Ok, this is definitely the “most requested” ad over the last 24 hours — I can’t tell you how many folks have asked your friendly neighborhood Gumshoe to look into “Living Metal,” but the list is getting loooong.
And we are, of course, happy to oblige.
The pitch is from Michael Robinson for his Radical Technology Profits, and it’s not just about a hot new biotech company that has a cure for cancer and Alzheimer’s and all kinds of other diseases… it’s about a hot new biotech company that you can buy before it goes public through their Money Morning Prospectus! How exciting is that!?
Well, of course the answer is “super exciting, but usually stupid” … venture investors in biotech companies lose most of the time, just like most venture tech investors lose on most investments. They make it up with the few companies that do spectacularly well out of a hundred or more, of course, but developing a drug even to the point of approval for Phase 1 clinical trials can be incredibly expensive and time consuming — and Phase 1 is often five years or more before a company actually generates any revenue. The allure is always there because we imagine the vast riches from the folks who “get in early,” but unless you’re an expert and you’re “getting in early” on dozens of quality opportunities the odds are stacked pretty heavily against you.
So that’s the initial warning — and I have no idea yet whether Robinson is actually trying to do a private placement of shares, which would be a big and dangerous leap for a newsletter editor to take, or if he’s just trying to give you the impression that he’s going to get you “private” shares. We’ll see as we dig into the teaser.
Here’s how Robinson gets the juices flowing:
“A thimble full of this…
“Sells for $141,748
“One tiny company has a monopoly on it
“It’s sales are set to surge 24,474% over the next 15 months
“And it could go public on the NASDAQ as soon as August 31”
And he uses the thimble imagery to help us understand just how valuable this stuff is … he says a thimble of gold would be $1,319, a thimble of platinum $1,437, a thimble of diamonds $11,581. And then…
“But it’s just a drop in the bucket compared to what I’m going to show you today.
“Containing both biological and metallic properties, it’s classified as a Living Metal.
“And it can only be found in one small stretch of underwater territory, 14 miles off the coast of the Channel Islands.
“However, its scarcity is not why a thimble full of this Living Metal is currently selling for $141,748.”
So… the image of the bluish liquid and the Channel Islands reference is enough to tell us which company they’re teasing (and yes, it’s a public company — it’s just not on a major exchange), but we’ll let the suspense build for a few minutes…
“An international panel of 15 doctors from the University of Liverpool, London’s Institute of Neurology, and the Alzheimer’s Institute in the U.S. have collectively analyzed this Living Metal.
“They officially concluded that it can ‘prevent and possibly treat Alzheimer’s dementia.'”
“124 advanced clinical trials are progressing rapidly.
“They’re taking place at Penn, Baylor, Loyola University, UCLA, and the most cutting-edge medical facilities.
“And they’re all coming to the same conclusion.
“This Living Metal can literally reprogram the human immune system to such a degree…
“It can make us totally immune – totally impervious – to some of the most dangerous diseases known to man.”
OHMYGOD are you peeing your pants with excitement yet?
“… it should come as no surprise, that even though sales of this Living Metal are only $2.63 million…
“The story moving forward is completely different.
“Today, every major pharmaceutical company is fighting to acquire as much as they possibly can.
“I’m talking about: Bayer, Pfizer, GlaxoSmithKline and a Half Dozen Others…
“Right Now They’re Paying $141,748 For Just a Thimble Full of This Living Metal….
“That’s because the FDA is set to green-light a series of Living Metal treatments that could solve the greatest medical challenges of our generation.
“And estimates suggest sales of this breakthrough are about to aggressively rise as much as 23,474% in the next 15 months.
“As I’m going to show you today…
“This Living Metal is Looking at Potential Sales of $620 Million Per Year.
“And One Company Has a Monopoly on it.”
Exciting, right? Sales going from $2.63 million to $620 million would be crazy growth that investors would absolutely salivate over. So who’s the company?
“Never in My Career Have I Come Across a Venture Like the One I’m About to Share With You
“Before I begin, let me tell you that there is a catch.
“The company who holds a monopoly on this Living Metal is not listed on the New York Stock Exchange or NASDAQ.
“You won’t find it on the OTC Pink Sheets.
“And you won’t find it on the London, Tokyo, or any of the major foreign exchanges.
“In fact, of the 27.8 million U.S. companies… both public and private…
“There are only 87 with the unique classification this biotech firm holds….
“I’ll reveal how you can become what’s called a ’round lot’ investor BEFORE it ‘goes public’ on the NASDAQ.
Which the CEO himself believes could happen as soon as August 31st.”
OK, so yes, the company is not listed on the NYSE or the Nasdaq or other major foreign exchanges, and it’s not technically on the pink sheets… but it is listed on the Venture exchange in Canada (used to be called the Vancouver exchange, it’s mostly junior mining stocks) and it does trade on the OTCQB, which is a little subset of the over the counter listings that are not quite as big and transparent as the OTCQX but do pass more “listing” requirements than the OTC Pink Sheets.
