The folks at Money Map/Money Morning have really taken the “most aggressive advertisers” mantle from the other Agora affiliates of late — we can pretty much count on a new promotional campaign from this publisher becoming the “most asked about” pitch by our readers almost instantly, whether it’s Michael Robinson or Keith Fitz-Gerald or Dr. Kent Moors or one of the others… or, as is the case today, Sid Riggs.
This ad is all about getting rich from Zika panic, and it’s a pitch for the Small Cap Rocket Alert (edited by Riggs, current price $1,500).
The short version is: Panics about pandemics have created fortunes before, even though those feared pandemics are almost forgotten today… and the same will happen with Zika, it will create some huge fortunes and then be all but forgotten in a few years.
And, of course, there’s “one small company” that he thinks will be the big winner. Here’s a bit from the ad:
“One tiny biotech firm has developed a treatment that can eradicate every trace of diseases like Zika from the blood.
“And it has been approved by the U.S. Food and Drug Administration.
“This makes it the first and only treatment that can fight Zika to receive approval in the United States.
‘This guidance is for immediate implementation.’
– U.S. Food and Drug Administration
“Already, in their latest guidance, the FDA and the World Health Organization informed every hospital, clinic, and lab in the U.S. that they must use this breakthrough.
“And this tiny firm is the only one approved to provide it.
“Now they’re all scrambling to get their hands on it in preparation for preventing a large-scale Zika outbreak in the U.S.
“Ahead you’ll see how this relatively unknown biotech firm has quietly locked up a virtual monopoly for their treatment in this country.
“Its stock is currently trading for around $5.”
So what clues do we get about this little stock? here are a few:
“its executives, including the CEO, Chief Scientific Officer, and board member after board member, are buying all the shares they can….
“This small lab’s share price could be on the verge of surging 16,025%.
“That’s the equivalent of transforming a modest $1,000 stake into $161,250…”
And Riggs gives a few examples of past beneficiaries of pandemics:
“… just like with Ebola, funding poured into the small biotech firms that were working to make the Swine Flu yesterday’s news.
“Look at Endo Pharmaceuticals.
“They developed Symmetrel, one of the first Swine Flu vaccines.
“Before the world began fearing this “next pandemic”… Endo Pharmaceuticals’ market cap was $479 million.
“But with the help of their life-saving Symmetrel treatment, it rose 35-fold, hitting $16.9 billion.”Are you getting our free Daily Update
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Swine Flu panic was way back in 2009, when Endo already had a $2-3 billion market cap, though it did benefit from some of the panic. And yes, they did sell Symmetrel, which is an antiviral that has been around for about 50 years now (and is no longer recommended for use, since pretty much every flu virus is resistant to adamantane). I’m sure Endo made some folks some money in its big move (it did go from $2 billion to $16 billion, rising 700% or so, before falling 80% in the past year), but I wouldn’t say it was primarily because of swine flu.
And another example:
“But the biggest winner of the Swine Flu funding frenzy is, without a doubt, Gilead Sciences.
“It may be a household name now, but before Swine Flu became a story, Gilead Sciences had a measly $250 million market cap.
“That changed when it got FDA approval for its drug Tamiflu…
“This became one of the most effective treatments we had at the time for the Swine Flu.
“President Bush requested $1 billion in funding to stockpile the drug. And Congress approved $1.8 billion for military use.
Since those early days, Gilead Sciences has grown into a $154.6 billion behemoth.
“Its stock has also been one of the market’s biggest stories, shooting up from $0.68 to nearly $104 a share.”
I suppose that’s all technically true, though Tamiflu is but one of Gilead’s businesses (they licensed it to Roche decades ago, they get a good near-20% royalty — though the money train for that one probably stops in a few years as patents expire), and isn’t the only (or even primary) reason the stock rose so dramatically.
And, of course, the move from 68 cents to over $100 took about 20 years. We wrote some about Gilead a couple weeks ago here, just FYI.
