We’ve got a good teaser to solve today, but first — a quick plea: This will be our final week of “Gumshoe Gives Back” this year — we will be donating at least half of all the membership contributions received through the rest of this week (until the end of the day on Friday, 12/12) to some worthwhile charities — so far this year the Irregulars have enabled us to make meaningful donations of more than a thousand dollars each to Homes for our Troops and our local Food Bank of Western Massachusetts, among others, and we have some other charities and nonprofits we’d like to support as well.
So please, if you’ve been at all interested in being a paid member of the Stock Gumshoe Irregulars, try it out now and help us boost our giving at this crucial time of year. It’s still only $49 a year (or $249 for a onetime fee if you don’t want to renew every year — and yes, upgrades will also go toward our charitable giving), or just $6 for a monthly subscription if you’re afraid of commitment, and it gets you access to everything I write and to any guest columnists we have… and it also gets you that handy little “quick take” box below that would have meant you already knew the gist of this particular article without reading through the clues and my blatheration (if you already have a free membership, just click that “upgrade” link at the top right). If you’re not interested, that’s A-OK too — we continue to love our free members almost as much as our Irregulars.
And now, back to our regularly scheduled programming…
The folks at Stansberry & Associates have shaken things up a bit in the last couple months — with the most visible change being that they laid off Frank Curzio and canceled his two small-cap newsletters, the relatively inexpensive Small Stock Specialist and the pricey, premium Phase 1 Investor service.
The latter, Phase 1, was the service that was most limited in number of subscribers — because they kept the price at $5,000. So it was for that service that they could recommend the truly illiquid penny stocks and the very speculative small cap ideas that would have been blown up if their broad-circulation letters touted them (you can’t suggest that 100,000 people buy a stock if it only trades 10,000 shares a day) — much of the time those ideas were either junior mining stocks or emerging biotech or technology companies. And it looks like they’ve got a replacement for Phase 1 set for the “top of the sales pyramid” as the ultimate upgrade service that they can sell to their customers — Stansberry Venture, just launched recently with Dave Lashmet at the helm.
Porter Stansberry gave Lashmet credit for recommending Cubist (CBST) and Durata (DRTX) for his Stansberry Investment Advisory service, and those both have been fantastic stocks this year (though I’m told they “stopped out” of Durata just before their premium buyout — one of the problems with using stop losses on illiquid stocks)…. and biotech has been the home of big winners all year, so it probably won’t surprise anyone to hear that Lashmet’s first teased idea — “Stansberry Venture #1” — is a biotech stock.
The hints are a bit thin, but it’s in the area of cancer immunotherapy where there has certainly been a lot of interest in recent years… so perhaps it will be worth sniffing out? I’m unlikely to be able to tell you much about the company or the science behind it… but I’ll bet the Thinkolator can at least name it for you.
This new service, like Phase 1, is priced at $5,000 — which seems to be pretty much the most any individual investor-focused newsletter can convince a meaningful cohort of subscribers to pay, though they’re starting out with the $5,000 being a “lifetime” payment for charter subscribers… with the promise that this will become the annual price if you wait too long to sign up.
Here’s how Lashmet’s ad gets us revved up:
“This week, we’re putting together a group to take a stake in an early-stage company on the verge of a massive discovery….
“… we’re forming a group to take an interest in a tiny company that could be on the verge of a multi-billion dollar windfall.
“We’ve honed in on an elite team of 5 scientists and a new technology they’ve developed, which is attracting hundreds of millions of dollars in seed capital from some of the biggest financial players in the market. (I can’t say who – but I guarantee you’d recognize their names.)
“What we have here is a rare opportunity to invest in their invention – before it hits the market.
“I’ve put together this presentation to tell you about the risks, the potential gains – which could be astronomical – and what you need to know if you choose to accept this invitation.”
So what else do we learn about this stock?
“The tiny firm we’re targeting in our first Stansberry Venture issue is completely off the radar of most investors. You won’t find its stock trading on the NYSE.
“For these reasons and a few others, it’s as close to a true ‘venture capital’ investment as you can make as an ordinary investor.”
That’s a bit of an exaggeration, I expect — it may be similar to early-stage “venture” companies, but there are a dozen large stock exchanges around the world beyond the NYSE.
And perhaps this one is listed overseas, which is what I glean from this hint:
“You have to do it in a way that might require a bit more work than simply calling your ordinary broker.”
