You can skip this preamble if you don’t care to read another word about the election…
I do have a non-election-related teaser pitch to share with you today… but since questions are swirling my way I should probably start by saying that yes, you may have noticed that we’ve now had a very shocking election and now should expect potentially large changes to government policies in the largest economy in the world, which could impact anything or everything in the world of finance and investment. I’m ignoring the human and social impact of this election, which will undoubtedly reverberate through our communities for a long time, and trying to just think about what it means to actual businesses.
But since we’ve also just come through an extremely raw election, with incredible levels of personal animosity and almost no mandate about specific policies (because there was almost no policy debate or focus in this election), it’s not really clear exactly what’s going to happen. It is pretty clear that President Trump will have lots of leeway to make quick changes on some things, particularly retracting the Affordable Care Act and some of the regulatory framework that was established over the past decade when it comes to the financial system and the environment, but it’s not at all clear what his first priority is or how he will want to push changes — particularly with big targets like the Affordable Care Act or the tax code, neither of which lends itself to a fast “replace it with something better” change and both of which are built on the competing priorities of hundreds of powerful lawmakers and thousands of constituent groups and lobbyists. We’ll learn about real lawmaking priorities gradually, I imagine, as the transition takes form.
Which means that we don’t know much of anything, other than the strong feelings that most voters have about the most extreme ideas that were highlighted at Trump’s rallies, so there’s no point in doing much of anything to “bet” or “hedge” on any plans he might have. And everyone that’s writing up reports about “what President Trump means for the XX industry” is really just guessing.
My strongest sentiment about the election when it comes to financial markets is that interest rates will probably go up faster than I would have otherwise expected. That’s because the easiest path forward for all politicians, even when other things might be difficult or complex, is giving more and spending more, so if Trump wishes to make a big splash — which seems likely to me — probably an infrastructure spending project and a tax cut are the likeliest financial outcomes of the early days, and both of those are likely to be inflationary and to increase interest rates… as, of course, fears of trade wars could impact demand for US dollars (and debt) overseas. But it’s also quite possible that there are still some fiscal hawks, particularly in the Republican party, who will push back on higher deficit spending… and it’s possible that President Trump will do something dramatically different. I doubt that he will be as deferential to his party colleagues in Congress as President Obama was in his first year in office, but at this point we’re flying blind.
Those sentiments of mine are not, of course, particularly unique — you can see from the stocks of engineering and construction companies Fluor (FLR) and Chicago Bridge and Iron (CBI), for example, that people are expecting big infrastructure projects, and the initial reaction this morning is that bond prices are falling to bring interest rates up, and financial stocks are rising in anticipation of inflation that might bring a steeper yield curve…. and we can even start guessing as to whether rising long-term interest rates mean the Fed will or won’t raise the short-term rates they control when they meet next month. That initial financial sentiment, of course, could change in an instant if and when campaign ideas become government priorities.
So whaddya do? In my case, not a lot. I’m not going to change my portfolio allocations right now, and I will probably wait out the week to see where markets settle and what the incoming administration and Congress put out as feelers regarding their initial plans. I’m surprised at the speed with which the markets recovered from the shock overnight, and somewhat encouraged as an investor that the quick recovery in futures markets was caused almost entirely, at least to my eyes, by the conciliatory nature of President-Elect Trump’s first speech — but mindful that this means sentiment is very fragile, and we don’t really know which Trump will be speaking in the weeks to come. I will be keeping an eye on my interest-rate-sensitive holdings to see if they warrant purchases or, if a big inflationary spend seems to be in the offing, if they should be sold as they hit stop losses (as many of them have today) because future interest rate expectations begin to change (if people start to think that the 10-year Note will be at 6% in two years, for example, all income stocks — REITs, pipelines, telecoms, etc, are likely to fall quite a bit more before they find a new equilibrium).
And I’ll continue to work with the basic assumption that owning shares of companies who can turn capital into profits on a consistent basis, and who can reinvest those profits into compounding the growth of their businesses, is still likely to be the best path forward for any long term portfolio. So I’ll keep looking for those… and keep looking into the crazy promises and ridiculousness peddled by the investment newsletters, who I’m sure will have lots of plans for us that they’re certain will turn into 10,000% returns.
So with that said, let’s dig right in to today’s teaser…
The spiel comes from Michael Robinson, and he’s selling his Radical Technology Profits newsletter ($1,950/year) by promising access to a special “ET-73 Prospectus” that will let you buy round lots of shares in a special company that has a miraculous cancer cure.
Sound familiar? Yes, he promised something quite similar earlier this summer, and his colleague Keith Fitz-Gerald had a very similar ad back in February that implied he could give you special “round lot” access to a pre-IPO company before it makes its (presumably explosive) debut on the Nasdaq.
So what is it? Well, let me give you just a taste of the spiel first:
“… when this University of Illinois biochemist strapped a scuba tank to his back and plunged into the warm Caribbean water, he was just trying to enjoy his vacation.
“But when he caught a glimpse of a small orange mass near the ocean floor, his natural scientific curiosity took over.
“He emerged from the water that day with a small bag of what would soon be known as Ecteinascidin. (Based on its active molecules registry number I’ll just abbreviate it to ET-73.)
“ET-73 is one of the rarest materials on the planet.
“Today, it’s worth $58.9 million per ounce….
“… a Harvard report has revealed that ET-73 is… ‘Hundreds to thousands of times more powerful than any cancer treatment now in use.’
“And it destroys rare and aggressive cancer cells like nothing that’s come before it.”
