We’ve seen folks ask about Manny Backus services before — he’s published a few different alert services and newsletters in the past, most of them focused, as far as I can tell, on short-term trading. We haven’t written about any of them before because he hasn’t actually teased anything very specific in terms of a trading strategy or a particular stock … but that ends today.
Because he’s now pitching what looks like a new service (new to me, at least) called Penny Stocks Guru … and in urging you to sign up, he’s teasing a specific little biotech company that he thinks will go up by 997%.
Here’s the intro:
“‘This has never been accomplished before… Now we have done it.’
~ Eduardo Marban, Director, Cedars-Sinai Heart Institute ~
“New York Biotech Stock To Soar 997% As Stem Cell Market Explodes In 2012
“Scientists from Cedars-Sinai Heart Institute and Johns Hopkins University discover medical miracle to beat the number one disease killing Americans… AND… catapult this tiny company’s stock to all-time highs as news spreads
like wildfire. Investors who act fast could bank record returns…”
So it’s easy to see why so many readers have sent in questions about this particular ad — and, frankly, why it also piqued my curiosity. We also will keep in our minds that the broad promise of stem cells has made far more headlines than it has fortunes so far, and that past teaser picks of stem cell companies that will revolutionize the world have not generally been barn-burners in recent years.
Still, some have experienced big temporary gains on the back of headline breakthroughs, and some have continued growing and advancing the science with an eye to eventual products and revenue, so maybe someone will make a bunch of money on stem cells in the decade to come (instead of just making money by selling you the promise of stem cells). Will this little stock that Backus is teasing be the one?
Well, let’s dig into his clues and see what he’s talking about so you can make that call for yourself.
First is the general bit about stem cells and a treatment for heart disease, which is what that “never been accomplished before” quote above is about:
“New research continues to propel the industry forward. Positioning one little-known biotech company for explosive growth over the coming months.
“In late 2011, scientists from Cedars-Sinai Heart Institute and Johns Hopkins University, reported the results of a recent clinical trial. Which could help millions of heart attack patients recover and live a full life.
“Cardiac stem cells were harvested from healthy heart tissue of people who suffered a heart attack. The stem cells were grown in a lab and given back to patients.
“Those who received the treatment showed significant reduction in scar tissue on the heart muscle.
“The muscle tissue regenerated.
“Which has never been seen before in any clinical trials or studies….
“Breakthroughs such as this fuel growth across the stem cell market. Conservative estimates show the market may rise to over $1 billion in 2012.”
Which all leads you to the assumption that he thinks we should buy the company behind this heart treatment breakthrough — but that’s not the case, that particular study was funded with public money and is very early-stage, the patent on this treatment is claimed by Johns Hopkins, which is where Dr. Marban worked before moving cross-country to Cedars-Sinai, and it’s licensed to a tiny company that’s partly owned by Marban and run by his wife but is not publicly traded (the company’s name is Capricor, in case you’re interested in that end of the story).
So no, we’re not being told to invest in this particular breakthrough — rather, this sets up as a more generic investment in stem cells as a trend through a different little company that is publicly traded. Here are some specific clues about the “New York Biotech” that he’s apparently recommending:
“At the forefront of stem cell medicine is a small New York-based biotech.
“Our research indicates this company’s stock is about to take off. By as much as 997%. Allowing investors who get in now to book spectacular gains.
“Let me explain why…
“Right now, this company’s stock pays out 13% in annual dividends. You can profit from both potential appreciation and quarterly dividend checks. Yet the stock is overlooked. Trading at about 22% below its book value.
“In other words, this stock is a bargain.
“Sounds good… but… that’s not even half the story.
“This company engages in the development and manufacture of cellular therapies for oncology, immunology and regenerative medicines. It also is a leader in the collection, processing and storage of adult stem cells.
“Which means, this company’s cellular therapies and stem cell banking services play a crucial role in the industry at large. Leading medical institutions (like Cedars-Sinai and Johns Hopkins) depend upon this company’s research, therapies and stem cell storage facilities to further their own research capabilities.”
13% annual dividends? For a stem cell company? Trading below book value? There must be a story here, though it’s probably an odd one.
