We’re re-posting this article just because the “interview presentation” that Alexander Green did to promote this idea is still being recirculated, without any real updates, but is now being called “The All-In Event” … here’s the current headline:

“For the First Time Ever, Alexander Green Goes… All-In

‘My #1 investment for 2024 is one Wall Street cannot touch… And I’ve put hundreds of thousands of my own money into it.’ – Alexander Green, Chief Investment Strategist”

This is from the emails which introduced this ad a couple months ago, in early September…

“Nvidia’s Secret Partner?

“While Nvidia is making headlines for its record earnings…

“And more and more people pile into the stock…

“Most people are missing out on an even bigger story.

“News just hit my desk concerning a HUGE Nvidia deal that’s been quietly tucked away.”

Sounds enticing, right? It gets better…

“You see, the deal that Nvidia made was no ordinary one.

“It’s formed a powerful new partnership with the most unlikely company…

“A tiny microcap based in Washington State that’s revolutionizing one of the largest sectors of the U.S. economy.

“The CEO says this company has ‘Google-sized’ ambitions.

“Yet it trades for under $3 a share today.

“Once news gets around about this deal, there’s no way it’ll stay that cheap.”

I was going to make a crack about having “Google-sized ambitions” of my own, but that’s not really true. I’ll be satisfied when enough folks sign up for the Stock Gumshoe Irregulars that I can finally buy that solid-gold toilet.

The ad is for one of Oxford Club’s “upgrade” newsletters — they’re selling Oxford Microcap Trader ($1,495/yr, no refunds), which we’ve covered a couple times (Green pitched Huami/Zepp (ZEPP) as the “#1 Microcap of 2021”, and that’s been a disaster as the stock has now lost 90% of its value, but his pitch of Magic Software (MGIC) a year ago has been less dramatic, trailing the S&P 500 by only a little bit).

So most of the ad “presentation” with Alexander Green being “interviewed” by Bob Paff (one of the many “paid spokesmen/talk show hosts/aspiring actors” who the big publishers use to glam up their ads), is just a pitch for the idea of buying microcap stocks — Green says he thinks it’s an opportunity in small caps in general that compares favorably to 2009 or 2002, the last two times the market recovered from an ugly crash… though that’s not necessarily a “this week” timing call, this interview, despite the fact that it has run under headlines which called it the “#1 AI Stock for 2023” and the “All-In Investment for 2024,” took place in November of 2022.

And he’s got one stock in particular that he teased as his “#1 AI Stock for 2023”, riding that AI bandwagon like everyone else, and now calls his “#1 Stock for 2024″… so we’ll sift through the clues and ID what he’s buying (well, we’ll re-sift, just to double check — we’ve written about this ad a few times as it has changed its focus, but there has been essentially no change to the hints dropped about the specific stock he teases… so far).

And yes, it is apparently a personal buy, he says in some versions of the ad (though not this latest one) that he has invested $100,000 into this particular AI stock that they also call “NVIDIA’s Secret Partner.”

Here’s how he starts to hype up this particular investment, which he says is “less than $3 a share”…

“You won’t find it listed on the S&P 500.

“It’s completely outside the mainstream.

“Though it might just be the single stock with the most upside available in the markets today.

“It’s one of those transformative disrupters – like Amazon, Apple and Netflix – that come along only once or twice in a generation.”

And then he starts to talk about his criteria, and drop some hints:

“When I target a stock, I want the company to be…

“Seeing massive revenue growth…

“Trading at a cheap price…

“Operating in an explosive new market.

“And the company I’ve just found passes all three categories with flying colors….

“… analysts forecast that revenues of this company could grow by 219% next year!”

We’re also told that the stock is trading at less than book value, which is certainly unusual for a growth stock (and, frankly, probably means that it’s losing a lot of money… small growth stocks usually only trade below book value if investors think they’re going to burn through their cash).

Other clues?

“… while Google and Microsoft are focused on using AI in the search engine and software industries…

“My #1 microcap is 100% focused on being a leader in one of the largest and most secure sectors of our economy.

“It’s a sector that’s essentially immune from inflation risk…..

“I’m talking about healthcare.”

And then we get into some real details… they’ve cut some of this detail out of subsequent versions of the “presentation,” but clearly haven’t changed the company they’re talking about.

“The company has one mission: to transform the drug discovery market.

“It uses artificial intelligence to create new drugs at breakneck speed….

“Its CEO says the company has ‘Google-sized’ ambitions in the healthcare market.

“The company just went public in 2021, but it’s already making massive partnerships.

“For example, tech giant Nvidia has partnered with this company to design new medicines.”

OK, so it’s an AI drug discovery stock — there are a bunch of those, which one does Green like?

More clues…

“It’s also partnering with Merck, one of the largest healthcare companies in the world.

