far more of a “pure play” on the orphan drug to treat this particular disease (which is, as far as I can tell, extremely high cholesterol that’s untreatable by conventional means, to the extent that it gives extremely highly likelihood of heart disease and the other bad stuff that accompanies high cholesterol). Take that with a grain of salt, I know very little about either company and am just sharing a few things I’ve gleaned from reading up earlier today.

If you want to speculate on AEGR getting an approval notice from the FDA prior to their “PDUFA Date” at the end of December, it looks like most folks are speculating on the December options, which expire before that “deadline” on December 21 — there is extremely heavy volume in those call options, and the out-of-the-money options are telling us that buyers are expecting the shares to go up another 20-30% or so. Open interest is highest (by far) for the December $25 calls, so if I had to guess I’d say that’s the December option the Money Map folks are looking at, but that’s just a guess (open interest is just the number of options contracts that exist — as opposed to volume, which is the number that have traded in a given day) … the only options available for after the PDUFA date have a March 2013 expiration, and there’s essentially no open interest or volume in those yet.

So … will AEGR get good news tomorrow, and an FDA approval by the end of December? Is this really the “surest thing” around? Well, approval seems to be the consensus expectation now, as we head into the committee meeting … but if you know biotech investing at all you know that even a drug that’s expected to be approved often has a pop after that approval comes (if it comes), just because it takes away the uncertainty that can also lead to a drug being surprisingly denied by the FDA, a decision that can drive the stock price instantly down by 80% or more (every case is different, but it’s good to be aware of the risks).

I don’t know the drugs or the medicine and, frankly, I don’t know these companies particularly well — but I’m pretty sure AEGR is the Money Map teaser pick here, and the dates and drug description fit… and it is a small company that would see a material impact if they suddenly reached $30 million in sales, even if they don’t seem to have a lot in their pipeline beyond this one drug.

Do keep in mind that there are lots of people who specialize in investing in biotech stocks, and they know this company far better than you or I do, so it’s not as though this stock just appeared as a surprise last week — the FDA advisory panel meeting has been anticipated, as has the PDUFA date, since before the new drug application was even being prepared for the FDA a year ago. Analysts, for what it’s worth, think it’s a tepid “buy” but have price targets far lower than the Money Map folks, the analyst price target range is $19-27 and the shares are already about to touch $19.

So that’s what I can share with you — I imagine that there are folks out there in Gumshoe nation that have followed ISIS and AEGR at some point along the way, and I’m certain that there are many of you who are far better at biotech trading than yours truly, so feel free to shout out with a comment below if you have anything to add on these companies, the process, or what you think we’ll see from these stock prices. Thanks!