“This $2 American company is threatening a massive Wall Street shakeup handing you the opportunity for… 403% Gains In 3 Months“
Who can resist that pitch, right? The ad comes from Manny Backus for his Penny Stocks Guru service, which has been promoted in the past as a way to buy “safe penny stocks.” An admirable goal, I suppose, since “investor safety” is probably the area in which microcap companies are most lacking.
And it’s all about some new kind of breathalyzer technology — but the reason it really caught my eye this week (the ad’s been around for at least a few weeks now) is that the emails Manny Backus is using to pitch it have a new opening:
“A small American company, trading for less than a gallon of gas, is close to achieving technology first devised in 400 B.C.
“And on top of that… they’ve done it aboard the International Space Station!
“Yes, from ancient Greece to high above the Earth – this journey may result in the most important technology our world has seen in decades.
“And like those investors who jumped on IBM, Google, Amazon or Intel early on, you could be at the forefront of a world changing breakthrough and life changing profits.”
How is this an ancient Greece story? Are we really going to get life-changing profits? That’s what I wanted to find out. Here’s some more of the meat from the ad:
“This tiny U.S. company has what top doctors call “the Holy Grail” in stopping cancer, heart disease, diabetes, even obesity… long before they ever threaten your life.
“And investors are already lining up for the ‘ground floor profits’….Are you getting our free Daily Update
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“… a revolution in modern medicine is occurring as you read this.
“One that could change the face of health and wellness in our world for the rest of time.
“All those invasive uncomfortable tests that take far too long to give you answers… could soon become obsolete.
“Instead, imagine walking into your doctor’s office, breathing into a plastic tube attached to a small machine sitting on a table and knowing within 3.5 seconds what may or may not be ailing you….
“The small breath analyzer I’m about to tell you about could become one of the most disruptive piece of technology ever known to man.
“I’m talking about an innovation on par with the personal computer, the cell phone, digital music and the tablet.”
So that’s the basic idea — the ancient Greece bit is explained here:
“Hippocrates, known as the ‘Father of Western Medicine’ wrote about a distinctive aroma to the breath of patients with certain diseases even back in 400 B.C.
“Ever since, physicians have been able to link things like an ammonia-like smell to kidney failure… a fruity odor to diabetes… or even a sour scent to sleep apnea.”
And according to Backus, this sniffing has gotten more technologically advanced and specific…
“So for instance, when you breathe into one of these machines and it detects elevated levels of the hydrocarbon acetone, it’s an instant warning sign for both diabetes and heart disease.
“The same goes for elevated hydrogen levels which point to bacterial overgrowth in the small intestine.
“Or specific organic compounds that are a tell-tale sign of lung cancer. The list goes on…
“These breath elements, all detected by simply blowing into one of these analyzers, show up far earlier than any traditional symptoms of disease.”
This idea pops up in the press every now and then, most of the quotes and examples and testimonials Backus is using in the ad are from the work of Dr. Raed Dweik at the Cleveland Clinic, who got some attention last year with new (still early stage) tests that indicated a breath test could detect heart disease in 100% of patients (there was also an earlier article about this work in the Atlantic if you want some background).
So what’s our specific company, and do they really have a better machine that’s going to dominate some kind of emerging mega-market in breathalyzers? More clues…
“… this company, who’s providing the very foundation on which these breath analysis machines are being built – trades for less than a gallon of gas.
“Even though their work may end up turning each of those companies share prices upside down.
“Their technology is absolutely vital to these analyzers. Without it, they just won’t work.
“Right now they’re standing at the forefront of not just a medical revolution… but a medical EVOLUTION.
“So if this $2 company’s tech is the skeleton key to achieving what Hippocrates started back in 400 B.C. and stands as the entry point for these breath machines showing up in every doctor’s office in America…
“… how high do you think that $2 share price could rise?
“My research indicates it could be as much as a 403% increase by this time next year.”
OK, so who is it? Well, I’ve got a good idea but we need a bit more to be certain — let’s sift through for some more clues:
“… back in 2006 NASA actually contracted this $2 tech firm to build a machine to place on board the Space Station. A machine that would ensure that the air the astronauts inside it were breathing was safe and would keep them alive.
“That machine is the exact same technology as the breath analyzers that have been detecting cancer, heart disease, diabetes, kidney failure and more in the studies I just told you about.
“It’s called a mass spectrometer.”
OK. They’ve built a miniature mass spectrometer for NASA, and Backus implies that their ability to shrink the spectrometer down to the size of a toaster oven to fit on the International Space Station was a “scientific miracle.” What else?
“… this wasn’t a leap of faith for NASA. They’d actually worked with this company and their 66 employees for the last 25 years.
“You see this small company has assisted the space program with transporting cargo up into the stars for 3 decades now.
“Its first payload flew on the Space Shuttle Endeavor back in 1993 and it’s flown on 20 more missions carrying over 150,000 pounds of precious cargo to the ISS and Russia’s MIR space station.”
And the idea is that this miniaturization means these toaster-sized mass spectrometers could be installed in every doctor’s office, so that this “proven” testing can be done anywhere…
“The technology they’ve managed to shrink down for NASA is the very same tech necessary for doctors to have breath analysis machines on every floor of every hospital in America.
“Remember, these machines have already been proven by the Cleveland Clinic to detect heart disease with 100% accuracy.
“Studies have shown stomach cancer being identified with 92% accuracy.
“And lung cancer with 80% success as well.
That’s just the early stages of testing too. Given the remarkable initial success of so many of these studies, breath analysis is only gaining more and more momentum in the medical community.
“The Wall Street Journal calls it “the ultimate noninvasive medical test”.