And this is, apparently, a drug that’s already being made and sold:
“In Europe, ET-73 has already been granted approval under the ‘exceptional circumstance’ clause for use when ‘other cancer medicines have stopped working.’
“However, this is just the beginning.
“As the results of study after study come in, the hope is that ET-73 will be an effective treatment – not just for people who are suffering from advanced stages of Soft Tissue Sarcoma – people who are faced with no other choice but to turn to last resort drugs…
“The hope is that this medical miracle could soon be used to safely treat those who suffer from numerous forms of cancer, in all stages.
“Last year, sales of ET-73 reached $110 million – so not even enough to fill two thimbles.
“But the story moving forward is completely different.
“In late 2015, ET-73 was approved by the Japanese Ministry of Health.
“Shortly after that, the FDA approved it for use in the United States.
“And today, doctors at Dana Farber, MD Anderson, the Mayo Clinic, Massachusetts General, and leading cancer facilities around the world have rushed to implement this treatment in their groundbreaking studies.”
And, of course, there’s the obligatory “massive returns” chart, which illustrates the following claim:
“Worldwide Sales of Drugs Derived From ET-73 Are Projected to Aggressively Rise as High as $1.9 Billion By 2020.
“And One Tiny Company Has a Monopoly on It.”
So who is it?
As it was last time, this is the Spanish biotech PharmaMar (PHM in Madrid, PHMMF OTC in the US)
PharmaMar has two drugs right now that are either commercially available or nearly so, Yondelis for soft tissue sarcoma and Breast Cancer (second and third line treatment, with European approvals leading US approvals so far) and Aplidin for fourth line multiple myeloma, along with PM1183, which is in clinical trials for a variety of cancers (including one in Phase III trials).
And yes, the “round lots” do trade at about $245 — the stock is currently at $2.79 in US over the counter (OTC) trading, and it closed at 2.49 euros in Madrid trading (that’s the home exchange). That means the current trading is within a few percent of “fair” prices, but you’re paying a little bit of a premium for buying on the US OTC markets, which is typical (the fair price, given the Madrid close, would be $2.72). That means, assuming that PharmaMar does NOT get a US listing, that there isn’t necessarily a huge amount of liquidity to sell if you ever wish to sell your OTC shares in a hurry — so if things turn south for PharmaMar for any reason, the premium could quickly turn into a discount and your downside exposure could be magnified a bit. That’s probably not a massive concern, but it’s real — this is a small company with a $500 million market cap, so volatility should be the expectation… particularly when a widely distributed newsletter has been ginning up interest in an OTC-traded stock for much of the year.
Will PharmaMar actually get listed on the Nasdaq? Well, it makes sense that they should wish to, assuming market conditions are solid for biotechs in the coming months — most global biotech investors are focused on US-listed stocks, and the US is the largest pharmaceutical market. And they’ve had the intention of becoming Nasdaq-listed for years, ever since their former parent Zeltia first started playing with the idea of spinning out their PharmaMar cancer subsidiary almost three years ago (they actually ended up with PharmaMar effectively acquiring Zeltia in a reverse merger, so I guess Zeltia’s other assets weren’t that meaningful).
That does not automatically mean that the price will go up if it does either move to a primary Nasdaq listing or add a Nasdaq listing, of course — it certainly could, and many times biotech stocks will do better in the US than in Europe because they can have more liquid trading and the attention of more biotech-focused investors, but I’d think more about whether the drugs are likely to generate higher revenues and profits than about whether the price could potentially spike if there’s a US IPO… partly because one reason for an IPO could be to raise money for future development and commercialization of their pipeline, and who knows how investors would feel if there’s a dilutive offering with the stock right in the middle of the range it has traded in over the past year. (I don’t know if they intend to raise capital anytime soon, they do have partners for their drugs and it might not be necessary — that’s just something to think about.)
The company is profitable and revenue is growing slowly, as it has been for several years. I don’t have a real sense of how much revenues are expected to grow — that presumably depends mostly on how their drugs progress in clinical trials, how the drugs compare to others available for these other cancers that have larger numbers of patients, and whether they make it up to larger-volume indications (ie, being used in first line treatments instead of as a second or third line treatment when other drugs fail). There is a presentation here that details the drugs and their progress, for those who wish to delve in a little more deeply.
As for this “prospectus” nonsense, that’s just a way of making a research report about the company seem more exciting and exclusive, and of justifying the relatively steep price tag of the newsletter that’s pitching that research report. The stock can be bought by anyone who wishes on the open market, either OTC in most online trading platforms or directly in Madrid through some brokers — and if you buy in the OTC market, my expectation from similar past experiences is that those shares will probably automatically be transferred over to shares of the listed stock if they do indeed get a Nasdaq listing. He tried the same silly “prospectus” spiel when pitching the sea snail aquaculture company Stellar Biotechnologies back in the Summer of 2014, and that was a disaster — the stock eventually did uplist to the Nasdaq, but it’s still down 75% from where it was when he first hinted at that possibility… and down 90% from the crazy price it hit in the spike over that uplisting enthusiasm. (That was a far different company, to be fair, it was much smaller and a long way from having meaningful revenue, let alone earnings… but the “prospectus” bit was equally stupid, since the company was also easily traded at their home listing in Canada or OTC in the US for years before it applied for that Nasdaq listing.)
PharmaMar has been discussed a few times in the past here at Stock Gumshoe, including some longer discussion threads here, here and here if you’d like to dig a little deeper and see what your fellow investors are thinking… and, of course, you’re welcome to share your thoughts about PharmaMar, Yondelis or Aplidin or Robinson’s Radical Technology Profits with a comment below. Thanks for reading!