Some of you know that for much of my career, I worked in and around the nonprofit research side of medical regulatory policy issues. It’s a thankless endeavor because drug regulation only sounds like such a good idea to the uninformed. Who could be against the FDA’s stated mission of protecting us from dangerous drugs, after all? Anybody who questions the FDA is considered by many to be a dupe of big business.

Nothing could be further from the truth, as I will explain.

The problem is this: Regulators impose costs that are extremely difficult to measure. We hear about birth defects caused by thalidomide when pregnant women ignored warning labels and used the anti-nausea drug to self-treat morning sickness. We don’t hear about the people who died of malnutrition because thalidomide, the only drug that let them eat normally, was yanked off the market.

We hear about side effects caused by approved drugs. We almost never hear about the suffering and death caused by not approving drugs. The pro-government mainstream media, of course, inevitably fail to present regulatory issues fairly.

In addition, economists have long pointed out that regulatory agencies tend to be “captured” by those they regulate. Over time, due to various factors, regulators tend to protect the established interests of the industries they regulate. This was clearly the case with the home mortgage industry, as I’ve explained before.

In the case of drugs, the same dynamic exists. The barriers that must be vaulted by new drug makers are enormous. These barriers are both time-consuming and expensive, which is often the same thing. The best way to understand FDA rules, in my opinion, is to realize that the imposed costs are just high enough to keep Big Pharma safe from most upstart innovators.

FDA Approval Process: The Regulatory Rabbit Hole

While FDA-imposed costs and delays are enormous, they also present opportunities for the clever. Because artificial barriers can be bypassed politically, there is great profit in doing so. The higher the barrier, the greater the profit for those who can find a way through.

To judge the size of those costs (and profits), let’s take just one estimate published in the journal Health Affairs. A team of economists from Duke University focused only on the costs of delays imposed on companies with potential blockbuster drugs. They calculated that a priority ranking system, a shortcut through the regulatory wonderland, would reduce the approval process from the current 18 to about six months. Moreover, they estimated that the value of such a shortcut would be $300 million.

This is where things really get interesting. This hypothetical shortcut, a regulatory rabbit hole, actually exists. It was created specifically because the high cost of drug approval, as well as development, keeps many important drugs off the market.

If the cost of developing and approving a drug is greater than its expected profit, the drug is unlikely to be produced. This is often the case when a relatively small number of people have a disease. Alternatively, many people may have the disease, but the victims lack the resources for even basic necessities. These are known as orphan diseases. Drugs that treat them are orphan drugs.

Duke University economists proposed, in the 2006 article I linked above, “priority-review vouchers.” They are, explicitly, a way to exploit the FDA barriers. In return for developing a cure for a tropical orphan drug, they proposed a kind of “Get out of FDA Jail Free” card. Anyone holding such a voucher could take their proposed drug to the head of the drug approval line.

Today, it is the law. Specifically, it is SEC. 524. [21 USC §360n] Priority Review to Encourage Treatments for Tropical Diseases. It was introduced in 2007 and made part of the Federal Food, Drug and Cosmetic Act (FD&C Act) in May 2008.

Most importantly, these fast-track vouchers can be sold. As I have already pointed out, their economic value was estimated at $300 million by the economists who designed the legislation.

Now connect the dots. The voucher legislation specifically lists 16 disease cures that will earn the fast-track vouchers. One is dengue/dengue hemorrhagic fever. Dengue is only the tip of the virus iceberg, however, since the law also covers “Any other infectious disease for which there is no significant market in developed nations and that disproportionately affects poor and marginalized populations, designated by regulation by the secretary.” This expands the list of tropical orphan virus diseases to hundreds, if not thousands.

I told my Breakthrough Technology Alert readers just a few weeks ago that one of our portfolio holdings had entered into an agreement with top dengue researcher at the University of California, Berkeley. I don’t believe that our company would have exposed its technology and secrets to her if it wasn’t confident that she would validate its platform.

What’s this worth? Let’s be conservative and say that the Duke University economists were $100 million too high in their valuation of such a voucher. I think these vouchers could actually be worth more than that, for one reason. Drugs that are “first to market” often win out against even superior competitors. A priority review voucher could be a license to kill for a Big Pharma company worried about competition.

