Lots and lots and lots of you have been asking me about the big “cancer presentation” that the Stansberry folks made last night, which apparently was a combination of Dr. David Eifrig’s medical advice and forecasting and Dave Lashmet’s hinting about his “medical breakthrough” stock… so let’s get to it.
I did not watch or listen to the presentation, I just read the teaser ads leading up to it and the big “don’t forget to subscribe” ad they sent this morning. It’s another of the “high price tag, no refunds” deals — $5,000 for two years (and then renewing at $5,500 a year) — so it’s not for the timid or small-portfolio’d.
And, no surprise, they get right into the excitement with no soft-pedaling or caution… here’s a bit from the intro to the ad:
“We’ve waited 17 years for this.
“Beginning December 31st, a medical breakthrough in the field of cancer treatment will be up for worldwide approval, and could send the company behind it up by 200% or more.
“We call it “The 60-Minute Cancer Breakthrough.”
“That’s because in just 60 minutes or less – it allows doctors to do what NO other cancer treatment in medical history has ever accomplished…”
And the ad early on also has an image of a giant device being lowered by crane, presumably into a hospital — it looks pretty much like the giant donut part of an MRI scanner.
So what’s the story? Apparently only a few folks are “in the know,” and it isn’t being covered in the financial press yet, but Lashmet thinks it’s going to take off soon. More from the ad:
“The only reason we know about it is because back in June, we flew to California… and saw it in action. The room only held 1,000 of the best cancer specialists. Some doctors couldn’t even get tickets inside.Are you getting our free Daily Update
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That means this is one of the biggest unknown investment opportunities in the world right now… with the potential to make early investors an absolute fortune if you get in now, BEFORE approval comes through.”
There are lots of quotes from medical directors and important-sounding oncology folks about how this is going to be able to treat a wide range of cancers, how this kind of technology has been long in coming and is going to be in huge demand, etc.
And, of course, plenty of comparisons to massive gainers in biotech — this is pretty much required for any teaser in this sector, you have to remind folks that yes, when new drugs or products get regulatory approval the shares often soar higher (though, of course, that depends on what the investor expectation was — FDA approval can be a non-event if everyone expected it, and sometimes approvals don’t happen… what moves a stock most dramatically is when the news is either much better or much worse than expected).
They also note that Lashmet has picked some successful biotech stocks in his days with Stansberry — including ID Biomedical, Esperion Therapeutics, and Innate Pharma. Innate might ring a bell for longtime readers, since it was Lashmet’s first teaser pick when he took over the newly renamed Stansberry Venture about three years ago (that was after Frank Curzio was laid off,he had helmed that high end letter under its previous name Phase 1 Investor). In case you’re curious, Innate is currently priced just about where it was back then, but he claims to have only taken profits on half his position, with a 140% gain, and that’s probably possible if he bought at the late 2014 lows and sold near the Spring 2015 high.
But anyway, today we’re looking for that next mega-breakthrough — ready? What are the other clues?
First a bit more tantalizing teasy-ness from the ad:
“Would you believe me if I told you that a little-known company has just invented a machine designed to diagnose your cancer… develop a custom treatment plan for you… and treat, potentially even destroy your cancer without pain, in less than 60 minutes?
“And what if I told you that you could undergo this procedure with fewer side effects and better outcomes?
“And to top it off… what if I told you that this machine is vastly cheaper than any other cancer treatment on the market?
“And will shortly become a legal global monopoly…”
OK, and now some of the specific hints:
“… one specialist recently said:
“This breakthrough ‘greatly improves our ability to target a tumor… to cure the cancer, and to minimize exposure to the normal tissue. And we shorten treatment times.'”
That sounds just lovely, but not very specific. What else?
“… this new technology combines:
“The ability to see your cancer (with harmless MRI)
“The ability to treat your cancer
“(with accuracy to the thickness of a credit card)
“…AT THE SAME TIME.”
OK, so that narrows it down a LOT. MRI-guided radiation therapy is what’s being teased here, and it has been a goal of a few different companies and research groups over the years. Let’s narrow it down to one, shall we?
“Practically speaking, it’s the difference between hunting with a shotgun and hunting with a sniper rifle.
“Already, nine of these machines are working, treating patients daily.
“As this treatment goes into large-scale use, more and more hospitals will begin to adopt it, because it’s better, safer, faster medicine.
