Dave Lashmet has been a biotech/medical analyst and sometimes a newsletter editor at Stansberry for a long time, and the latest iteration of his high-end newsletter is now called Stansberry Venture Technology (currently “on sale” for $2,500, no refunds)… and it’s now being promoted with a “cure for cancer” spiel, so we obviously all want to know about that.
The ad is actually signed by Steven Longenecker, who I guess is Lashmet’s assistant editor, and the urgency of it comes from the notion that they just attended a conference and the “universal cure” has made some big strides… but isn’t yet being recognized by investors, so there’s an opportunity as the word gets out and this treatment begins to be more widely used.
Here’s a little taste of the ad:
“In the last few months – after 244 years of research – cancer science crossed a threshold.
My boss and I saw it firsthand.
“And right away… he began using this one, dangerous word.
“You see, it’s time to stop just talking about cancer ‘treatments’ or cancer ‘therapies.’
“We now have a cure.”
And apparently this enthusiasm for a cure is percolating through the medical community, Longenecker and Lashmet say they just returned from a conference…
“Now, my boss and I just returned from a prestigious oncology conference in Chicago.
“Even among cancer doctors, these folks are the most highly trained and paid.
“And the word ‘cure’ was everywhere.
“Because this was a conference of advanced researchers, the big question in Chicago wasn’t whether this cure is real and available today. It was about how well it might work in the most advanced cases of the most deadly cancers.”
This isn’t a “one pill” cure, however, it’s a combination of breakthroughs that are apparently working together. More from the ad…
“The fact is: If a magical single pill did exist, you’d have heard about it.
“And there’d be no opportunity for investors.
“The REAL cure involves a combination of cutting-edge technologies that now rest in the hands of just a handful of companies, which I want to tell you about in the next few minutes.
“It will take time – likely years – for these technologies to be adopted by every hospital and cancer doctor in America.
“That’s our opportunity.
“As this cure moves from a small number of lucky folks to millions of people…
“It could turn the businesses my boss and I are following into some of the most valuable companies in the world.”
So we are, at least, spared the conspiracy theories about how cures for cancer are somehow “hidden” by big pharmaceutical companies… but what we’re interested in, of course, is who those “most valuable companies in the world” might be. We’re talking investment, after all, so while curing cancer is obviously more important than that… the beneficiaries are what we’re interested in at the moment.
And, of course, that’s where the motivation comes to send in $2,500 to a newsletter you might know nothing about, with no hope of a refund if it turns out to not be what you expected… the dangle of those unknown investments. So let’s see if we can unravel those secrets for you today, then you can decide whether you feel like subscribing… without the pressure of paying that kind of money for a “stock tip.”
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There are four, we’re told… from the ad again:
“There are 4 in particular that are critically important, where an early investment today could become a massive fortune.”
So let’s look for those, shall we? I’ll cut to the chase a bit and let you know that the basic “cure” being talked about is a combination of immunotherapy and radiation — some of the ads have mentioned the huge breakthroughs in checkpoint inhibitors and other forms of immunotherapy, where the immune system is basically trained to attack cancer cells, and others have referred to the “gold medal” that a scientist one at that recent medical conference — that was the ASTRO Conference, and the medal was won by Dr. Silvia Formenti for her radiation oncology work… here’s a little snippet from the announcement:
“During the past 20 years, she and her colleagues have demonstrated that radiation therapy can be used not just to kill tumors directly, but also to make them more susceptible to the immune system—in a sense vaccinating patients against their tumors as well as any metastases, with highly promising results achieved in some cases. That observation has led to ongoing clinical trials in which radiotherapy is combined with immune-boosting therapies.”
And if you want a good backgrounder on immunotherapy that’s fairly easy for a non-scientist to understand, I like this piece from The Guardian (it’s a year old, but still gives a good overview).
And then this from the ad:
“When you combine targeted radiation and immunotherapy… the effects are not additive.
“It’s not a situation where 1 + 1 = 2.
“Instead, 1 + 1 = 3… or possibly 4 based on the early evidence we’ve seen.
“The effects are synergistic.
“See, the combination of radiation and immunotherapy unleashes a powerful effect in the body.