“The Merck partnership should bring in over $600 million in upfront revenue… followed by future payments based on drug discoveries.”

He also drops a few clues about the company’s size…

“…it has a market cap of just $280 million.

“But it just got a windfall contract of more than $600 million…

“That’s more than twice the size of the company….

“… the stock is completely undiscovered, hovering around $3 because virtually no investors are even familiar with its name.”

Sound familiar? Yep, turns out this is a stock he has touted before… but don’t spoil it for the rest of the class, we’ll be done in a moment.

And like many “drug discovery” companies, it’s got at least the potential to earn royalties on drugs in the future…

“I believe this company will be the world’s next big royalty business.

“And a ‘royalty’ is a payment you receive over and over again from owning a single asset, or a single piece of work.

“You can either buy a royalty-paying asset with cash… or earn royalties from something you created yourself… like a book or, in this case, a drug.

“But once you own a royalty-producing asset, you never have to spend another penny.

“And you can just keep collecting profits – worth many times your original investment – for years or even decades.

“The companies that truly know how to do this are some of the best businesses – and best investments – on Earth. Period.”

No argument there, I do love me some royalties. Drug discovery royalties are a little different from the more traditional stuff like gold mine royalties, or music royalties, but there’s at least some reason to be excited about that notion.

Here’s how Green entices us about those potential future royalties…

“Big companies – like its new partner Merck – will use its technology to develop new medicines.

“And then, if the drug is a success, Merck will do all the work.

“They send out their reps to hospitals across the country…

“Build huge advertising campaigns…

“And make the product a hit.

“With $57 billion in revenue… they can afford to.

“Meanwhile our company will simply collect royalties all along the way.

“It’s a great business model because it keeps costs low and revenue high.

“The company’s revenue is expected to grow by 219% in 2024!”

So… hoodat? Thinkolator sez Alexander Green is (again) hinting at Absci (ABSI), which is indeed a small AI-powered drug discovery tech company. They went public in the Summer of 2021 (the IPO priced at $16, and the stock briefly soared to about $30), and is currently way below $3. That would be painful for those who bought during the first flush of enthusiasm, since the stock is down about 90% from its highs… but how does it look now?

Well, this is when I have to again note that though this presentation looks a bit new and different, the details are largely unchanged over the past year and Alex Green has been using similar ads to tout this particular stock as his “#1 Microcap of 2023” since back in December… though he didn’t use the hyped-up “Next AI stock” or really focus on the NVIDIA partnership back then, since people were not quite as rabid about AI stocks a year ago. Here’s what the stock has done in the 8-1/2 months since he pegged it as his “#1 Microcap”… and yes, back then it was roughly a $3 stock (that’s ABSI in purple, the S&P 500 in orange for comparison):

This is how the company described themselves back in December:

“Absci is the drug and target discovery company harnessing deep learning and synthetic biology to expand the therapeutic potential of proteins. We built our Integrated Drug Creation™ Platform to identify novel drug targets, discover optimal biotherapeutic candidates, and generate the cell lines to manufacture them in a single efficient process. Biotech and pharma innovators partner with us to create the next generation of protein-based drugs, including those that may be impossible to make with other technologies. Our goal is to enable the development of better medicines by Translating Ideas into Drugs™.”

And now, as AI became the sexiest acronym in the investing world, you can see how they’ve refined their pitch… they got the memo, never say “deep learning” when you can say “A.I.”… this is what that page says now:

“Absci is a generative AI drug creation company that combines AI with scalable wet lab technologies to create better biologics for patients, faster. Our Integrated Drug Creation™ platform unlocks the potential to accelerate time to clinic and increase the probability of success by simultaneously optimizing multiple drug characteristics important to both development and therapeutic benefit. With the data to learn, the AI to create, and the wet lab to validate, we can screen billions of cells per week, allowing us to go from AI-designed antibodies to wet lab-validated candidates in as little as six weeks. Our vision is to deliver breakthrough therapeutics at the click of a button, for everyone.”

And the first thing that comes to our attention when we look at the financials is that they’re losing lots of money, which is not so unusual for an early stage biotech. The stock does trade at a discount to book value, as Green points out but that’s mostly just because they still have a lot of cash on hand from their IPO. They have burned through roughly $40 million in the past two quarters, slowing down their cash burn by a little bit, and they still have about $125 million in cash. That’s a huge benefit for a money-losing company, you really don’t want to be in a position where you have to raise money when your stock price is in the crapper — so what Absci enjoys right now is the benefit of time. They say they have enough capital to “operate through 2025,” so they don’t have to care that their stock price is getting clobbered this year.