“At its recent demo in June, it was applauded by 1,000 of the world’s top cancer doctors, who treat hundreds of thousands of patients a year.”
We’re also told that it’s not being advertised, because clinical trials are still underway… but that visibility will increase dramatically when it “wins worldwide regulatory approval,” which they say is “expected to happen by the end of this year.”
And, apparently, this is already an established company — so it’s not one of the low-revenue startups:
“The company behind it owns ALL the rights.
“It’s an established business with over a decade of track history, and three major FDA approved products….
“Thousands of these machines will be ordered… to treat millions of cancer patients… and along the way, make early investors a small fortune.
“The list price for these machines is predicted to be around $10 million to $12 million. (The exact retail price is a competitive secret.)”
“Patents create cash machines in the biotech industry….
“This is especially true of established companies that have already hit $1 billion in sales, like the company we’re recommending today….
“The world’s top doctors and scientists pooled their research on this new technology, and one company paid for it all – in exchange for all the patents.”
So who is it? This must be, sez the Thinkolator, the Swedish company Elekta (EKTAb on the OMX in Stockholm, EKTAF or EKTAY OTC in the US), which is the lead player of a consortium that also includes MRI giant Philips — the researchers behind this machine have spent almost 20 years developing this combination MRI/radiation therapy device that they call Elekta Unity… and it has, indeed, been formally launched as a product and is close to being submitted for regulatory approval.
You can see the company’s website about Unity here, but the basic idea is pretty fairly stated in the Stansberry ad — delivering targeted radiation to someone who is also being imaged by an MRI in real time makes it possible to delivery the radiation much more precisely, which means you can use more power and have less impact on surrounding tissue, since you don’t need to spread the radiation beam wider in case the patient or the tumor is in a slightly different position than last time the imaging was updated, and probably have a better result. That’s particularly important for some cancers where the tumor might move a bit or is very close to sensitive areas — like cervical cancer, for example, or lung cancer.
The most frequently used name for this category of devices is MR-linac (Magnetic Resonance-guided Linear Accelerator), and there is one already approved and on the market from the much smaller company ViewRay (VRAY), but Viewray addressed the central challenge of the product very differently and seems, at least to my inexpert eye, to be in a much weaker position.
That central challenge, and the reason that this seemingly obvious advance wasn’t made years ago, is that MRIs and linear accelerators (linacs) don’t play well together — the magnetic field interferes with the delivery of radiation, and vice versa. Viewray’s latest solution was, or so it seems to me, premised largely on designing their MRIdian Linac to have a much, much weaker MRI machine attached, which means their imaging is much less precise (the MRIdian isn’t their first device with this simultaneous imaging/radiation goal — their previous version was based on a Cobalt60 radiation source instead of a linear accelerator, and that apparently is not nearly as powerful therapeutically). So although Viewray has its CE Mark and FDA approval and has sold a couple of its MRIdian machines, and Elekta hasn’t yet even gotten regulatory approval for its machines, I’d assume that Elekta is in a much better position even if their product is likely to be substantially more expensive (and, actually, their approval might be faster and easier thanks to ViewRay paving the way a bit). Partly that’s because ViewRay is in a pretty precarious financial position and needs to spur sales quickly, while Elekta is already profitable (albeit pretty richly valued) and does have, as the ad hints, more than a billion dollars in revenue over the past year.
Frankly, just from looking at this information this morning as I’ve been reading around about the business, I’m more immediately inclined to short ViewRay than I am to rush into buying Elekta. I am sure I’m not fully informed, and this is certainly not my field, but Elekta looks like a solid company with a leading-edge product and a strong balance sheet… and ViewRay doesn’t have either of those things, and my first impression is that unless they’re just undercutting Elekta Unity dramatically on price, they will have a lot of trouble when the two companies are in competition for sales.
So is Elekta going to change the world, sell 1,000 Unity machines, and make gazillions of dollars for investors who buy the shares today (or get bought out after a 200-300% gain, as the ad hints is likely)?
I dunno, the product sounds pretty cool and, indeed, revolutionary… but it will take quite a bit of time for that to materialize — these are huge and expensive machines, and not every hospital is going to jump to be first in line to spend $10 million+ to buy one even if they are approved. There will certainly be low-hanging fruit, I’m sure, and I imagine they’re probably being rational with their goal of selling 75 units by 2019 (yes, 75 is way smaller than 1,000)… though that has been put at some risk by the company’s announcement late last week that they’ll be going for regulatory approval later than had been expected.
