Today we’ve got a teaser pitch from Marc Lichtenfeld to consider. It’s an ad for his Oxford Income Letter, but the “fountain of youth” pitch makes it sound like a wild ride of a biotech idea… so let’s dig in and see what we can find, shall we?
Sometimes it’s best to start with the order form and work backward, since they often “sum up” the pitch just before they ask you for your credit card number — this is an “entry level” letter at $79/year, and here’s what they say they’ll provide as your “special reports” …
“Special Report No. 1 – ‘Collect 4,000% With a Direct Stake in FY-31’
“This report will show you the one small company with the KEY patents on FY-31… current and upcoming clinical trials… and yes, the ticker symbol!
“This company is on the cutting edge of anti-aging tech, and it’s ready to disrupt the $18.3 trillion global healthcare market. It trades for just $10, so you’ll be able to get in on the cheap!”
And this is really a two-parter, that crazy potential gainer plus a second stock that owns some kind of royalty on this same drug:
“Special Report No. 2 – ‘How to Collect $35,100 per Year on the FY-31 Drug Royalty’
“Just like people collect royalties on hit songs and best-selling books, you can collect royalties on drug sales as well. I’ve discovered a way YOU can get in on the sales of FY-31 when it hits the market. Best of all, you can position yourself NOW and the payments can increase over time!”
What seems to have Gumshoe readers most intrigued is this “royalty” business, since we’ve all been conditioned to lust after royalties, but Lichtenfeld seems to allude to both of the investments as he goes through the clues. Let’s sample a few of those hints and get a sense of what he’s “promising” ….
“One single company has the rights to develop anti-aging drugs from FY-31.
“It’s set to receive the lion’s share of the reward.
“And I believe it will be the next biotech to see a sudden explosion in share price….
“There’s a special way you can set yourself up for as much as 4,000% gains… enough to turn every $5,000 into $200,000 of profit.
“And this play does NOT involve options.
“But it could be the biggest windfall of your life if you act before November 9.”
So start to think of that as the “high risk” end of this kind of equity investment, and keep in mind that he’s actually pitching two companies — this direct owner that might show huge gains, and an indirect owner that could receive large royalties at some point.
And it’s all about this “FY-31” (FY being “fountain of youth”) that’s based on a bacteria that was found on Easter Island. Here’s some more excitement about that drug when it comes to some big potential markets, like heart disease…
“A study on mice recently published in the Journal of Biological Chemistry found that FY-31 ‘prevents cardiac dysfunction.’
“Not only that, but FY-31 is so powerful, it could reverse heart disease if you already have it.
“A study published in Aging Cell, a science journal, declared that even late in a mouse’s life, FY-31 ‘reverses age-related heart dysfunction.’
“I’m confident that this drug could replace the vast majority of current heart disease treatments.”
… and cancer…
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“I believe FY-31 could be widely prescribed as a ‘cancer prevention’ pill…
“Much like statins can be prescribed to anyone over 40 for heart disease.
“A study published in Cancer Prevention Research calls FY-31 ‘a broad-spectrum cancer prevention agent.’
“And since FY-31 has far fewer side effects than statins, this market could be even bigger.
“Leading aging researcher Dr. Matthew Kaeberlein says, ‘I view it as the ultimate preventive medicine.'”
OK, so it’s some kind of anti-aging drug, and it may help with lots of diseases. We’re also told that it’s already FDA approved for a different application — Lichtenfeld says it’s “approved at very high doses to help transplant patients prevent organ rejection” and therefore should have an easier path to approval than something brand new, and that it’s “in the approval process to be prescribed in SMALL doses for anti-aging.”
What about the companies, do we get any clues on that front?
“The company with the key patents on FY-31 is a medical powerhouse.
“Its CEO is a longtime biotech executive with $8 BILLION in deals with giants like GlaxoSmithKline, Amgen, Pfizer, Merck and more under his belt.
“Also involved in this anti-aging breakthrough is an M.D. from Harvard Medical School…
“Another top executive working on FY-31 earned his stripes at Eli Lilly and was CEO of another pharmaceutical company that was so successful, it got acquired by Pfizer…”
And there are some patents, naturally…
“This company has the sole rights to a whopping 81 patents on FY-31.
“That means no other company will be able to easily profit from its anti-aging miracle without making a deal with this company first.”
And we get the same dumb spiel about the institutional investors that we do for almost every single stock (really, can you find a stock that Fidelity and Vanguard and BlackRock don’t own a big chunk of?) … but at least it helps the Thinkolator out a bit…
“The quest to stop aging with FY-31 is attracting a pantheon of power players to invest, including financial heavyweights like…
“JPMorgan Chase with 93,300 shares…
“BlackRock with 210,591 shares…
“Vanguard with 236,909 shares…
“And Fidelity with a whopping 3.04 million shares.”