Well, that’s not really true — they do have to care about the stock price, since it’s a signal of the company’s health and they want to keep their employees happy and, as with most startups, a fair chunk of the payroll is covered by stock-based compensation. When the stock price craters, the employees are suddenly making a lot less moeny and are likely to be pretty grumpy. But still, “survival” for a another couple years a good thing — I don’t know what assumptions they’re using to get to that “through 2025” forecast, but it seems to be reliant on some meaningful cash savings from their recent “strategic review” to focus on value creation (and actually, this quarter that forecast shifted slightly to “into late 2025” instead of “through 2025.” Either way, that forecast would definitely mean their cash burn is slowing further — at the recent pace, they’d burn through $their current $125 million around the end of 2024. Apparently the market crash last year, and the sudden awareness that it will be harder to raise money next time, has sharpened their motivation to economize.

Will those next few years lead to riches? Well, that depends on what they produce. They are ahead of schedule when it comes to drug discovery deals (they now have 17 “active programs” with partners for drug discovery, ten of which were signed in 2022), but they do still have to actually get through to identifying viable proteins and antibodies for their partners, and seeing them progress through clinical trials.

If they do indeed get a drug into clinical trials, with Merck or some other partner, that would lead to meaningful milestone payments… Merck is the biggest of their partners right now, and this is how they summarize the deal:

“Under the collaboration, Absci will deploy its Bionic Protein™ non-standard amino acid technology to produce enzymes tailored to Merck’s biomanufacturing applications and receive an upfront and certain other milestone payments. In addition, Merck has the option to nominate up to three targets and enter into a drug discovery collaboration agreement, and Absci would then be eligible to receive up to $610 million in upfront fees and milestone payments for all three targets, as well as research funding and tiered royalties on sales.”

The up-front payments are pretty minimal so far, a couple million dollars here and there, most recently for some enzyme work, and we don’t really know what the timeline might be for that “up to $610 million” Merck might end up being on the hook for — presumably those payments are scaled, which would mean that payment for identifying a drug, or entering Phase 1 clinical trials, would be far smaller than the eventually milestone payment for Phase 3 trials, or for commercial approval. Still, we need to remember that that $610 million is money that Absci could eventually earn from their Merck deal… not money they are owed or will definitely receive.

They have mostly been posting revenue growth in the past few quarters, and the analyst forecast is for substantial revenue growth in each of the next few years, but those numbers don’t really mean anything yet, the revenue is not at all steady or consistent and is not at a high enough level to let them earn a profit anytime soon. And it’s not a forecast of 219% growth anymore — it has been in that neighborhood a few times, when revenue projections were a bit higher, and it’s still kind of in that ballpark, just not for a single year (the current analyst forecast is for revenue growth from $5.75 million last year to $44 million in 2025, which averages out to almost exactly 100% per year, but that would still have them using up roughly $50 million in cash per year, so analysts must be expecting the larger potential gains from late milestone payments or royalties to be a long way away… which is probably true.

And any potential royalties are especially a long way away — if they’re good and lucky, perhaps there will be a drug borne from their programs that ends up getting approved for commercial sale in five or ten years, or even becomes a blockbuster, and they’ll collect meaningful royalties on those sales. They haven’t disclosed the size of those royalties — so it could be 0.25% of sales, or it could be 8%, or higher or lower (low-to-mid single digit royalties seem to be pretty typical, though there aren’t many AI-discovered-target royalties like this to benchmark from).

Clinical trials make that a long wait, though — AI can speed up the drug discovery timeline, and machine learning and data processing can help to select better drugs, at least in theory, and a lot of companies are working on that… but it doesn’t necessarily make the long process of human testing in clinical trials move any faster. Generally, it takes at least a decade or so to go from the proof-of-concept in the lab through human clinical trials (those are the Phase 1, 2 and 3 trials we often hear cited by biotech pitchmen), and through the FDA approval process to reach a commercial launch, even if things go quite well — the time-to-market after you’ve identified the target drug you want to develop is still likely to be very, very long, even if the AI stuff does perhaps improve the odds of approval, or speed up the drug discovery part.

I’ve seen estimates from early funding rounds that Absci was valued at close to a billion dollars as a venture capital investment for a while, and raised money before the IPO at a valuation in that neighborhood, eventually reaching a valuation of almost $3 billion at the peak in the weeks after the IPO. That would have been tough to justify, of course, but $170 million? That puts it in the “maybe” camp — they’re not going to make any money over the next couple years, but at that valuation, with probably enough cash on hand to keep the company going for a couple more years, it’s almost like an option on any potential drugs that they might discover. If they get some exciting news over the next two years about one of their early drug candidates, or get another big pharma company to offer a more lucrative partnership deal, like that Merck deal they’re hoping will begin to bear fruit in a few years, then the stock will be fun to own… if there’s no exciting news, and the stock flounders around for a couple years and they have to raise more capital while revenue is still very low, and the daydreams of wealth remain well off in the future, well, it won’t be so fun to own. Biotech stocks that are burning money and have to raise capital at a time when they don’t have any exciting news to report sometimes fall into bankruptcy if they can’t keep investors interested — it’s a tough business, and it eats a LOT of cash.