The stock is, as several readers have guessed already, Stellar Biotechnologies (KLH.V in Canada, SBOTF on the OTCQB)
And yes, if you so desire you can easily go buy “round lots” either in Canada or through most any US broker on the OTCQB — you can probably buy odd lots through most brokers, too, though hopefully anyone considering a $2,000 newsletter is willing to buy at least 100 shares of a $1 stock (“round lots” just means you’re buying in 100-share increments for most stocks, though sometimes it could be 1,000 or more for lower-priced shares). You don’t need a “Money Morning Prospectus” to buy Stellar shares, though I’m sure they provide a lot more research on the stock than I’ve done.
If you’d like to hear the “bull” case on Stellar, it’s probably best to get it right form the horse’s mouth — they are very promotional in getting their story out, CEO Frank Oakes presented at the Stansberry conference for investors in June and you can see the video of that presentation here, or the slightly more updated powerpoint slides here. Those include lots of pages of customers and potential customers for their Stellar KLH, including many drugs in clinical trials that use the stuff.
What does it do? Well, here’s Robinson’s description:
“Your Immune System Can’t Tell Which Cells Are Keeping You Alive and Which Could Be Giving You Alzheimer’s…
“And That’s Where This Living Metal Comes Into Play.
“Its scientific name is Megathura Crenulata hemocynanin.
“We’ll call it MCh for short.
“MCh is a very rare type of protein that has both biological and metallic properties.
“In other words, it’s part membrane – just like your blood cells – and part metal.
“And that combination gives it a unique ability.
“This Living Metal, MCh, Can Actually Reprogram the Immune System of Those Suffering From Alzheimer’s.”
Well, Robinson can call it MCh if he wants to — everyone else calls Megathura Crenulata by its common name, the Keyhole Limpet, and they refer to the pharmaceutical ingredient as Keyhole Limpet Hemocyanin, or KHL. Which is what Stellar’s ticker symbol is in Canada, cleverly enough, so we can see why the teasermeisters made up a new name to obscure it.
This is what’s described as an immunogen — a molecule that can’t be destroyed by your immune system, but which can carry haptens into your system to provoke a strong and sustained immune response, fighting off whatever it is you’re trying to fight (cancer cells, amyloid, etc.). That’s not a technical description and it may not be entirely accurate, but KLH’s anticipated value is in immunotherapy.
And the “unique selling proposition” for Stellar Biotechnologies is that they are the only ones who can scale up mass production of KLH from the Keyhole Limpets — because these limpets are (or are becoming) endangered and are in very limited supply in the wild. Pharmaceutical companies can’t rely on divers finding more limpets to use in extracting the protein from them, so the government and other investors funded Oakes as he developed an aquaculture system to create a domesticated and reproducing population of limpets on land. They also developed a method for extracting the hemocyanin from the limpets’ blood without killing them, so they can continue to reuse the limpets and extract more each year as new generations are born and reach maturity.
With the idea, presumably, that they can keep scaling this up over and over — they’ll just need to add more tanks to their aquaculture facility, add more labs to extract and purify the stuff, and track the manufacturing. They say they are the only source of GMP (good manufacturing practices) KHL, and they have at least a five-year lead over anyone else who might want to build a similar aquaculture facility.
So … how will that make us rich? Well, from what I can tell it’s going to have to be from dramatically higher pricing for KLH if and when it becomes a part of a commercial product — right now it’s sold for research purposes, both in researching KLH-based immunotherapies and as a way to test the immune response of other compounds, and Sigma Aldrich has public pricing (presumably they’re selling Stellar KLH, though it’s not branded) at $287 for 100mg. That doesn’t mean this is the price a pharmaceutical company would pay if they came to KLH and said they needed a commercial-scale quantity for a new drug in a year or two, but it’s the only baseline I have to go from. 100 mg is a tenth of a gram.
A thimble probably holds two or three milliliters, and the KLH product is in a vial of 0.75ml of solution for 20 milligrams, so we’ll be charitable and say that we can fit five of these vials in a thimble… maybe you have big fingers. That would be roughly 100 milligrams of KLH, so that gives us $287 as the retail price for a tenth of a gram which is something close to what would fit in a thimble… unless I’m missing a decimal point somewhere (no, it’s not exact — but it doesn’t have to be). If I am missing something substantial, please tell me, I’m certainly out of my element on this one.
So right now, despite the fact that the company’s presentation says that one gram of KLH has commercial value of $40-50,000 and Michael Robinson says a thimbleful (a tenth of a gram) is going for $141,000, it’s apparently selling for $2,870/gram ($287 for a five pack of 20-milligram vials, times ten equals one gram).
Back in 2011, when the company was expanding their aquaculture facility, they estimated annual demand at 2,000 grams a year and said that their expansion would get them to 20,000 grams a year. That would mean, if they sold the KLH at that $2,870/gram price (not $40,000), their revenue potential would be about $57 million.
Now, in this last quarterly filing, they say that “Given sufficient funding to continue scale-up, Stellar’s projected production capacity is 4-5 kilograms per year within the next four years, and
up to 20 kilograms per year a few years after that, depending on customers’ requirements and our ability to execute supply commitments.” A kilogram is 1,000 grams, so it sounds like they’re still well below 4,000 grams of production and/or demand today.