“And Dr. Norman Edelman, a senior medical consultant with the American Lung Association, says that these machines ‘…could screen many, many more people for lung cancer and probably save many, many more lives.'”
Many of the tests being done in this area are designed to develop genuinely small and much-less-expensive screening technologies for the detection of difficult-to-detect cancers, like head and neck cancers and stomach cancer (which are often diagnosed only after they’ve spread considerably) — with the specific goal of avoiding the need for a gas chromatograph mass spectrometer because of the cost, scale and complexity of those machines. So is this really a smaller spectrometer or some variation, and does it really help?
Well, it’s clearly not just a tiny nanoparticle device that can detect a single kind of cancer, since Backus also teases that it can be used as an air tester for first responders, or a way for the FDA or farmers to test and inspect drugs and food, so it sounds like it’s really a mass spectrometer. What’s the company?
This is, sez the Thinkolator, tiny Astrotech (ASTC).
Which isn’t new to us here at Stock Gumshoe — it was also teased just over a year ago by Stephen Petranek for his Breakthrough Technology Alert. I personally took a small flier on the options in case their offloading of their space business turned out to be a quick value creator — but it didn’t work out that way (my options expired worthless, just FYI, I have no stake in the company now).
This is indeed an old space contractor that essentially has jettisoned its core business (they sold it to Lockheed) and is using the cash they got from that business to build their miniature mass spectrometer business — though it’s nowhere near being marketed as a medical testing device, it’s primarily being pushed for industrial and research customers who want to use it for quality control and process control testing. Here’s how they describe themselves:
“1st Detect, a subsidiary of Astrotech Corporation (NASDAQ: ASTC), develops, manufactures, and sells powerful, sensitive, and accurate chemical analyzers that streamline processes for industrial use in the food and beverage, semiconductor, pharmaceutical, healthcare, research, and environmental markets, as well as for government applications used in explosive and chemical warfare detection for the Department of Homeland Security and the military. The company’s core mass spectrometry technology was first developed under an agreement with NASA for use on the International Space Station. The unit is capable of detecting a wide variety of chemicals including residues and vapors from explosives, chemical warfare agents, toxic chemicals, food & beverage contaminants, and pollutants. These capabilities, combined in an economically priced, transportable, and ruggedized solution, make it an ideal tool for a variety of applications. For more information on 1st Detect Corporation, please visit www.1stDetect.com.”
There are several other companies who make various different flavors of smaller mass spectrometry machines, and some of those companies — like Flir and PerkinElmer — certainly have much, much more capable sales and distribution systems. I don’t know whether 1st Detect has a product that’s genuinely better or more affordable than those companies or the half-dozen others who you can find in a Google search, but it will certainly be a challenge to build up a market for the machines even if it is superior or less expensive. So far, they’re not making much of a dent — they’ve had no meaningful revenue since selling their space business to Lockheed, and last quarter it looks like they had no revenue at all… though they have press releases indicating a number of orders for their MMS-1000, their primary product (a miniaturized ion trap mass spectrometer).
They have about $22 million in cash, and they expect another $6.1 million from the Lockheed deal as an indemnity lockup of some kind expires in February, so they have enough cash to keep going for a while as they try to build the business — recently they’ve been on track to use about $4 million in cash each quarter, so unless they’re going to ramp up their selling expenses (in order to, well, do some selling), then they ought to be able to survive without any additional funding for another year or so. I have no idea what the prospects are, but I worry some that labs and medical offices are very unlikely to be large-scale adopters of this technology in the near future (simply because it’s new and they already have spectrometry equipment from some other provider, if for no other reason) — and the industrial customers are probably small, the orders they’ve gotten seem to be testing the waters, seeing if this product will offer value in a food manufacturing area, or in a petrochemical plant, or whatever. The only mass order potential seems to me to be the government at this point, for security testing (air quality sensors, etc.), and maybe that will come at some point and they have gotten themselves at least somewhat available to government customers with a position on the GSA schedule, but there are also already some strong companies with deep roots in the security business who sell mass spetrometry air sensors (like Flir).
I have absolutely no inner knowledge of the workings of these businesses or customers, but it’s hard for me to see this as a stock that will launch rapidly — my understanding is that it’s neither a hugely high-ticket item that can cause huge revenue spikes with just a handful of orders, nor a mass-market item where you might expect big order volume in the first year or two because of a fast spike of demand. Without a huge press release about a new large-volume order, it’s hard to see any possibility of a 400% gain like Manny Backus talks about — not impossible, of course, just like huge gains are not impossible with most stocks, and this one is far smaller than most (market cap down around $35 million, most of which they have in cash) and has no real sales, so anything positive could certainly have an impact and bring up the share price.
Their most recent news, that their new CEO passed away last month due to “heart complications,” may slow them down since he was expected to be the guiding force as they moved into instrument and process & monitoring sales, but at this point they really trade at close to cash value and investors seem to just be watching and waiting to see if their 1st Detect products generate any revenue. It’s often tempting to buy stocks like this that are small and have large cash caches, just because that cash gives the feeling of safety and it limits the downside a little bit in the short term — but at this point, with no evidence that customers are beating down their door for access to their relatively new miniature ion trap mass spectrometer, and with the unfortunate speed bump of their CEO’s demise, it’s pretty hard to see the company growing rapidly into anything meaningful without using that cash and more on building up either their R&D or their sales operations.
That’s just my sense, though, and I’ve been disappointed with ASTC before so perhaps I’m being too negative — what do you see when you look at the stock and the numbers? Room for a 400% gain? A revolution in mass spectrometry? Let us know with a comment below.