One more example:
“Teva Pharmaceuticals used to be simply a ‘pretty large’ company, sporting a market cap of $1.5 billion.
“That was until they developed the Adenovirus Type 4 and Type 7 Vaccine, which treats SARS.
“It helped drive Teva’s market cap up over 37-fold, landing at $56 billion.
“And you know where I’m going with this…
“Teva’s share price surged from $0.43 to $66.92 a share.”
Teva did rise dramatically — but, again, it wasn’t a sharp rise based on this Adenovirus vaccine (which was approved in 2011 or 2012, and I think is primarily sold to the military), it had a lot more to do with Teva’s massive growth in generic drug sales. Teva’s share price was last under a dollar, and market cap down below $2 billion, in the late 1980s, the rise took 25 years or so.
Riggs summarizes his argument thusly:
“Each time “the next pandemic” surfaces, the same lucrative pattern plays out… and it’s about to happen again with the Zika virus!
“Step 1: The media and health groups begin warning about “the next pandemic”
“Step 2: Fear grips the public.
“Step 3: World governments and international agencies announce massive funding initiatives.
“Step 4: This money floods into small biotech firms working to stop these health threats.
“Step 5: The value of these tiny stocks surge 1,500%… even 15,000% or more, as the once certain “next pandemic” is defeated by the brains and ingenuity of these incredible scientists.”
And according to this pitch, we’re somewhere in the neighborhood of “Step 3” on that list. That seems a reasonable assessment, though steps four and five are not necessarily assured… nor is it certain that a particular company will benefit from the enthusiasm. The biggest beneficiary of Zika speculation so far has probably been Inovio (INO), which has been pitched by Stansberry and Angel newsletters over the past six months or so (and which last had a similar run during the Ebola panic), but that’s certainly not the stock being teased by Riggs… so what is it?
First, let’s get that fear level ramped up a little more… scared people make rash decisions, after all (like buying a $1,500 newsletter just to get a “hot” stock tip)…
“The U.S. Olympic Committee has already advised American athletes that they should skip the Games if they’re afraid of getting Zika.
“In addition to the athletes, as many as 200,000 American spectators are expected to attend the Olympic Games.
“But you don’t even need to travel to be in danger.
“Because these same mosquitos now live in a majority of the United States.
“And recent developments suggest the Zika virus can be spread from one infected person to others, through blood transfusions, and even through sexual contact.”
The Olympics “advise to skip the games” bit has been reported, and some athletes have decided to skip the games (though those reports have also been refuted by the USOC).
And there have been plenty of cases of Zika in the US, though it’s just today that we’re hearing about the possible first transmission of Zika by mosquito in the US, in Florida, which is expected to become a bigger deal in the Gulf states eventually (the other reported Zika patients in the US got the virus overseas, with one report of transmission by a lab and 14 cases of sexual transmission out of about 1,300 total reported infections). By far the worst places for Zika so far in the US are in US territories American Samoa and Puerto Rico.
So yes, Zika is still growing as a spreading viral disease — and it still is worrisome because of the still-being-explored connections to Guillain-Barré syndrome and birth defects (microcephaly, primarily), though most folks who get Zika are still unlikely to know they have it or suffer more than normal flu-like symptoms.
Will this “little company” get rich as Zika becomes a bigger concern, and generates more headlines? Let’s get some final clues about exactly what the company is, from the ad:
“Instead of focusing on a vaccine that would prevent someone from contracting Zika…
“This small lab developed a completely new way to quickly eradicate it from infected blood.
“Their treatment introduces a molecule called amotosalen hydrochloride into blood that has been infected with Zika.
“It targets Zika RNA specifically….
“Here’s an easy way to look at this…
“Remove the cross axle from the front wheels of a car, attach it to the rear wheels… and that car won’t move. It’ll break down. That’s what this lab’s treatment can do to Zika RNA.
“It causes a genetic mismatch, breaking the RNA so it can’t reproduce.
“And unable to reproduce – the Zika virus simply dies.
“This lab’s process takes between three and eight minutes to render the pathogen harmless.