Nevertheless, Bill Gates said in 2008 that the priority-review vouchers, “could be worth hundreds of millions of dollars.” I’ve found, from personal experience, that arguing with Bill Gates is usually a bad idea. So let’s be ridiculously conservative. “Hundreds of millions of dollars” in its very strictest sense is $200 million. So we won’t quibble.

There are a few companies out there right now that could profit from the FDA approval loophole, but one in particular springs to mind. While I can’t give you the name of the stock I’m talking about today – it wouldn’t be fair to my current Breakthrough Technology Alert readers, after all – I can invite you to join my exclusive research advisory. The details can be found here…

Incidentally, we know that small biotechs are particularly subject to irrational vacillations. They are also a favorite of short attackers. It’s inevitable that this company will be bouncing in weeks and months to come. Right now, however, almost nobody knows what I just told you. If you plan to buy, be patient and pick up stock when prices are down.

For transformational profits,
Patrick Cox
Penny Sleuth

March 17, 2010

Understanding the $200 Million FDA Approval Loophole was originally featured in the Penny Sleuth.

Due in part to the ballooning U.S. deficit, America’s replacement for the shuttle program, Constellation, is being canceled. Once the last shuttle mission is completed, Americans will be riding on Russian rockets to get to the International Space Station. America will, however, return to space exploration. The reason is simply that space, as my old friend Robert Heinlein pointed out, is the high ground militarily. Americans may be willing to share the high ground. They won’t cede it.

Using conventional technology, the costs involved in extending space exploration to the moon and Mars are prohibitive. Alternatives to conventional rocket launch must be found if costs are to be significantly reduced to allow real exploration and commercialization.

For this reason, the cancellation of the Constellation program may be a blessing in disguise. NASA-developed technology has not only served as a vehicle for getting astronauts into space, it has also been an excellent vehicle for delivering pork to congressional districts. In place of rockets designed and built by bureaucratic committee, much of the Constellation funding will now go instead to commercial space companies that will serve up a “space taxi” role.

This is great news for commercial space enterprises and their investors. We’ve already seen the potential of space-based businesses as wealthy tourists buy multimillion-dollar tickets on Russian ships. We’ve also seen the beginnings of private space access from Burt Rutan’s Scaled Composites’ collaboration with Sir Richard Branson’s Virgin Group company, Virgin Galactic.

I first interviewed Rutan, by the way, in 1986: before his Voyager craft made history by flying nonstop around the world without in-flight refueling. Today, he is more than able to put passengers safely into orbit. To make the space tourism business viable, however, there has to be someplace nice to stay once you’ve achieved orbit. Conventional rocketry, however, is too expensive for any cargo other than human beings. Fortunately, there exists a vastly less-expensive alternative to deliver payloads to orbit.

Jules Verne once wrote anything a man can imagine, another can make real. In one of the earliest examples of the science fiction genre, Jules Verne wrote of a voyage to the moon enabled by a gigantic space gun. The fictional cannon, called Columbiad, fired a projectile holding three travelers to the moon. Verne was an extraordinary author and his fertile imagination has inspired generations of scientists and engineers. Even Verne, however, would be surprised, I think, to see how some of his more fantastic ideas are moving toward practical application.

During the Space Race of the 1960s, the United States investigated every possible method to gain an advantage. One was a collaboration between the U.S. and Canadian defense departments. Unlike more conventional (and expensive) rocket-based technology that would become the standard method of access to orbit, this project was based on the use of large guns.

In fact, the gun itself was based on a recycled 16-inch naval gun. Called HARP, the acronym for High Altitude Research Project, the project achieved several speed and altitude records. The final versions of the projectile/vehicle, called Martlet, blasted 180 kg payloads out of the barrel at speeds nearing 4 kilometers per second. These reached altitudes of 180 kilometers, after being subjected to a brief and brutal acceleration exceeding 14,000 Gs.

Unfortunately, bureaucratic infighting between the different U.S. service branches, as well as anti-Vietnam War fallout, ended the U.S./Canadian collaboration. Funding was terminated by 1967. The brilliant but enigmatic Canadian mastermind behind it, Gerald Bull, went on to design advanced artillery for Saddam Hussein. A super gun capable of firing a payload of more than a ton a thousand miles was nearly completed. He also improved Iraq’s Scud missiles, the sort fired into Saudi Arabia and Israel during the first Gulf War. In 1990, he was murdered, apparently assassinated, by unknown parties in his Brussels apartment. The movie Doomsday Gun is about Bull.

