This article originally appeared on January 28, 2015, when the ad was newly released — the same ad, without any major revisions that we noticed, is being distributed widely again and generating questions, so we make this piece available again. The stock teased is at roughly the same price now as it was on January 28, though it has had big moves both up and down in the interim. What follows has not been edited, updated or revised since 1/28/15:
Lots and lots of folks have been asking about this one — all about a “hidden poison” and a company with a “wonder powder” that the ad says could “starve cancer at its source… save countless lives…” and, of course make us all rich.
So what is it? Let’s dig into the clues in the ad and find out. The pitch is for True Alpha, which I guess is a new service from the Wall Street Daily folks (I don’t think we’ve ever covered this letter before), and it starts out with the kind of hype we’ve grown accustomed to from Robert Williams:
“… there wasn’t a dry eye in the house when a famous TV anchorman, ‘Barry,’ tearfully revealed his story as a cancer survivor.
Barry was diagnosed with very aggressive cancer of the neck and spine at the age of 50.
“Now he regards himself as the ‘luckiest guy on Earth.’
“These days, the proud father of young twins is sending a stark warning to the world…
“A toxin found in virtually every diet, including his own, feeds cancer cells! ‘There’s an immediate change in your body when you cut the toxin,’ says Barry. ‘I’m talking about deep down benefits at a cellular level.'”
And the panic level rises as they talk about how many of us are contaminated …
“Contamination Levels Have TRIPLED in the Last 50 years…
“Imagine spilling syrup on your keyboard.
“Well, now you have a visual of what occurs inside a human cell when this toxic additive takes full effect.
“The toxin gums up our body by changing its metabolism.
“It raises blood pressure.
“It critically alters the signaling of hormones.
“It catastrophically damages the pancreas and liver, too.
“But the worst part?
“Until now… it’s been virtually IMPOSSIBLE to remove this toxin from our diet.
“So here we are… for the first time in human history, non-communicable diseases pose a greater health threat than infectious diseases.”
OH MY GOD WHAT IS IT? DO I HAVE IT? IS THERE A VACCINE!?!?!
Oh, wait. He’s just talking about… sugar.
So this is just a spiel for a sugar substitute, because that’s going to reverse the obesity epidemic?
Um, OK. Because gosh, aspartame and saccharin and sucralose and acesulfame potassium have come so far in helping us get healthier since the 1970s.
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We’ll leave a big pile of skepticism by the door here as we continue along our journey through this funhouse — but don’t forget to pick it up on your way out.
Assuming that you’re ready to believe that the problem has been that our sugar substitutes aren’t good enough, and that the $1 trillion burden that obesity places on the healthcare system will be fixed by a lower-calorie sweetener, which will also fix Medicare’s finances…. well, let’s see what wonder company is going to do this, shall we? Here’s more from the ad:
“.. healthcare’s savior is finally here…
“Patent #20110X858867 could mark the end of the world’s most dreaded diseases… including the big ones like cancer, heart disease and diabetes.
“But are you prepared for the downstream financial effects? They’re poised to rewrite stock market history. In fact, they could put between $79,840 and $141,410 into your trading account, beginning with your first 100% gain in the next few days.”
Gosh, no, I’m not ready to get filthy rich and “rewrite stock market history.” We should just stop now, and I’ll take a few days to get my head around that, then I’ll be ready to go.
No? OK, on we move, then:
“Introducing the Most Valuable Patent in History…
“It’s ready to replace the patent on Lipitor as the most valuable in history.
“Lipitor generated $108 billion in revenue over 20 years, and helped drive Pfizer from a penny stock to one of the most powerful companies in the S&P 500.”
So… now we’re comparing some kind of sweetener patent to the most successful patented drug in history? Apparently, that’s because “RUBY-A” — the name Robert Williams is giving this miracle product — “attackes the root cause of heart disease” while Lipitor only manages cholesterol levels.
Remember, we left our skepticism at the door. So we’re swallowing that, for the moment. Or at least not saying anything too snarky.
“These miracle crystals attack the root cause of virtually every non-communicable disease on the planet….