And we get a few clues about the size and the valuation that Lichtenfeld envisions:
“Even if it only pulls $3 billion a year…
“Based on the average biotech’s price-to-sales ratio…
“This tiny $200 million company would become a $14 billion monster. That’s more than 4,000% gains.”
So that’s the first company… who is it? Thinkolator sez this is resTORbio (TORC), which is developing rapamycin (named for where it was found, Rapa Nui — also known as Easter Island). The company is still quite new, it was essentially seeded with assets and spun off by PureTech Health (PRTC in London, PTCHF OTC in the US) last year, which then took it public with support from other backers.
The silly capitalization and the ticker are plays on the company’s focus, which is the target of rapamycin (TOR) pathway and the selective inhibition of the target of rapamycin complex (TORC — there’s actually a TORC1 and a TORC2, TORC1 is the one they’re trying to inhibit because doing so in animals extended the healthy lifespan).
I’m going to sound foolish very quickly, and start making mistakes, if I try to explain the science very much… so I’ll just include a little summary from the company itself here:
“resTORbio, Inc. is a clinical-stage biopharmaceutical company focused on the development and commercialization of novel therapeutics for the treatment of aging-related diseases.
“Our lead program focuses on mTOR, an evolutionarily conserved pathway that regulates aging, and specifically selective inhibition of the target of rapamycin complex 1 (TORC1).
- Our initial focus is developing RTB101, an orally administered, small molecule, potent TORC1 inhibitor alone or in combination with other mTOR inhibitors.
- Our first-in-class TORC1 immunotherapy approach is supported by a randomized, placebo-controlled Phase 2a study in 264 elderly subjects that provided statistically significant and clinically meaningful results.
- Our lead indication is the reduction of incidence of respiratory tract infections in the elderly at high risk of mortality and morbidity due to RTIs. RTIs are the fifth leading cause of death in people aged 85 and over and the seventh leading cause of death in people 65 and over. The majority of RTIs are causes by viruses for which there are no approved therapies.
- We believe TORC1 inhibition may have therapeutic benefit in multiple aging-related diseases.”
So that sounds good, right? Aging makes everything harder, and it makes respiratory tract infections much more dangerous, so that’s a good start that this treatment seems to be helping in early studies. The Phase 2b study released some topline results in late July that sounded pretty good, too, and helped the stock to surge 50% or so, though it remained volatile after that and has had ups and downs. They plan to get another Phase 2 study in a different indication underway this winter at some point.
What will all that mean? Well, it’s still a pretty small company, though no longer a $200 million one (that was before the July results, it’s now just under $400 million), and they have plenty of cash for their current clinical trials, along with a strong group of partners. I’ll leave it to you to guess at whether or not they’ll succeed, but being a small company with promising results and a large potential end market sets up a nice risk/reward if they end up getting approval and “win” a large part of that market in several years… though having a large potential end market also probably means more scrutiny on the Phase 3 trials and a lot of attention paid to safety, you never know when a surprise will come (especially if, like me, you’re not a “science guy”).
Rapamycin is not a new discovery, it was first isolated in 1975 and its immunosuppressive characteristics have been known for a long time (that’s why it’s used in transplant therapy), and the anti-cancer potential has been studied for more than 30 years. And mTOR research has been active particularly over the past 25 years or so, with a couple generations of mTOR inhibitors making their way through clinical trials, mostly in various cancers, so I don’t know how much of an “own the whole field” you might get by developing a TORC1 inhibitor or two — and, it won’t surprise you to know, I can’t predict which drugs will be successful.
Doc Gumshoe noted some of the discoveries about rapamycin way back in 2015 in a piece about aging, and Teeka Tiwari over at Palm Beach even teased rapamycin as “Compound R” later that year, saying that researchers were “flipping the God switch” and using similar “Fountain of Youth” language, so the slow pace of movement in the share prices of any associated companies since then reminds us that it takes more than an exciting discovery to turn a story into a good investment…
… but the clinical trials are, at least, still progressing, and they look pretty good so far to my inexpert eye. If I were into speculating on little biotechs, this one would be more appealing than many I’ve seen, if only because it is going after a broad market, has strong partners, and has plenty of cash — so my positive inclination there should probably be a red flag for you 🙂
Oh, and if you’re looking for some significance behind that November 9 date, I don’t see any — at some point late this year resTORbio wants to initiate a clinical trial in Parkinson’s Disease, which could be big news, and they’ll be meeting with the FDA following their fuller release of Phase 2b data, presumably to talk about planning a pivotal trial to start in 2019. That’s all from their Investor Presentation, any of those things could certainly draw more attention and move the stock price but none of them are particularly date-specific.