Current revenue, including everything (contract revenue and distributor sales) at the run rate of the last quarter, is $400,000 a year. If we assume that they’re getting half of the price that their distributor charges, that $400,000 in revenue per year would mean that they’re only selling about 300 grams a year. That seems unlikely, so perhaps they’re selling it for less… or more of their contract revenue is not specifically associated with the sale of KLH. if we assume they can get that $40,000 a gram that their presentation says is the commercial value, and they can produce 5,000 grams within the next four years (and there is commercial demand), then that gives us the possibility that they could generate $160 million in revenue in four years.
That would be tremendous for a company of this size (Stellar’s market cap is about $100 million now), and should generate a huge profit if such a scenario is really feasible (they’re burning through about $15 million a year in cash at the current rate)… but that’s about where I usually lose interest in the Stellar story — assuming everything else works out, I just don’t get how the stuff gets to $40,000 a gram. Doesn’t mean it’s impossible, of course, I just don’t get it — and there’s plenty of stuff to invest in that I understand a lot better.
They do have a partnership deal with Amaran, a Taiwanese biotech firm that invested $5 million in the company last year and is investigating KLH use in immunotherapy for a couple different kinds of cancer and is apparently in phase II/III clinical trials with those. And they do also have their own clostridium difficile vaccine that they’re trying to develop — that’s still preclinical, though they say their goal for the second half of this year is to advance toward an IND filing (that would mean they’re getting ready to file with the FDA for permission to test in humans, getting to the point where they could do a Phase 1 trial).
But really, those are speculative bets on drugs that I know nothing about — and their own C. difficile vaccine is so very early in the process that it’s impossible to assign any value to it. The real pitch for Stellar Biotechnologies is that they are the sole source for a key ingredient, and the mass demand will drive up production and prices in a pretty dramatic fashion as pharmaceutical companies fight to get the quantity they need. So my understanding falls apart at that point because I have absolutely no idea how many molecules of KLH would be required for each dose of a commercial immunotherapy, and what that would mean for how many grams of KLH must be produced from these mollusks, and, in turn, how many mollusks they’d have to have in their aquaculture facility to turn a profit. So without any notion of whether these numbers that they bat around of $40,000 a gram hold any water, I can’t guess at how much money they might eventually be able to make. I’m not willing to bet the farm on their C. difficile preclinical immunotherapy, so until I can understand those future financial metrics somehow Stellar doesn’t appeal to me.
That doesn’t mean it won’t work for you though, of course — you might wish to take a flier, it’s certainly a stock that has been actively promoted and teased many times and they are very promotional themselves with a strong presence at investment conferences, so the fact that I can’t figure out a reasonable future valuation doesn’t mean the stock won’t go up. The story still sounds exciting, the clinical trials creating the demand and driving up the prices just as Stellar is able to ramp up production, but there are so many moving parts and the clarity on actual possible pricing is so lacking that I’ll leave this for others.
Robinson has some pretty strong-sounding “guarantees” for you as well, should you choose to subscribe:
“Guarantee #1: 30-Day Grace Period
“If, for any reason, I feel Radical Technology Profits is not right for me in the next 30 days, I’m entitled to a full refund of my membership. No questions asked.
“Guarantee #2: The NASDAQ Listing Will Take Place By November 30th
“If this company is not listed on the NASDAQ by November 30, 2014, I will receive 12 months of access to Radical Technology Profits service for free.
“Guarantee #3: At Least One Commercialized Drug Will Reach The Market Within 12 Months
“If this biotech firm does not have at least one MCh-based drug reach commercialization before September 2015, I will receive an additional 12 months of access to Radical Technology Profits service for free.”
So… you’ll notice that those second and third quarantees are just that you can get another free year of Radical Technology Profits if he’s wrong — not that you get your $2,000 back. I have seen no preliminary filing for Stellar to get a Nasdaq listing at this point, but it’s certainly possible that they could do so and I have not read all of their filings. Listing on Nasdaq would add another corporate expense, but it would also certainly lift the profile since they’d be hobnobbing with most of the other junior biotech stocks and would get the attention of more US investors — I’d guess that would tend to give the stock a lift, but you can never really tell… it’s still very much a “story” stock without real revenue and a bet on an uncertain future so you can’t make a firm valuation argument about the shares with a straight face whether we’re talking Canadian or US Dollars.
I have no idea from this spiel whether Robinson is really trying to get you to buy into a private placement of shares for Stellar, which is the impression given in the tease about a “prospectus”, but I suppose it’s possible — they’ve had private placements in the past year at close to a dollar a share and they may well do so again. It’s unlikely, really, since the easy way to buy “round lots” is just to place an order for shares on either the venture exchange or, through pretty much any US broker, at the OTCQB exchange that trades just like the pink sheets stocks we so often see.
I know we’ve had many folks here following Stellar Biotechnologies over the past year or so, particularly because it was very, very, very actively teased by the Angel Publishing folks and Jim Skelton started a few discussions about Stellar back when he was “just” an Irregular (before he signed up to be a columnist with us), so hopefully the Stellar-followers out there can chime in and share their thoughts on the company now.