“With such promise comes what could be the largest valuation ever bestowed upon a single patent…
“I estimate the patent’s low end to be worth $70 billion.
“But its upside runs as high as $134 billion….
“The best part for investors?
“One company trading for less than $10/share owns the exclusive rights to the patent.”
Aaaand, there it is. It always comes down to just “one tiny company” that has the energy source/patent/gold mine/new technology/better idea that will revolutionize the world.
“The crystals hide deep inside the leaves of a plant native to South America.
“Indigenous tribes have been enjoying the medicinal properties of the leaves for more than 1,500 years.
“But science has NEVER been able to extract only the miracle crystals from the leaf.
“That is, until now.
“I’m happy to report that a certain company just cracked the plant’s genetic code, and a patent now safeguards the secret.
“The active compound found inside the leaf, called ‘RUBY-A,’ attacks the root cause of virtually every non-communicable disease on Earth.”
And a wee bit more:
“Exactly how powerful are these RUBY-A crystals?
“Enough that the FDA gave its blessing to begin adding the crystals to the food supply, immediately.
“RUBY-A is a natural, organic replacement for the toxic food additive found in every North American diet….
“… when I mixed the powdery RUBY-A into a glass of water and drank it, I accomplished something extraordinary…
“I preempted the onset of cancer, obesity, diabetes, heart disease, hypertension, high cholesterol, Alzheimer’s disease, kidney disease, arthritis and depression.”
And he compares this approval by the FDA to the approval process that drugs have to go through, the often decade-long (or longer) process of clinical trials to prove safety and efficacy before a drug can be sold to patients in the United States…. and he says that the FDA granted RUBY-A a “Special Exemption.”
Which is hooey. And has nothing to do with the “5,000 to one” odds of a new compound becoming an approved drug (his number)…. since, of course, this isn’t a drug. Likewise, you can throw out all the comparisons in the ad to the overnight millions (or billions) generated by small biotechs who get good news from the FDA.
So what is this “Miracle Powder” that they’re calling “RUBY-A?” It is, as you may have guessed by now, the newish “natural” sweetener derived from the stevia leaf. The biggest brand name in the stevia sweetener business is Truvia, which is owned by the (private) agricultural conglomerate Cargill, so they’re definitely not touting Truvia — but which of the many stevia-related firms is this a reference to?
And yes, if you’ve been keeping track you’ll recall that before marijuana was the “hot” agri-stock sector, stevia held that title… which means that dozens of stevia-related companies (or companies who wanted you to think they were stevia-related) were promoted and pumped and dumped and made and lost millions for investors over the last several years. So do remember to pick up your skepticism on your way out… but first, let’s figure out which stevia company Williams is touting.
Some more hints:
“How fast can this $8 stock crack the $100 milestone?
“Well, according to 60 Minutes, every year, Americans consume 130 pounds of the toxic food additive I’ve been telling you about. Such excess equates to a third of a pound every day….
“The toxin is so prevalent in our food supply that it requires a $70 BILLION industrial machine just to sustain our appetites….
“And now, with the FDA’s blessing and an airtight patent, the fully realized market value of RUBY-A is $70 billion.
“Once the patent holder conquers a meager 1.6% of the market, which is virtually assured in the coming weeks, shares could jump as high as $113.
“Sales are already growing at a furious pace, too, which means you could be $141,410 richer before the first day of spring.”
Hopefully you see the logical leaps in those paragraphs, but it gives us some further hintage for the Thinkolator. Here’s some more:
“After more than 200 government-sponsored efficacy and safety studies, each yielding definitive results, RUBY-A was recently market tested in certain health-crisis “hot spots” across the Deep South.
“The test now ranks among the greatest successes in U.S. history.
“USA Today reports it was a smash hit, saying… ‘We haven’t seen a product hitting on all cycles like this for years.’…
“In fact, news that certain retailers were carrying a first-generation product containing RUBY-A triggered a frenzy.
“One Florida location was selling 50 cases per week. And several store managers said customers were calling the store, asking managers to put some aside for them.”