In the 1980s, the U.S. government revisited the space gun concept, launching the Super High Altitude Research Project (SHARP). Headed by Dr. John Hunter from 1989–1995 and conducted at the Lawrence Livermore National Laboratory, SHARP used technology far advanced over the old HARP project’s. Instead of cordite explosive detonation, SHARP used gas gun technology. SHARP set records for kinetic energy above Mach 9. It also successfully launched hypersonic scramjet test vehicles for the Air Force between Mach 5 and Mach 9.

Since then, Dr. Hunter has started a new company, Quicklaunch Inc. Its goal is to commercialize the technology he helped develop at Lawrence Livermore. The advantages of this technology over traditional rocketry are significant.

From a military defense standpoint, another advantage of the space gun is responsive launch. If there is a critical need to surveil some point on the globe from space, the space gun could put an observation platform in space on demand within minutes or hours.

Quicklaunch owns this technology. There is significant IP and expertise involved in the space gun technology, and Hunter and Quicklaunch have a monopoly there. Obviously, the timeline to profitability is filled with unknowns. We aren’t ready yet to invest in this sort of enterprise, but we will be someday.

In the meantime, if you’ve got significant venture funds and want to make the future happen faster, contact me. I’d be happy to introduce you to Dr. Hunter and the Quicklaunch team.

For transformational profits,
Patrick Cox
Penny Sleuth

March 5, 2010

Investing in a Real-World Space Cannon was originally featured in the Penny Sleuth.

I’m finishing this month’s Breakthrough Technology Alert issue right now. Nevertheless, there are big things happening, and I have to tell you about some of them. I’m also excited about the company I’m covering this month. It is a leader in search for the next generation of weight loss drugs and poised to take off, probably this year.

Weight loss is an area we’ve been looking at for a long time now. The economics are compelling. Obesity is a major risk factor in various diseases, from arthritis and cancer to diabetes, hypertension and heart disease. Any drug that can help people lose weight safely is, therefore, going to offer true value. Moreover, obesity increases with age. As the baby boom, the wealthiest generation in history, rolls into its senior years, the demand and the need for an obesity treatment is growing dramatically.

Until now, we haven’t chosen a company in this sector, for several reasons. One is simply that the field is crowded. There were a lot of companies and technologies to vet. Many people are working on fat drugs. Normally, this might have kept me out of the sector, but there’s room in this market for more than one winner. Buyers of these products often use them in combination.

Another reason we were particularly careful is that we’re going to see brand-new strategies for weight control in coming years. These new approaches, which I expect from several new sciences, including RNA interference, will probably leapfrog anything that comes out in the next year or so. Nevertheless, the demand is so great and the FDA is so resistant to new technologies, I expect some serious profits from innovators over the next five years. More importantly, this company has the potential and platform to evolve into a major biotech success story with many other targeted therapies.

Speaking of health and weight, I hope you’ve studied the new research regarding vitamin D I’ve told you about (for a refresher check the middle section of this article). Your health, after all, is your biggest asset. The newly discovered importance of optimal serum D levels should be seen as an opportunity to garner significant yields in health at very low costs.

Personally, since I’ve gotten my serum D levels up, I’ve noticed a number of obvious changes and benefits. One of the most welcome is that long-standing rotator cuff problems in my shoulders have nearly disappeared. I didn’t expect those results, but I’ve been able to increase the intensity of my workouts. For the first time in years, I’m adding pounds and reps to my weight training routine.

(You don’t need to do Navy SEAL levels of exercise to get real benefits, by the way. The benefits of exercise kick in quickly at relatively low levels. Just 20 minutes of walking or time on a treadmill or climber three times a week produces remarkable benefits, as I’m sure you know.)

Among the benefits that would interest investors are increased mental acuity. It seems like a new article on this subject appears practically every week, but a recent New York Times article is relatively comprehensive. I find this line extremely interesting: “Exercise causes the release of growth factors, proteins that increase the number of connections between neurons, and the birth of neurons in the hippocampus, a brain region important for memory.”

