“At $4, this is a dream stock at a bargain price …”

By Travis Johnson, Stock Gumshoe, December 15, 2008

Well, no matter how much I try to discount the writings of Tim Fields and the folks at Untapped Wealth (that’s a long story, but it starts with the fact that they “rented” their name and reputation, such as it was, for a stock-pumping ad campaign for Aussie Soles, a firm that has since fallen from a couple dollars to one cent), they keep coming back with more florid ad campaigns — and readers are still intrigued, so the Gumshoe will keep writing about them. I live to serve, after all.

This one appears to be a genuine ad for the Untapped Wealth newsletter, not a sneaky pumping scheme for a stock … and although the Untapped Wealth track record might not be spectacular, at least in the stocks of theirs that we’ve looked at, that doesn’t mean they can’t come up with a good idea every now and again.

So … is this one of those good ideas?

Fields is telling us that the next big wave will be personalized medicine, and using genetic testing to customize treatments. We’ve heard that before from several newsletter editors, and it has been an investment theme for years.

Here’s how they prime the pump on your salivary glands:

“At $4, this is a dream stock at a bargain price that could be the most profitable investment of your entire lifetime. Even the federal government says the Genetic Diagnostics industry ‘PROMISES TO REVOLUTIONIZE MEDICINE.’

“ACTION TO TAKE RIGHT NOW: Buy shares of our #1 Diagnostics Stock in the $4 range and watch your $5,000 investment rise to $16,250 or more.”

Nice, eh? I regret to inform you that these shares have since gone up a bit, perhaps in part due to the attention from Fields, but I think we can settle for a 200% gain instead of a 220% gain. We’re generous that way. Then again, odds seem fairly solid that the attention will wane, and the stock will probably again see the $4 range.

But we’re getting ahead of ourselves — you’d probably like to know the name of this stock, no? No? Come on, your friendly neighborhood Gumshoe is going to all this effort, the least you can do is keep reading. Just a few more paragraphs, I promise.

Here’s how Tim describes the company’s business:

“With the gene-based Multiplex test (the detection of multiple targets simultaneously from a single sample)our phantom diagnostics stock has developed, this figure could be cut down to almost nothing. The idea behind this miracle is simple: by knowing what your genetic makeup is, your doctor will be better able to match you up with the most effective drug before you take it. No guessing, no taking chances, practically ZERO side effects.

“This is a m ajor breakthrough. Science has proven that your genetic makeup affects your response to drugs. The British Medical Journal confirms this by reporting, ‘85% of a patient’s response to drugs is due to genetics…’ By ‘reading’ your genes, the treatments you get can works much, much better.”

And there’s some more — a few clues about the size of the company’s patent portfolio, and some more exciting projections about the massive size of the potential market:

“Their patent portfolio is comprised, on a worldwide basis, of 80 issued patents and 150 pending patent applications, which, they either own directly or are the exclusive licensee. The potential with these tests? Huge. The market is surging.

“The Cancer Diagnostic Market Is Expected To Hit $7.4 Billion In 2009”

And a big part of the sales job that Untapped Wealth is doing on this company is due to the past success of their management — probably because the company isn’t actually making any money at the moment and won’t be doing so anytime soon (they’re a development stage biotech firm, so it’s not like that is a surprise).

Because the CEO previously ran a testing company that was bought out by a large firm, Fields tells us that this is likely the strategy for this new company, too — a buyout from a bigger firm that can leverage some successful tests to improve their drugs or just sell them better using their larger sales force.

So who is the management? That’s where we get a few specific clues about the CEO:

“In his previous venture, he served as president and CEO for a developer, manufacturer and marketer of diagnostic products that pioneered the point-of-care blood analysis market.

“This pioneer led them from its early stage to commercialization and then from the company’s IPO in 1992 to its acquisition in 2003 for 5.18 times revenues or $392 million.