Those references are to Coca Cola Life, which is Coke’s new reduced calorie version of their eponymous soft drink, sweetened with both sugar (cane sugar, not corn syrup — a novelty in North America) and stevia extract. It’s not a zero-calorie or one-calorie product like Diet Coke or Coke Zero (AKA, “Diet Coke for Dudes”), but it’s essentially an attempt to create a new “middle market” for sodas that do not have the perceived “diet” or perceived chemical risks of the zero-calorie stuff but do have many fewer calories than the original Coca Cola. And other folks, like Pepsi, are experimenting with products that are similar.
And yes, Coca Cola Life uses stevia extract produced by Cargill, with whom they’ve been in partnership for many, many years in trying to develop new sweeteners. Close to a decade ago, Coke and Cargill were talking up “rebiana”, which was then the common term for stevia extract, as their next breakthrough — though back then, there were also more health and regulatory concerns about stevia, at least in the U.S.
Of course, Truvia has been available as a sweetener for a long time — this purified stevia extract falls in the “generally recognized as safe” category at the FDA and has for more than six years (it’s not just Cargill’s Truvia, though they’re the biggest “brand” — at least a handful of other companies selling Rebaudioside A get the same “GRAS” designation).
There’s an interesting article about Cargill’s efforts to formulate different stevia extracts here, if you’re curious — and yes, the reason Williams is calling this “RUBY-A” is that the particular derivative from stevia that they’re focusing on now is that Rebaudioside A, often called Reb-A.
And we get one more clue about this patent-owning company that apparently has some kind of patent that relates to stevia extract as a sweetener:
“A powerful, multi-billion-dollar agribusiness is quietly amassing shares, led by a man named ‘Entrepreneur of the Year’ and ‘Best CEO of the Year’ by Ernst & Young. His company owns 18% of the patent holder’s shares. He could easily be the world’s latest billionaire when the first financial report hits.”
So… that entrepreneur and CEO is Sunny Verghese, who founded and runs the Olam agricultural conglomerate (OLMIY on the pink sheets, it is listed and headquartered in Singapore) — Olam is a $3 billion company (well, they have a lot of debt, too, so enterprise value is about $9 billion), and they own roughly 20% of the company Robert Williams is teasing here, PureCircle (PURE in London, PCRTF on the pink sheets).
Olam first bought into PureCircle back in 2008 when stevia was just making inroads to getting more regulatory acceptance in the U.S. and elsewhere, you can see the presentation here from that initial investment if you’re curious. And PURE has been good news for Olam of late, with the writeup of value from gains in the share price generating more than half of Olam’s earnings last quarter.
And PureCircle had a good year in 2014, their fiscal year ended back in June and they reported solid increases in revenue (close to 50%) and were profitable, with earnings of about $2.3 million on $101 million in revenue. You can see their release here, but they are optimistic about their latest formulations and about the increasing acceptance of stevia as a sweetener in all kinds of consumer products — and yes, they have even developed a variety of stevia extract Reb-M in partnership with Coca Cola, though that’s not what’s in Coca Cola Life.
PureCircle also has a bunch of patents in the stevia space — for different varieties that are higher yield, and for different manufacturing, processing or refining techniques or technologies. Cargill does, too, and so presumably do others. I am not aware of any “killer app” patent as it relates to stevia that would have PureCircle “owning” the stevia sweetener business.
The company has a market cap of about $1.2 billion (800 million GBP), so it’s not teensy, and it is established and has a real business unlike most of the stevia companies that were promoted a few years ago. I don’t know if it’s worth $1.2 billion, that will depend a lot on how fast the stevia market grows and whether they can build a good market share — the company says it is set up for much higher volume, in terms of their processing and refining and distribution networks, so presumably they will see some substantial leverage to earnings from much higher revenues… but I have no way of guessing what those revenues will be, or how high they will go.