Some more clues to make sure we feed the Thinkolator fully?
“This company has eight adult stem cell collection centers across six states. Ongoing studies on adult stem cell applications and manufacturing.
“Plus international interests in a China-based pharmaceuticals manufacturing company.
“The revenues of this company more than doubled from $32 million to $69 million.
“A larger number of conservative investors are now investing in the stem cell market.
“Fueling the inevitable growth in this company’s stock price.
“In August of 2011, this company was…
“Awarded Almost $1.7-Million From The U.S. Department Of Defense”
And we get some chatter about how the Vatican just loves this company — that’s because of that “adult” word in the paragraphs above, the Pontiff and his potentates don’t like embryonic stem cells one bit but they have apparently endorsed the use of adult stem cells (meaning, stem cells derived from adult tissue — not from embryos, which are the “natural” and more well-known source for stem cells — if you don’t know anything about this science, the basic backdrop is that stem cells are cells that can easily become any kind of bodily tissue, which makes them natural candidates for helping to replace damaged or diseased tissue in the body, and early undefined embryos are entirely made up of these kinds of cells — but there has also been substantial progress made in creating stem cells from less-ethically-complicated adult tissue).
So who is it? Well, let’s rev up the Thinkolator on this one — chop up those clues and feed ‘em in, and out the other end comes a shiny little answer: Neostem (NBS)
Which is indeed a tiny little biotech in New York, and they do have interest in a Chinese pharma company (though they’ve agreed to sell it, a deal that they think will close by the end of the year). And, actually, they do also have a heart disease therapy that they want to advance to Phase II trials and which also, like the one from Dr. Marban mentioned above, aims to inject stem cells into the heart to repair damaged tissue.
And yes, they do match perfectly on the clues — they do have an agreement with the Vatican, they have done work under grants from the Defense Department and other agencies (their latest is a relatively small deal to study radiation treatment, for a division of the NIH, but they also got funding from the DOD to research osteoporosis treatment last year).
This is an interesting company, the kind that typically comes to the attention of stock promoters and microcap fans — because they do have cash on the books, they do have a real business that’s easy to pitch to investors even if it’s far from being profitable, and they are, from a quick look at the balance sheet and their deal to sell off Suzhou Erye Pharmaceutical, trading at less than book value. From what I read about the deal to sell off Suzhou Erye they’ll be basically getting rid of Suzhou’s debt ($37 million) and getting $12 million in cash, so the net impact on the balance sheet is substantial for a company with a market cap of only $60 million — they’ll be going from an enterprise value of $80 million to an enterprise value of $40 million or so when the deal goes through. Which won’t show up in conventional measures like Price/earnings or EBITDA metrics, since they don’t and won’t have any earnings, but it does mean they’ll be a bit more concentrated on their core business and will have more cash to use in that business.
Assuming, of course, that they haven’t already spent all that cash before the end of the year. Biotech research and FDA clinical trials are horrifically expensive, and it’s going to be a long, long time before Neostem makes any money. I presume that a lot of the incoming revenue for Neostem probably came from the Chinese subsidiary, too, since that was a real business (albeit a challenged one recently — they manufacture generic drugs and apparently have been hit by cost controls and other regulatory pressure in China).
None of this is new, of course — the company has publicly stated their goals of divesting their Chinese subsidiary and dropping their lower-level stem cell services businesses in order to focus on developing drugs. The capability to develop those drugs came in last year thanks to their acquisitions of PCT (a stem cell manufacturer and cord-blood banker and controller of Athelos, an immunotherapy researcher) and Amorcyte (which brought that heart stem cell therapy through Phase I). So this is clearly a company in transition, with the immediate catalyst now being the Phase II trial for AMR-001 (that heart injection), which is supposed to be enrolling now and generating some data by late next year. These things always take longer than expected, but it does seem to be underway.