What’s that? Yes, as of last week that December 31, 2017 date in the ad’s headline is no longer relevant for Elekta Unity’s regulatory approval… so you can take a breath, slow down, do your research, and think about this one for a bit.
You could have done that anyway, of course, stocks don’t typically go up in a straight line no matter how exciting the newsletter pitch might sound, but now there’s a little investor uncertainty over the delay to chew on… and delays usually mean people stop paying attention, and when investors aren’t revved up about a catalyst and paying close attention, the traders aren’t buying shares, and the stock can easily be boring and flat. This is a big enough company (market cap around $3 billion) that it’s not likely to be wildly impacted by Lashmet’s attention for long, even if it does get a pop on the recommendation or Stansberry’s marketing, so I expect you can take your time in deciding whether this is up your alley or not.
If you want the detail: The company had previously expected, and cited even in presentations as recently as September, that their target for CE Mark (European regulatory approval to sell a medical device) and 510k submission (for FDA medical device approval) was “2017” … but last week they announced that they are pulling back to add some additional imaging functionality. They now see the CE Mark being received in the first half of next year, and presumably the FDA application will follow that. The Morningstar analyst noted that the stock still looks appealing to him, in case you’d like another perspective, but that the 75 units sold goal might be more challenging if they’re getting their CE Mark and FDA approval in 6-12 months instead of next month, and there could always be issues along the way… so there is certainly some risk.
Enthusiasm for shiny new medical devices is not unusual, and it’s easy to get swept up, even if you’re not reading a lusty pitch from a newsletter — lots of companies have been teased for their new surgical robots or MRI or radiation machines, and everyone dreams of finding the next Intuitive Surgical or other medical device maker that will grow into a colossus, but the business of big-ticket medical devices can be tough (few folks dream of finding the next Accuray or Transenterix.
In fact, we covered a similar “this breakthrough will change everything” pitch from Dave Lashmet for proton therapy, a different kind of radiation, just two years ago (“The Most Disruptive Biotech Discovery of 2015”), and the stock we identified as his likely pick did have some things going for it (proton therapy has seemingly been the “next big thing” in oncology for a while), and did surge for a bit… but has had a bad year this year after they cut their guidance to reflect competitive pressures and project delays, and is now well below where it was two years ago. Lots of things can happen even with a relatively well-financed company with enthusiastic fans and growing sales.
I do find Elekta interesting after this first little dip into their filings and presentations, It sounds like they have a strong consortium and a significant technological advantage over the MRI-guided radiation competitors… and I like that the company is already successful and growing, with a stable of other products that means the six-month delay isn’t a company killer like it could be for a smaller firm… but I haven’t gotten comfortable enough in my few hours of poking around to buy shares personally (and, of course, I won’t trade it for at least three days per Stock Gumshoe’s rules).
On the flip side, it is a real and established company… so it also gets evaluated based on boring old metrics like earnings and sales sometimes — their last quarter was a bit disappointing, and they report their next quarter in two weeks, so the story for their established product lines could change as we wait for Elekta Unity to develop. And with about $1.25 billion in sales over the past year, it’s also true that even selling 75 units wouldn’t necessarily bring an overwhelming change to their finances — at $10 million apiece, if that ends up being the price, that would be $750 million in orders, so that’s certainly big but it’s not even enough, by itself, to double revenue over the next two years (and I haven’t seen any commentary about profit margins on these machines, which include a presumably expensive MRI from Philips — Elekta’s overall EBITDA margin is roughly 20%)… I would guess that the story, if it’s going to be a good one, will be about whether the product takes off, becomes a standard of care that lots of hospitals have to own, and they sell hundreds of them, with nice long service contracts, and that means it’s a story that will take several years to play out. The first clues will be in the initial firm order numbers they get after approval (assuming it does get approved), I imagine, but we’ll see.
So I’ll hand it back over to you, dear readers — excited about Elekta and its new Unity device? Think it will generate massive returns for you once it gets approved? Have other favorites in the space, or think I’m wrong to be pessimistic about their little competitor ViewRay? Let us know with a comment below.
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