Many of you are wondering about this second stock, though, the royalty one — so let’s dig into that… some clues:
“However, there is a second way to profit from this situation if you’re more interested in long-term income.
“In fact, this second route could just be the No. 1 way to produce retirement income for the next 30 years.
“How to Collect $35,100 per Year on the FY-31 ‘Drug Royalty'”
I do love royalties. And income. What else?
“It’s a virtually guaranteed source of income… and requires zero effort to maintain.
“You just have to know how to claim your stake… and start collecting.
“You do NOT have to write the next No. 1 New York Times best-selling novel to collect royalties.
“You don’t have to write some Billboard No. 1 song.
“Rather, you can make substantial money by acquiring the equivalent of a ‘royalty stream’ on a blockbuster drug – and watch the cash payments flood your account.”
If you’ve followed the resTORbio story you probably already know who this royalty owner is, but don’t spoil it for the rest of the class… let’s get our final clues:
“Whenever FY-31 is sold, YOU will be able to collect a portion of the profits. A drug royalty of sorts.
“Normally, these types of income streams on revolutionary technology are hard to come by.
“But because of my extensive connections in the biotech industry…
“I’ve been able to locate an opportunity that anyone can access…
“As long as you follow my directions.
“If you claim your stake today, any drugs made from FY-31 will make your bank account EXPLODE.”
OK, so that wasn’t really much in the way of clues… but since we know resTORbio, we can quickly learn the name of the company from whom PureTech licensed those rapamycin-related drugs in order to create resTORbio. So this “royalty” investment in FY-31 is, sez the Thinkolator, good ol’ Swiss megapharma company Novartis (NVS), which actually did those successful 2a studies of the mTORC1 inhibitor a couple years ago before licensing the drugs out.
And yes, they do receive milestone payments and royalties if and when the drugs proceed through development, and Novartis also owns equity in resTORbio… and Novartis does pay a pretty good dividend, so I guess it’s not completely absurd to say that you’ll “sort of” earn cash as Novartis earns those royalties. Though $35,000 is a lot of cash to dangle out there as a promise, if you were to earn that much money from Novartis in dividends in a year you’d have to invest about a million dollars (the dividend yield is almost exactly 3.5%).
Of course, the impact of even a blockbuster drug on Novartis is fairly limited — they already record $50 billion in revenue a year from more than 200 approved drugs, and almost $14 billion in profits, so a bit of “possible someday” royalty revenue from reSTORbio, particularly if that drug hits mega-blockbuster status (which is an extremely iffy proposition here, with the drug in Phase 2 trials still), would be welcome… but not necessarily dramatic for Novartis shareholders.
On the other side, Novartis just got some bad news, with the rejection of one of their CAR-T drugs, and that only sent the stock down 1% or so — so you don’t generally have the wild swings with Novartis that you get with a little biotech, either up or down. Their debt is quite manageable, and they are streamlining the company a bit to focus more on drug discovery during this “tighten your belts” era when people are starting to actually care about drug prices — that’s taking the form, so far, of a spinoff of their Alcon eye care unit, the sale of part of their Sandoz generics business, and a big stock buyback authorization.
Investors have not been particularly enamored of Novartis in recent years, perhaps partly because a few meaningful patent cliffs did hit their sales a while back, so the stock has pretty substantially “underperformed” compared to most of their big peers — here’s an illustration of that, I just pulled a few big competitors out of a hat, Pfizer (PFE), Merck (MRK), AbbVie (ABBV), Eli Lilly (LLY), Bristol-Myers Squibb (BMY) and Johnson & Johnson (JNJ), Novartis is the sad blue line at the bottom:
Of course, Novartis is also less “priced for growth” than most of those, and I think it has a lower PE ratio than any of the others except for Pfizer.
So I can see some sensible reasons why an investor who wants exposure to pharmaceuticals would buy Novartis — analysts don’t expect growth to ignite anytime soon, they have Novartis penciled in for about 6-8% earnings growth per year over the next few years, but that and a decent dividend of 3.5% could give you rational expectations of a 10%+ return on your investment, particularly since the valuation is pretty reasonable at about 16X current-year earnings, and that ain’t terrible. And maybe a few blockbuster drugs will emerge from their R&D investment, or drug pricing will become a less political issue, and they could do a bit better than that… one never knows.
Do be careful if you’re primarily interested in the dividend — Novartis pays the dividend only once a year, they usually declare it late in February, so it can move the stock price… and it’s not a quarterly or monthly provider of cash flow if that’s what you’re looking for.
But it’s your money at risk, of course, so it’s your thinking that counts — want to share it with us? Think Novartis or resTORbio is a great buy here? Have a better idea to throw on the pile? Let us know with a comment below… thanks for reading!