And this is really the meat of the pitch, after Lashment talks for a bit about how much research he and Porter have put into companies that are working on cancer cures:
“And this year, we reached a stunning conclusion… and published some of our research in Porter’s monthly letter, Stansberry’s Investment Advisory.Are you getting our free Daily Update
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“But there’s something else we discovered… that we’ve never published until now.
“And we believe it will change the way you think about cancer and potentially, help you make a small fortune in the months ahead.
“You see, working alongside one of the world’s most elite companies, that’s revolutionizing cancer care, we found a tiny firm founded by a handful of elite scientists, more than a dozen years ago…
“This firm has attracted very little attention from investors.
“Despite striking a deal with the larger firm… a deal worth potentially more than double its current market cap… that all but guarantees them hundreds of millions of dollars in revenue. If our analysis is correct… when this tiny company’s new cancer drug hits the market, early investors will profit from a royalty revenue stream worth hundreds of millions – even billions of dollars….
“… we’ve identified a giant company circling this tiny firm – that’s likely to swoop in and buy it out at a hugely inflated price.”
And as should be required for any commentary about early stage biotechs, it is, of course, risky and dependent on the outcome of uncertain clinical trials:
“The risk is not small. If their new drug doesn’t work, the company is a bust. In other words, you’re either going to make 5x… perhaps even 10x your money – or lose your entire stake.”
What else do we learn about this secret “Stansberry Venture #1?” Well, they like the clinical research team and the patent portfolio:
“The first thing we did was, confirm all their drug trials were funded, and all their doctors were best in class….
“An army of lawyers couldn’t break this tiny company’s patents, given a decade of effort. Their ‘monopoly’ is remarkably sound….”
And we do learn a little bit about the actual science of the drug, here’s a little taste of that:
“Cancer is a ‘master of disguise.’ Your body has the power to wipe it out… But the problem is – most of the time, it’s invisible….
“It shines a bright spotlight on cancer, so your body can detect it… then kill it off….
“Right now, we are standing at the threshold of one of the greatest quantum leaps in science – where a disease that kills nearly 600,000 Americans per year… could suddenly be rendered merely a chronic condition… instead of a death sentence.”
That’s the long way of saying this is an immunotherapy drug — and it does what many of these kinds of drugs do, it essentially finds a way to “flag” cancer cells so that your immune system can recognize them as unwanted and clobber them. They show some body scans demonstrating cancer remission, and share a couple stories of cancer immunotherapy success stories — though those are not actually stories connected to this “Stansberry Venture #1” stock, they’re clinical trial successes that were pretty well publicized in the last couple years.
A few more details to help us narrow it down?
“Right now, this tiny company’s immunotherapy drug is in human trials at one of the top cancer clinics in the
world, Memorial Sloan Kettering.
“Even better, it’s the only drug of its kind. No one else is working on anything like it…. this tiny company has produced something extremely valuable. A crucial, missing piece of the immunotherapy puzzle.
“… one big company has stepped up to foot the bill.
“According to one industry insider, it’s the largest funding deal of its kind….
“…the big drug company I’ve been telling you about has not only committed a 9-figure sum to accelerate this drug’s development… it has licensed it worldwide.
“And in doing so, it’s quietly agreed to pay this tiny firm much, much more:
“A massive, double-digit royalty on net sales of this new drug, worldwide.”
So that’s not necessarily enough to narrow it down to exactly one biotech stock… let’s look at it from the other angle, which is the big pharma stock that they think will take this company over?
“… once the Big Drug Company realizes it’s on the hook for BILLIONS of dollars in royalty payments, you can expect it to make shareholders of this tiny company a very generous offer….
“… in the past four years, it has bought out its partners for anywhere from hundreds of millions to billions of dollars….
“One tiny drug maker they acquired shot 84% higher… overnight.”
They provide a couple charts of the stocks that this big pharma has bought out in the last few years, including that 84% gainer in 2010 and one that popped 163% in 2012. So that helps a bit, and the Mighty, Mighty Thinkolator can confirm that yes, we are talking about the big pharma stock that has most focused on immuno-oncology: Bristol-Myers Squib (BMY). We’ve covered that one fairly recently, it was pitched by Dr. David Eifrig (also with Stansberry) a few months ago as the “Apple of immunotherapy.”