Right now, valuation obviously looks a bit stretched — if they earned $2.3 million last year, and have a market cap of $1.2 billion, that gives them a trailing PE of about 500. It is hard for me to see their leverage being strong enough to turn that into a dramatically better number over the next couple years unless they have some asset that lets them increase their margins much more than just “higher volumes means better utilization” — I would think they’d need to have a partner providing capital, or, preferably, some sort of royalty arrangement if their patents are in fact unique or valuable. You can do a lot of patenting for several reasons (I’m not a patent law expert, this is just me spitballing a little bit) — it seems to me that one reason is that you have the one unique way to produce something effectively and can create a fortune from that, but more common these days is the stockpiling of patents in a particular growth area to encourage a future detente or settlement among competitors… so, if Cargill’s lawyers come calling, PureCircle could counter with “we’ve got 100 patents, too” (no, I haven’t counted them).
For the last six months, ending December, PureCircle’s revenue growth continued according to their “trading update” (a press release with just some basic numbers, the real results come out in mid-March) — though they say their sales are seasonally weighted to the second half of the year — and it grew at about the same rate as it did last year, with sales increasing 24% and an expected profit increase of 50%, and they say this is largely because of increasing demand from their clients, including both Coke and Pepsi. They sold some shares to help fund their expansion and pay down some debt it appears, but my impression of the first half of the year was that it fit nicely in a straight line from last year’s progress.
As a financial exercise, you can try to model that growth — but it really requires some more breakout numbers on the revenue side — hopefully something far more substantial than 24% sales growth. I just looked at EBITDA, since I didn’t want to deal with taxes or guess at their financing costs in a few years, but if they grow EBITDA at 50% a year it will be about $175 million in five years. So if you want something that sounds more reasonable, and you can stomach betting on that kind of growth, then you can say that PureCircle is trading for 7X 2019 estimated EBITDA. Doesn’t that sound better? It’s a growth stock, I have no idea whether stevia ends up being an industrial behemoth of a sweetener or whether PureCircle ends up holding on to a big chunk of the market as the market grows or how profitable that ends up being (Cargill, if you’re curious, had about $135 billion in revenue in 2014 and a profit margin of about 1.3%… Truvia is a tiny portion of that company, but they’re obviously a formidable competitor).
So no, I can’t tell you whether “Patent #20110X858867” that they claim is of any particular value, and I didn’t try to figure out which of PureCircle’s patents they’re talking about (the patent number is made up or somehow obscured, as you’ve already figured out… or, at the very least, isn’t a US patent with that number). I can tell you that saying this particular patent will win Pure Circle a certain percentage of the global sweetener market is wildly speculative, but that they are a real company with a real supply chain (as far as I can tell, I haven’t visited their farming partners or their refining plants or anything), and they really do sell stevia extract to some relatively high-volume producers if they’re able to generate $100 million in revenue in a year.
So they’re not a “hope and a prayer” company like most of the speculative microcaps trying to develop their own stevia brands, or to set up networks of farmers to produce the leaf — but whether they’re worth $1.2 billion or not, I dunno. And if you’re doing the math, $1.2 billion is already 1.7% of the $70 billion that Willams cites as the size of the “Industrial Machine” that sustains our appetite for sugar. I don’t know if he was referring to the soft drink industry, but $70 billion is commonly a number thrown around as “Americans consume $70 billion worth of soda a year,” and soft drinks are absolutely the core business that stevia is targeting… so by that measure, I’m sure PureCircle’s sales to Coke and Pepsi are far less than 100% of their sales, and the US is less than half of their sales to those companies, but even if you use PureCircle’s full-year sales figure of about $100 million that would be about a tenth of a percent of that $70 billion. Not that this means anything in particular, I just like to try to close the circle with the numbers they throw out in the ads.
I’m not rushing out to buy shares, but it’s the first stevia-related stock I’ve looked at that I didn’t dismiss as completely ridiculous after ten seconds of looking at their financials… so that’s something. And with that, I’ll turn it over to you — interested in a sip of PureCircle? Anything enticing or frightening you see in this one? Let us know with a comment below.
P.S. The “Barry” in the intro, who got the story going as a cancer survivor and credits, at least in part, “cutting the toxin” is Barry du Bois, who has some kind of home improvement show, beat cancer, and advocates “quitting sugar.” Dunno if he used stevia as a sugar substitute (most stevia formulations still use some sugar, since it has some unappealing aftertastes), but certainly stevia didn’t cure his cancer either way.