“The inactivated Zika virus can then be flushed out of the blood, just like many viruses are, before they ever reach dangerous levels.”
So this treatment can just “inactivate” the virus? How awesome is that!? Why aren’t we doing this with all viruses?
Maybe it’s dangerous or expensive? Not according to Sid Riggs:
“… this treatment is 100% safe.
“It causes no harm to human platelets, plasma, and red blood cells.
And fortunately at $55, each ‘dose’ is cheap.”
And then we get a few more clues that get us to the specific company:
“As you know, every investment carries risk.
“However, thanks to its miraculous treatment, this lab has the potential to see revenues coming in the next several months that are in the billions.
“Already, it has signed 21 multiyear contracts with U.S. agencies like:
“The American Red Cross…
“The American Association of Blood Banks…
“And the Center for Medicare and Medicaid Services….
“The American Red Cross alone has one of the biggest supply networks in the U.S. market.
‘That really allows the Red Cross to take advantage of this network to supply every hospital in the U.S.’
– Zika Lab’s CEO”
“Within weeks of the FDA giving them the green light, this firm announced it had locked down agreements that allow it to control 80% of the U.S. market!
“A $180.5 million deal in particular has been reached that could bring this treatment to Hawaii and parts of the West Coast.
“The first installment of this massive cash haul is coming very soon.”
And, finally, a couple dollar amounts from Riggs that are eye-catching:
“Last year this company was in its early stages with this treatment.
So its revenue was only $34.2 million.
“However, everything is lining up perfectly for this unknown biotech firm to quickly generate $1.23 billion in sales over the coming months… “
OK, so that’s enough… who is Riggs teasing? This is, as several Gumshoe readers have suggested in comments, Cerus (CERS).
Which did indeed report revenue of $34.2 million last year… though “quickly generate $1.23 billion in sales over the coming months” is not a mainstream view. Analysts are expecting revenue to almost double in 2017, getting close to $70 million (there are only six analysts, to be fair, and we know that forecasts like that are notoriously unreliable — though I’m sure they’ve looked more closely at the company than I have)
They report earnings in about two weeks, so things could change markedly — but analysts are relatively optimistic, thanks to the growth they expect because of wider adoption of Cerus’ technology for “pathogen inactivation” for platelets and plasma (and perhaps for red blood cells, though that’s still in the FDA approval process).
This is how Cerus describes itself:
“Cerus Corporation is a biomedical products company focused in the field of blood transfusion safety. The INTERCEPT Blood System is designed to reduce the risk of transfusion-transmitted infections by inactivating a broad range of pathogens such as viruses, bacteria and parasites that may be present in donated blood. The nucleic acid targeting mechanism of action of the INTERCEPT treatment is designed to inactivate established transfusion threats, such as Hepatitis B and C, HIV, West Nile Virus and bacteria, as well as emerging pathogens such as chikungunya, malaria and dengue. Cerus currently markets and sells the INTERCEPT Blood System for both platelets and plasma in the United States, Europe, the Commonwealth of Independent States, the Middle East and selected countries in other regions around the world. The INTERCEPT red blood cell system is in clinical development.”
So this is not, of course, going to stop Zika by itself — nor does it seem to be a major part of the public health program that is designed to slow the spread of Zika and make sure that it doesn’t become an epidemic in the US. Blood transfusion is one way that Zika is expected to possibly be able to spread, but most people don’t get blood transfusions very often (though yes, pregant women do sometimes get transfusions, particularly for anemia or hemorrhage) … and there are other first-line screening mechanisms (like those questionnaires) that are used to help keep Zika out of the blood supply. This is a tool to help keep the blood (well, plasma and platelet for now) supply safer, not a tool to eradicate Zika from the population or cure people who have the virus.
According to the Red Cross, there are about 36,000 units of whole blood or red blood cells used a day in the US, and a total of about half that many units of plasma and platelets. Each unit costs somewhere in the $200-300 range to acquire, test and process, and it’s been the safety provisions and the testing that have added more to the cost than anything else over the past couple decades, originally probably driven largely by HIV and Hepatitis concerns. $55 for the processing of a unit of blood doesn’t seem prohibitive, particularly if it is used instead of other safety or testing procedures that sometimes have similar or higher costs.