But who’s the tiny “almost completely unknown” partner being pitched by Dave Lashmet? Only a couple more clues emerge:
“Right now, we typically see about 500,000 shares trading hands each day. We expect this number to soar in the coming weeks….
“I’ve watched it move above and below my recommended buy-up-to price several times since the end of November….
“… we’ll only buy companies that are already listed in the public equity markets….”
That’s about all we gleaned by way of clues (you can check out the presentation here if you’d like to do your own hunting)… so we feed all that into the gaping maw of the Mighty, Mighty Thinkolator and we learn that “Stansberry Venture #1” is almost certainly… Innate Pharma (IPH in Paris, IPHYF on the pink sheets).
Why is it a match? Well, it hits the clues perfectly…
Innate does indeed trade about a half million shares a day in Paris. It sometimes doesn’t trade at all on the US pink sheets, which means that pricing might be way off — if you do every wish to trade these kinds of stocks and you can’t trade overseas, be careful to use the foreign listing for pricing (IPH.PA is the Yahoo Finance symbol) then do your euros-dollars currency exchange and use a limit order for a reasonable price near the current Paris price, and do it at a time when the Paris exchange is open for trading (I think the current closing time for Euronext trading is 11:30am EST). That gives you the best chance of a fill at a price reasonably close to the fair price on their home exchange. The stock closed today at 8.38 euros, which should be roughly US$10.38.
And it does indeed have its lead drug partnered out to Bristol-Myers Squib, for meaningful potential milestone payments (up to several hundred million dollars) and a tiered double-digit royalty — and that is a big potential royalty payment, percentages are often much smaller than that. And the drug, which is called lirilumab, is indeed in clinical trials at Memorial Sloan Kettering — you can see the details on their pipeline page here.
Innate is not entirely new to the biotech enthusiasts in Gumshoedom — at least one reader was banging the table for it early in the year when the stock was making a bit of a run, and Dr. KSS (our biotech columnist, he writes mostly for the Irregulars) was intrigued back in February, though he said it was one of their preclinical programs that caught his eye… but it hasn’t come up in the last six months or so.
The company went public back in 2006, and has benefited from research funding from the French government and doesn’t trade much in the US, so it doesn’t get a lot of attention in the US investing press. But they were started by a small team of scientists (four scientists and two managers, so I’m not sure where the “5 scientists” bit comes from … though they do have a five-person scientific committee).
And yes, they have raised millions in “seed capital” from US institutional investors — they’ve been successful in raising about $80 million over the last couple years, mostly from the US (Wellington, Fidelity and OrbiMed own substantial stakes, as does Novo Nordisk) and they say they have a “cash horizon” of the end of 2017, which I take to mean that they can fund their other preclinical and clinical research through then without raising more money (their lead program, lirilumab, is being funded by BMY, and presumably good news from those clinical trials over the next year or two would make it far easier for them to raise money well before then… assuming that they don’t get bought out).
This is about when I start sounding foolish, because I don’t understand much about the science of cancer immunotherapy, so I’ll leave you at that — we’ve got at least a 95% certainty that Dave Lashmet is touting Innate Pharma, which is a $500 million French biotech company focused on immunotherapies for cancer and other deiseases, with a promising early-stage drug licensed to BMY and currently in clinical trials (there will likely be news in 2015 on many of those trials, though none of them are scheduled to complete over the next few months). Financially, lirilumab is the key over the next few years — if BMY’s trials of that drug go very well, there is indeed a chance that they might wish to buy the company out rather than pay royalties to Innate — but it is still mostly in Phase 1 trials (there is one randomized Phase 2 trial going on now, too), so the royalties would be at least several years away and would, of course, be dependent on the drug getting approved and becoming a commercial success.
Their other drugs could create some news as well, and those are not (yet) partnered or licensed so the research and clinical trials will presumably continue to be funded primarily by Innate Pharma — the main reason they need that $80 million is to fund the clinical trials of those next few drugs that are following lirilumab in their pipeline. The second most advanced compound in their pipeline is IPH2201, which they took full control of from Novo Nordisk this year and which is either just starting or just about to start Phase II trials, and IPH4102, which should go into Phase 1 next year. Innate has a pretty good investor presentation on their website here if you’d like more details and a starting point for your research.
And with that, you’re on your own — have a better match, since the Thinkolator is a hair short of being 100% certain on this one? Have an opinion or some experience with Innate Pharma that you’d like to share? Let us know with a comment below.