So yes, this is one of the companies where you have to accept that an investment is inherently speculative… and that judgement calls about the value of the science and the progress they’re making in the lab or in their collaborative work might vary widely among different analysts and investors, and may change over time. Here’s a note from Briefing.com’s summary of a Cowen upgrade back in August, for example:

“Cowen upgraded Absci (ABSI) to Outperform from Market Perform. The firm cites recent validating partnerships and collaborations, a shift to higher value full-tech stack drug discovery deals and more details on their platform performance gained during a lab tour and CTO discussion as having given the firm increased confidence in the company’s technology and growth potential.”

The stock was around $4 back then, so it hasn’t worked out to this point… but analysts still like at least the idea of what Absci might do in generating cash over the longer term… this is an analyst note from a different firm that came out in May, predicting that the stock could also make it back to that $4 price of a year ago (also from Briefing.com):

“Absci Corporation: Spearheading AI-Based Protein Drug Discovery With Unrivaled Synthetic Biology Capability; Initiate With Buy and a $4 PT – H.C. Wainwright (1.25)
“H.C. Wainwright’s Swayampakula Ramakanth states, ‘The company’s technology has been validated by partnerships with both large-cap pharmaceuticals, such as Merck (MRK, note rated), and biotechnology companies, such as EQRx (EQRX, not rated), each of which Absci has three development programs with that could potentially generate more than $1B in milestone payments excluding revenuebased royalties. Additionally, in the near-term, Absci’s partner SFJ Pharmaceuticals (private) is expected to file a BLA for bentracimab to reverse the antiplatelet effect of Brilinta in mid-2023 and if successful, could generate low single-digit royalties. We believe with such potential for revenue growth and to become a differentiated AI-based drug discovery player, ABSI is significantly undervalued and could provide an attractive entry point for long-term investors.'”

There are lots of companies in the “drug discovery” space, including many in recent years who really talk up the fact that they’re leveraging “AI” or “big data” to more efficiently or effectively identify promising drug candidates — so if you’re looking for comparisons among somewhat larger or more mature companies you might take a gander at AbCellera (ABCL), Schrodinger (SDGR), Exscientia (EXAI) or Recursion Pharmaceuticals (RXRX), just to pull out a few examples (Recursion was the flavor of the month in July, because NVIDIA invested in the company to help speed up their AI work, and I think Luke Lango was touting the stock pretty aggressively in June, but those gains have mostly faded now). Those stocks have been pretty weak over the past year or so, though Absci has been weaker than most — most of the others either have better current cash flow or a little more clarity about revenue growth over the next few years… but they’re also substantially larger, and not quite so dramatically cash-rich (relative to their market cap) that they trade at a discount to book value like Absci does.

Absci’s “big picture” potential is summed up pretty well in their latest Investor Presentation, if you’d like to try to wrap your head around what they’re doing, or there’s a plain-language news story from earlier in the year here that gives an idea of how the company sees its path (or a more complicated piece about their NVIDIA collaboration here).

As for me? I love the idea of being involved in drug development technology and getting the long tail potential of royalties in a decade if some of the candidates turn into successful and commercially viable drugs, and I’ve had some experience investing in both drug discovery platforms (Schrodinger (SDGR), quite unsuccessfully so far) and royalty companies (Royalty Pharma (RPRX) and Ligand (LGND), with more success, though I don’t own either at this point), so I can see being tempted here… royalties are wonderful investments if you can get them right… but I don’t know what the odds are of Absci finding that eventual success, and the payoff is so far into the future that I probably shouldn’t be dabbling in this kind of stuff, judging preclinical drug development ideas is pretty far from my circle of competence. If you’re much more expert on the science than I am and see great potential, or are looking for a ten-year speculation on something cool in the drug discovery space, well, you may come to a different conclusion. Which is A-OK — it is, after all, your money on the line.

So far, Absci has failed to generate much AI-driven enthusiasm among investors, despite their NVIDIA and Merck partnerships and other deals, and despite the ongoing AI mania. They’re still moving forward, still probably several years from the potential revenue impact of large milestone payments or, further away, royalties on any approved drugs. They should be releasing their next quarterly update late next week (last year it was on November 9).

So… is this microcap your cup of tea? Too bitter? Share away with a comment below.

Disclosure: Of the companies mentioned above, I currently own shares of NVIDIA, Google parent Alphabet, Stem, and Schrodinger. I will not trade in any covered stock for at least three days after publication, per Stock Gumshoe’s trading rules.