“For decades, doctors heard rumors of it… but few believed it was real. They called it the “unicorn” of cancer treatment.
“It happens when you treat cancer at just one site in the body… but then it starts to disappear everywhere.”
My understanding of all this is that the radiation (using precision guidance) clobbers the cancer cells, and then the fragments of those cells give the immune system something to target… and immunotherapy drugs accelerate that work. Part of this is the abscopal effect that Dave Lashmet has teased before, where localized treatment of cancer also works against cancer that has spread.
So… the treatment is now commonly referred to as “Radioimmunotherapy” — what are the stocks?
The big focus of the ad is a combination of imaging technology and radiation delivery, which means we’re talking in part about a maker of big machine. The ad notes that “one company” was able to combine real-time imaging with radiation, which gets rid of the problem that targeting radiation used to be based on old data from X-rays or MRI scans, while tumors can change every day.
“One of these companies makes the combined imaging and radiotherapy machine I told you about. No competitor has anything comparable. Meaning this ONE company has a virtual monopoly on an irreplaceable part of The Universal Cancer Cure.
“Only a handful of these machines exist in the world today. But late last year, it won a major approval from the FDA – exactly as we predicted. We’ve watched sales go from zero… to 10… to around 50.
“And we think the potential market is around 4,000 machines – 7,900% growth from here.”
That’s almost certainly Elekta AB, maker of the Elekta Unity MR-Linac (combining a MRI with a linear accelerator) that received FDA marketing approval last December. They received approval in Europe in mid-2018 and the US in December, with other approvals pending, and they have now 60 orders as of their quarterly update in August (and are giving guidance for 75 orders by mid-2020). In that same update, they said they have installed 11 machines and 350 patients have been treated in the first year. And yes, they did do an investor-focused presentation at ASTRO last month as well, which might be worth a look.
I went back and checked my comments the last time Lashmet teased Elekta AB, just a little less than two years ago, and I still think much the same way on this — they seem to me (a decided non-expert) to have a lead in the marketplace, they do now have approvals for their most advanced machine that they didn’t have back then… but these are expensive machines to install so it will probably take a long time, even if the early promise of combined radiotherapy and immunotherapy plays out as they think, for this to become dramatically larger.
And I do wish, looking back, that I had followed through with my feeling that ViewRay (VRAY) was a short, because that stock has now lost three quarters of its value (though it took a year and a half for a short to really pay off, and it’s hard and sometimes expensive to stay short for that long — one of the many risks of shorting, on the short side patience is more expensive than it is on the long side).
But Elekta is, at least, pretty reasonably valued for a technology leader (if that’s what they turn out to be)… it’s not a tiny company, and it’s pretty well established, with an upturn in their financials (better sales and better margins) as Elekta Unity sales pick up this year, but it’s quite a bit smaller than industry leader Varian and far smaller than diversified giants like GE or Philips. The stock trades at about the same price/sales ratio as Varian and has similar gross margins, so that gives some indication that they can scale up to more profitability as they grow. And they are already profitable, though returns are lumpy because of the massive cost of a single system so we shouldn’t expect everything to move up in a straight line.
So I decided, after looking this over, that I’m impressed enough with the growth prospects (and the focus on cost containment as they grow, which is helping margins) to take a small position here. I like the fact that this smaller and faster-growing competitor is valued similarly to Varian, and if we do end up seeing some boost from radioimmunotherapy they could see demand increase and maybe a boost to their revenue and earnings growth. Right now they’re trading at about 30X forecasted 2020 earnings, and analysts are anticipating revenue growth of more than 10% and earnings per share growth of roughly 25% a year over the next couple years… with manageable debt, a lot of that growth really already booked in the form of existing orders, and a little dividend (yield about 1.5% before fees and Swedish withholding tax, probably about 1% after taxes), I think that’s a pretty decent valuation.
Elekta trades primarily in Sweden, at ECTA-B for the B shares, so it would generally be best to buy there (Interactive Brokers makes it easy, though others have international platforms as well), but there is also an ADR at EKTAY and a OTC symbol at EKTAF… both are low-volume but can probably be bought by small investors. Do keep in mind, if you choose to invest in this stock, that illiquid ADRs like EKTAY can be hard to sell in a hurry if the market turns against you — there’s not enough trading volume in the US to make Elekta a good candidate for any kind of nimble in-and-out trading.