So will every unit of blood, platelets and plasma end up being treated with Cerus’ technology at $55 a pop? If so, that would be about a billion dollars a year in revenue ($55 times roughly 50,000 units used a day times 365 days in a year)… but that’s really making a lot of assumptions about the future.
Their system is called the INTERCEPT system for the reduction of pathogens in plasma and platelets, and it essentially is based on adding Amotosalen to the blood product, zapping it with ultraviolet light in their proprietary machines, and then removing the Amotosalen solution. They use the coveted ‘razor and blade’ business model, selling the machine and the disposable kits that are used for each unit of plasma or platelets.
There is guidance from the FDA that’s designed to keep Zika out of the blood supply, you can see the full guidance from February here.
The key paragraph seems to be, in the recommendations for areas with active transmission of Zika (where the mosquitos that carry Zika have been found):
“Collect and prepare platelets and plasma locally if you implement pathogen reduction technology for platelets and plasma using an FDA approved pathogen reduction device as specified in the Instructions for Use of the device, or Collect blood components locally and test blood donations with an FDA licensed blood donor screening test for ZIKV, when available.”
Though the primary advice has continued to be to avoid collecting blood in areas where there is active Zika transmission — blood collection has apparently been suspended in Puerto Rico, for example, and they’re getting blood currently from areas of the US that aren’t seeing active transmission of the virus.
As of February there was no licensed screening test for Zika — most of the screening is by questionnaire and attempts to reduce risk by restricting blood donors who might have been exposed to Zika in a number of ways. There is now a test approved for use at least in Puerto Rico on an investigative basis (the test is from Roche, so it’s not a meaningful investment catalyst — Roche is a massive company).
In the Q&A for the FDA advisory, they note this:
“Several companies are developing candidate donor screening tests that potentially could become available under an investigational new drug application in the near future. Also,
two companies that have published scientific papers on pathogen inactivation technologies for Whole Blood or Red Blood Cells publicly have expressed interest in making their devices available under an investigational device exemption application.
Blood establishments may contact these manufacturers about investigational studies in which they might participate. Alternatively, blood establishments may contact the Office
of Blood Research and Review and we will inform the product manufacturers of the blood establishment’s interest in participating in investigational studies.”
So that’s a bit different than the wording from the ad that implies that this particular company’s product will instantly be required for use everywhere, this is what Riggs said in the ad:
“The FDA and the World Health Organization notified every hospital, clinic and lab in the U.S. that they must use this type of treatment.
“And this firm is the only one approved for this treatment.
“Which is why they’ve taken precautions to ensure they can protect it.
“They’ve been awarded 59 patents, with another 17 on the way.
“So this medical breakthrough has put this $5 company on the fast track to a nearly unbelievable payday.”
“Unbelievable” is a good word for that — which doesn’t mean Cerus won’t grow their revenue, it just means that we shouldn’t assume there will be a billion-dollar payday for them next year, or that Cerus will rise by 1,000%.
Cerus’ treatment for red blood cells, which is the biggest part of the transfusion business (roughly twice as big, in terms of units used, as plasma and platelets put together), is not yet approved for broad use like their plasma and platelet treatments (though it seems the FDA is open to testing it a lot more, and it’s been approved in some of the rest of the world). And the way I read their announcements, the FDA is pretty clearly focusing on avoidance of potential Zika donors as the first line of defense, along with testing as soon as a test is approved, and pathogen reduction treatment for blood products if it’s necessary to use blood collected in a Zika-active area.
There’s also apparently more than zero risk attached to the Cerus pathogen reduction treatments, which were approved for plasma in December of 2014 and for platelets just a few months ago. The FDA summary of safety and effectiveness data goes into that to some degree. The primary thing they note seems to be the incidence of cardiac events, though there were no heart attacks or deaths and I don’t know whether the risk is at all significant, or how it compares to other tests or treatments for blood (or how it is balanced by the risk reduction from CERS, which helps lessen risks of bacterial infections and rejection as well as removing viral and other pathogens).