And Neostem is not the only one going through with stem cell related therapies related to heart attacks — rebuilding damaged heart tissue is, after all, one of the obvious applications of stem cells and it has been studied for many years. Longtime readers might remember the frantic teasers for Cytori Therapeutics (CYTX), which was not specifically developing their own heart disease cure but was teased as a play on this “single shot” treatment for damaged heart tissue. That stock has bounced around between two dollars and eight dollars a share over the intervening years as promise led to peril and back to promise, so that’s a good chart to look at to remind you of the fashion-driven, news-driven, and surprising moves these kinds of stocks can take even if they do seem to have a legitimate business.
But even beyond that, there are plenty of drugs in clinical trials for stem cell-based repair of heart tissue — and presumably each one has slightly different techniques or technologies that are patented or patentable, but I have no idea specifically what the differences are. There are also a lot of very sketchy-looking companies that are trying to peddle stem cell heart treatments now (the FDA-approved trials from various companies for this treatment started in 2009, but it’s been studied and tested in various forms for far longer, with impressive bone marrow stem-cells-to-heart results from the late 1990s in animals, and folks have been pushing ahead with these treatments overseas with less caution than the FDA), so it’s a confusing maze and there are companies actively selling devices and technologies and treatments that are approved in the EU or in Asia but that aren’t FDA-approved.
The basic idea of AMR-001 is not too different from what has been researched for years, taking bone marrow from the patient and extracting specific stem cells from that marrow, and then injecting that into the heart for delivery to the right part of the muscle. And if you want more than that, you’ll have to researchify it on your own because it makes my brain hurt. Do keep in mind that although the drug is “phase II ready” and they’re apparently enrolling patients for that trial, Phase I was actually completed way back in 2008 … so this hasn’t exactly been moving with lightning speed so far. And if you look at the historical accomplishments claimed by Neostem on their website, almost every year (including this year) there’s an entry for “raised $XX million.”
The stock is right around 46 cents a share as I type this, and has been in a steady decline over the last year … or really, if you take the longer view, it’s been in a steady decline for 12 years. It peaked at around $400 (yes, Four Hundred Dollars a share) in 2000 during the tech boom that took a lot of biotech stocks up with it, and fell to $25 within a year or so as it started what has been a long, slow descent over time into penny stock territory.
If you want to get an idea of what Neostem’s products and plans are, they do have a nice little one-page fact sheet here and a longer presentation here. So go forth, do your due diligence, and let us know what you think — the stock is up a bit in recent weeks because investors are happy with that planned Chinese divestiture, and it may well get a bump from Backus because he’s got access to an awful lot of email addresses in his various services, but I imagine it will be a while before we get any fundamental news — though since this is a biotech stock trying to move forward in clinical trials, the one thing we can be really certain of is the fact that they’ll eventually need a lot more cash or a partnership deal to pay for that research, so that could certainly impact their share price well before we know anything about their Phase II trial. They’re also revving up their investor relations engine, including presentations at a bunch of conferences this Spring and Summer, so the increased attention might well help the stock for at least a little while. The revenue for the foreseeable future will come from the PCT division, which has worked for dozens of cell therapy companies and processed a lot of stem cell treatments — they were even involved early on with Dendreon in processing/manufacturing Provenge as that was going through trials, though I don’t think they are now.
If the stock goes up 997% this year, well, I’ll eat my hat — but that doesn’t mean it can’t go up considerably over the next several years if their results are good and they time their fundraising (or partnership deals) well. The same could likely be said for many other stem cell-focused biotechs, and as I said I have no idea how unique this product might be, but Neostem is, at least, in pretty decent financial shape for the rest of the year if the sale of their Chinese division goes through and that division brings its debt along as expected.
P.S. About that dividend thing? Neostem does not pay a dividend, though I continue to occasionally see notes or older summaries that indicate they do or did pay a dividend, and a pretty big one at that, so that may be where Backus is getting his 13% yield from. Those must reference either their convertible preferred stock, which has now all been redeemed, or some past special dividend that they don’t talk about much — though frankly, the most likely source for the phantom NBS dividend data that I’ve seen in the past at places like Morningstar and Yahoo Finance is probably just a typo or glitch. Given their capital requirements and their focus on drug development, it would be shocking if they paid a dividend in the near future — since the other clues matched precisely I stopped looking for more info on this illusory dividend, but if you know the story on that feel free to shout it out with a comment below.