If you ever do trade foreign stocks over the counter (OTC) in the US, like EKTAY or EKTAF, you’ll usually find that your best chance of getting an order filled is at a time when both that stock’s home exchange (Stockholm, in this case) and the NY exchanges are open — that means the price signal for the “real” trading is live and that gives your counterpart some confidence (your broker might just buy in Stockholm for you if that exchange is open, using whatever market maker intermediary they choose, and represent that in your account with “EKTAF” — though if they’re doing that, they may well charge you an extra fee… Fidelity typically charges a $50 commission for those foreign trades, for example). For the Stockholm exchange, that would mean between 9:30-11:30am NY time (if you get confused about time zones and market hours, check out tradinghours.com for a simple reference).
There’s clearly risk with Elekta, and it mostly comes from the fact that radiation oncology equipment is expensive and similar products have failed to generate traction before. To visualize that risk, it’s worth checking out the fortunes of a couple other companies in recent years who have tried to commercialize cutting-edge new radiation machines that use precision guidance, ViewRay (VRAY, which also sells a MRI/Linac combination machine) and Accuray (ARAY)… both are still in business, and have fairly meaningful sales, but have been unable, thus far, to really get their sales up to the level that would make the business sustainable… and there is not exactly full-on optimism about Unity orders thus far, Morgan Stanley’s analyst called them “underwhelming” last quarter, so “beat and raise” success is far from quaranteed. This chart shows Elekta and Varian against the smaller upstarts Accuray and ViewRay, and reminds us that the smaller upstart is not always more attractive than the established and cash-flowing business, regardless of how much we all find the “little guy” appealing:
And in case you’re curious, Elekta and Varian have also done just fine in the context of the broader market, beating both the health care index (Vanguard Health Care ETF, in purple) and the S&P 500 (dark blue):
So I decided to nibble on that one a bit, partly because I do find this push for radioimmunotherapy interesting and partly because it’s just on a pretty compelling upswing with their rapid growth in Elekta Unity orders. What else is hinted at in the ad for those other four?
“Another is a virtually unknown company that holds the keys to a new and better form of radiation therapy.
“Unlike anything else available today, this type of radiation hits its target and STOPS. Like a bullet embedding in a thick rubber backstop.
“Other treatments pass straight through, meaning they can seriously damage the tissue behind the tumor target. Which could be your heart, lungs, or brain.
“That’s a lifesaving improvement. And this one company has built half the treatment rooms in the world that utilize this technology. Dave thinks it’s likely to triple… before getting bought out by a larger competitor that can’t replicate this technology and can’t live without it.
“Amazingly, this tiny company’s market cap is under $500 million today.”
I suspect that’s Ion Beam Applications (IBAB in Brussels, IOBCF OTC in the US), which is a proton therapy company — Proton therapy is a widely-followed advancement in radiation, which does indeed lessen the risk of irradiating healthy tissue, and there’s a lot of hope for it… but it’s super expensive to build, there aren’t many facilities in the US, and it’s not widely covered by insurance here.
Varian also has a proton therapy business, so that’s could a safer “partial” play on proton therapy if that’s your inclination. Proton therapy has been approved in the US for something like 30 years, and has pockets of higher use around the world, but hasn’t really taken off, and it seems to me, a complete non-expert on the science, that the reasons are largely financial (difficulty in insurance reimbursement, massive capital cost to build a center). I have seen lots of articles claiming proton therapy to be superior to traditional radiation… but I don’t know what the level of “outperformance” is or what it would take to provide more financial justification for expanding proton therapy here. I find it interesting as an idea, Proton Therapy seems to make sense, but IBA has been such a weak company financially, with results that peaked in 2015, that I don’t want to go out on a limb for a sector that I don’t understand particularly well.
On the positive side, if things are going to work out well for IBA… well, analysts will be surprised, so the stock will probably rise. The few analysts who cover the shares have very tepid opinions and forecasts on the company, but 2019 so far has been better than 2018 (though they haven’t reported a profit for a few years), and they do trade at only about 2X sales, so a new wave of orders would probably make a big difference.