I am certainly not an expert on the blood supply, or on how the cost and effectiveness of various technologies are measured when it comes to blood collection, testing and preparation for transfusion.
It seems to me, business-wise, like Cerus is off to a pretty good start, with approval for platelets helping them to get some higher volume sales in the US, and there have been pretty consistent announcements from them about the various blood companies and systems who will be using the INTERCEPT system for at least some of their products.
But it’s also true that INTERCEPT has been approved in Europe for a decade, and most of the deals and announcements they’ve made have either been financially nonspecific, or very long term in nature. I don’t know to what degree INTERCEPT has been accepted in Europe as a “standard” for the blood supply (it is approved for routine use, but I don’t know how routinely it is used), but presumably it is not used for every unit of blood. Sales for Cerus have not really grown in a meaningful way over the last five years, despite the fact Europe’s blood “market” is presumably roughly similar to the US in size.
On the positive side, the relatively steady revenue over the past five years is at least a reassurance that there is presumably a pretty solid level of usage of the technology in at least parts of Europe, and it has presumably not generated any big safety concerns (not that I’ve seen, at least).
So… yes, Cerus has a technology that should be able to remove most Zika from platelets, plasma and probably red blood cells, with what looks like good safety and efficacy. It’s not the only or necessarily the primary way that Zika is being fought, or even the primary tool that health officials are using to keep Zika out of the blood supply, it’s not a vaccine or a treatment, but it is a real technology and a real product.
My primary caution would be that the technology has been real for some time, in some pretty big markets, and has not yet reached a meaningful level of revenue — that doesn’t mean they can’t get some good sales growth as Zika concerns escalate for the blood banks and collection companies, or that they can’t become a “standard” technology that replaces or adds to current widely-used blood supply safety tests and treatments… it just means that there’s no particular reason to expect their sales to explode from $30 million to $1 billion in the space of a year or two.
And yes, there is competition — not only from tests that could keep Zika out of the blood supply, perhaps at lower cost (Cerus would dispute that), but from standard questionnaires… and, as you might imagine, there are also other technologies for doing what Cerus does to actually remove or “deactivate” pathogens from the blood after it is collected, including the Mirasol technology from Terumo (a Japanese company) and the Theraflex UV technology from Macopharma (a private company headquartered in France). From what I can tell, both Terumo and Macopharma are behind Cerus in approvals, particularly in the US.
I would guess that the analyst projections are more reasonable for the near term than is Riggs’ hyperbolic soothsaying — the analysts are expecting an average of $68 million in revenue in 2017, and a continuation of the rapid increases in R&D costs and other operating costs (both of which have risen far more quickly than revenue so far). That will have them losing about 50 cents a share next year, the analysts predict. The stock price is roughly where it was after they got approval for their technology to treat plasma products, back in December of 2014.
The fundamental story is not really what Riggs is excited about, though — from the tenor of the ad, it sounds to me like he thinks Zika will gradually become less of a big deal, probably largely forgotten within a few years, and he doesn’t seem to be talking up the potential of this stock as a long-term investment… he seems to be speculating that CERS will get a big “bump” from Zika, perhaps because he thinks there will be some catalyst that forces much more rapid adoption of INTERCEPT over the next year or so, or just because investors who are in search of a “Zika story” are going to rush into everything that might be part of the Zika fight. Those price movements that are driven by news and abrupt sentiment shifts are notoriously hard to predict, and if you do try to catch one it’s important to watch them closely because almost all stocks do almost always return to levels that have some connection to their financial fundamentals.
Sound like a speculation you want to try to ride? Think it’s too risky? Have more knowledge about their products or the blood supply business that you’d like to share to help us all get a bit wiser? That’s why we have our friendly little comment box below, so comment away — thanks!