But it doesn’t stop there … From 1973 through 1989 he held executive positions with a $7 billion manufacturer and distributor of healthcare products and a $3.5 billion diversified manufacturer and distributor of healthcare products.”

So now … drum roll, please … we’ll feed all that info into the mighty, mighty Thinkolator and find that the stock being teased here is …

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Nanosphere (NSPH)

This is a tiny little firm, they are indeed in the personalized genetic medicine business. Their CEO is William Moffitt, who previously ran i-Stat, a blood testing company, and led it to its $392 million buyout by Abbott Labs in late 2003.

Is it a great buy? Well, I always have trouble assessing high-science, low-sales, no-profit companies like this, but there are certainly plenty of fans. Forbes columnist Josh Wolfe thought a $17 target was too conservative for them a year ago, shortly after their IPO, and though the firm is tiny there are four analysts covering the stock — all rate it as either Buy or Outperform, though the average price target has now come down to $10.

Nanosphere’s platform is called the Verigene system, a testing device and cartridge that somehow does on-the-spot genetic profiling to find specific markers. Their big product so far is a gene test for Warfarin sensitivity, and that’s what drove enthusiasm about the stock last year (the test was approved by the FDA in September of 2007).

As I hope I’ve made clear, I’m not an expert on this business — I can tell you that there are multiple competitors in genetic testing, but there are also so many targets to go after that it might be that we’ll see dozens of successful firms in the future. At this point, there’s no way for them to become profitable without developing many more approved tests that use their Verigene system and spur higher usage for the equipment, and thus higher cartridge sales and rental fees. They’re in the process of trying to develop more tests, and get FDA approvals for those tests that they’ve already developed.

In the third quarter, results of which they released just a couple weeks ago, they spent at least $8 million more than they brought in in sales, but they don’t have much debt and they still have about $80 million in cash, so though I expect they’ll need partnership deals or another stock offering or some new debt sometime next year, it looks at first glance like they’ve probably got enough cash to get them well down the road — hopefully, for their sake, to a stronger market before they need more funding.

Sales are growing fast, but remain teensy compared to R&D expenses. It’s an interesting story, and may be a great business or may be, as Fields suggests, bought out at some point, probably by one of the other big genetic testing or laboratory companies, but if you can predict the near future on this one you’re far wiser than I am (yes, I know, not such a high hurdle).

I hope you’re all enjoying a lovely week so far … if you’ve got an opinion about Nanosphere, or Tim Fields, or any of the other genetic testing or personalized medicine stocks we hear about from time to time, by all means, chime in with a comment below.



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December 15, 2008 1:47 pm

does anybody have a line on the chinese company that is the most direct investment on the pebble reactor? also the south african company that is apparently working on it too? i know hyperion is working on it here but they are private.

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December 15, 2008 3:54 pm

I have owned for about 2 years now DeCode genetics(DCGN) which seems to be the same business as this. I got it from an Oxford teaser .I own a hundred shares for 300 bucks. And I will wait. One of my LONG shots supposed to make me a few thousand some day. We`ll see. Thanks again for any opines,JEFF

December 16, 2008 5:43 pm

I can’t read this. any way to get rid of the background picture?

December 16, 2008 8:14 pm

I second and third Travelin comment “I can’t read this. any way to get rid of the background picture?”

Very confusing and takes away from the real text.

March 6, 2009 9:12 pm

I was a director of research for many years in this field for a major national player. I suggest it will be along cold day you-know-where before we see much revenue from major connects between gene expression and drug choices. For example, there is one company that connects your genetic makeup with the proper chemo that most likely will maximally work on your cancer — which you would think might be a thriving business. There is no insurance or other reimbursement for this test [which by the way actually works] so revenue is just a dribble. I have also published regarding epigentics which is the phenomenon that your gene expression can change during your life time [the genes can get turned off or on]. Gene testing does not pick up this potentially altered gene state so I have noted that testing does not definitively tell you what your actual gene situation may be. Needless to say I am not an agressive buyer of this stock.

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March 7, 2009 10:54 am