And how about the other side of the radioimmunotherapy treatment? That’s where the other two hinted-at stocks come in:
“What Dave’s found are ‘next generation’ immunotherapies targeting some of the 20+ immune receptors I mentioned earlier that have NO approved drugs yet….
“We think both of these companies are likely targets to be bought out by their ‘big pharma’ counterparts in short order.
“For example, one of them is set to start receiving an estimated $725 million annual royalty from AstraZeneca. Yet its total market cap is less than $500 million!
“So what do you think AstraZeneca will do?
“Pay nearly $1 billion each and every year…
“Or make a one-time deal to buy the company for a nice premium to its current share price… avoid the royalty… and own its entire drug pipeline going forward?”
So what’s being teased there as “A Cancer Vaccine Maker That’s Likely to Be Bought Out Within 1 Year?”
This is very likely to be Innate Pharma (IPH in Paris, IPHYF OTC in the US), an immunotherapy stock Lashmet has teased before. Last time it was teased by Lashmet as an “end of cancer” stock in 2014, the tease was that they would be bought out by Bristol-Myers (BMY) because of their partnership in developing lirilumab — at the time, the stock was just shy of $10, and it has since lost about 30% of its value… mostly because lirilumab, which was later called Effikir, failed and was effectively abandoned in 2017.
In the five years or so that has passed since that tease, I wasn’t particularly paying attention — but they’ve apparently licensed some stuff in, licensed some stuff out, and, yes, made a deal with AstraZeneca for some cross-licensing and for development of an immuno-oncology treatment called monalizumab (and for AstraZeneca to buy about 10% of Innate, in a deal that was announced about a year ago). That monalizumab deal includes some large milestone payments, totaling as much as $925 million, but does also include a “double digit royalty” (meaning, a royalty of at least 10% of sales) — so that’s presumably where the big annual royalty potential Lashmet refers to comes in, though I have no idea what the likelihood is that this cancer therapy will reach ~$5-10 billion in annual sales (and it’s not even in Phase III clinical trials yet, so it’s going to take a while).
That said, there’s a lot to like about Innate if you think the science makes sense — they have a lot of financial backing, and if monalizumab works out as well as hoped they could be sitting on a gold mine. Of course, they might also spend all that cash trying to develop and commercialize more drugs, and, as we’ve seen, sometimes those drugs — even those that are impressive enough to attract the attention of a big-pharma partner — don’t work out. I try to avoid speculating too much in the biotech and drug development space, partly because I can be sure that I’m buying the shares from someone who understand the science much better than I do, but Innate is reasonably appealing from my perspective, mostly because of those partnerships and royalties. They are likely to be easier to trade soon, as they’ve applied for a Nasdaq listing at IPHA that will presumably go through soon.
And one more stock is quickly hinted at, with a special report called “This Breast Cancer Drug Will Spark a Big Pharma Bidding War” — and presumably that’s also an immunotherapy drug of some kind. There are a lot of those in development for breast cancer, and a fair amount of attention on the space since the first checkpoint inhibitor drug for this indication (Tecentriq, from Roche) was approved in the Spring.
Sadly, no further hints were dropped so I can’t really get to a decent answer for you on this one… some possibilities include two recently weak stocks, Nektar Therapeutics (NKTR), which reported disappointing results last month in its collaboration with Bristol-Myers on an Opdivo combination therapy, and MacroGenics (MGNX), which was riding high in February on good news about its breast cancer drug’s performance against Herceptin in early trials… but turned out to have fairly disappointing data at ASCO, and has now given up those February gains. There are plenty of other possibilities as well, but the field of companies working on breast cancer drugs and also providing serial disappointments for investors is pretty large (and I’m not so inclined to spend time chasing a subject where I won’t be able to spread much wisdom). If you’ve got a favorite biotech that’s working on a breast cancer immunotherapy, please do feel free to share your thoughts with a comment below.
And, of course, we’d be delighted to hear your thoughts on any of this — radioimmunotherapy in general, the business case for expensive radiation equipment, the prescience (or lack thereof) of Dave Lashmet’s past investment ideas, if you’ve got something to add just use the friendly little comment box below. Thanks for reading!