Of even more importance both to your portfolio and to your health is a recent article published in the American Heart Association’s journal, Circulation. It is titled “Physical Exercise Prevents Cellular Senescence in Circulating Leukocytes and in the Vessel Wall.” According to this research, the increased health and life spans associated with exercise come from the increased production of telomerase.

Telomerase, as you may know, is the enzyme that triggers regeneration of telomeres. Telomeres are the end caps that protect the double strands of DNA. As we age, our cells reproduce. Each time a cell’s DNA splits and reproduces, a telomere is used up. When the supply of telomeres is exhausted, the cell’s “Hayflick limit” is reached and it dies.

Even before cell death, however, cell function begins to suffer. We get “old.” In the journal article, German scientists show that exercise provokes telomerase production. Telomerase, the “immortalizing” enzyme, protects and restores telomeres. This, in turn, increases health and lengthens life spans.

The financial importance of the study is that it emphasizes the power of telomeres and telomerase. This is what regenerative medicine is all about. Stem cells have full youthful telomeres. When those cells are adopted by a patient, that patient’s new cells are functionally youthful, with full human life spans ahead of them.

Another exciting possibility is either to provoke telomerase production or actually introduce telomerase into our cells. This would restore our telomeres to youthful levels. I’m talking to world-renowned scientists now, each working on a different means of accomplishing this goal. There’s no way to know who’s going to solve the problem first. I have no doubt, however, that it will be solved.

In the meantime, practical steps like an exercise regimen and vitamin D supplementation are a good option. And on the investing front, I’m excited about the potential my new weight loss play has to offer. To learn more, visit the Breakthrough Technology Alert website…

For transformational profits,
Patrick Cox
The Penny Sleuth

February 26, 2010

What the Telomerase Breakthrough Means for Weight Loss Companies was originally featured in the Penny Sleuth.

According to the Japan Robot Association (JARA), the consumer robotics market is projected to reach $24 billion this year and balloon to $66 billion by 2025. By comparison, the digital music market was $5 billion in 2007 and will be about $15 billion this year.

Personally, I think that the JARA’s long-term estimate is actually pessimistic. Bill Gates is on record for predicting that by that year, personal robots will be as common as computers are today.

If he is even half right, investors who get in on promising robot techs today will be fantastically compensated for their vision and patience in the long run. Investing in the next wave of robotics now will be like buying Intel, AMD, Apple and Microsoft in the 1980s.

Granted, the Great Recession has dealt temporary blows. A mainstay of the robotics industry has been assembly line machines for the automobile manufacturers. This sector is currently down. The overall robotics industry, though, is diversifying.

The automotive industry itself gives a good example of innovating during downturns. During the Great Depression, automobile sales plummeted. Crucial improvements in automotive technology, like fully automatic fluid transmissions and hydraulic brakes, were made, however. When the Depression ended, motoring was revolutionized. Profits and sales went up, along with share prices.

Robots are already being used for dangerous jobs that humans would rather not do. I’ve already written about robots being employed by the U.S. military and manufactured by one of my Breakthrough Technology Alert companies.

Recently, the U.S. Commerce Department decided to fund a project to develop robots able to repair aging water transmission pipelines from the inside. The R&D costs are more than justified by doing away with the need to tear the infrastructure out of the ground for repairs.

Berkeley researchers are developing small inexpensive robots that can enter collapsed buildings to find survivors after earthquakes.

The economics of robotics is based on one simple fact: While cost of production for goods generally declines over time, prices for services generally fall less or not at all. Your computer costs a fraction for the performance you receive compared with two decades ago. The technician who repairs it, however, has probably raised prices.

Similarly, food prices have fallen steeply, due to improved agricultural technologies. This includes automation technologies that are, in fact, robotics. From John Deere to Alice-Chalmers, from balers to combines, automated ag equipment has drastically reduced what we have to pay to consume our daily bread. Nevertheless, we have only scratched the surface of the benefits robotics will bring to many areas.

Today, health care services have proven resistant to price declines partly because of labor costs. Improved robotic automation is one of the fastest ways to increase productivity and reduce labor costs. With the leading edge of the boomer generation entering retirement, the financial incentives for improved robots is enormous.

We’re not only talking about cutting-edge remote diagnostics and surgical procedures. Much of the cost of elder care is in simple housekeeping and personal services. Families that want to keep older members out of assisted care facilities and closer to home will increasingly look to improved robotics for help.

The Japanese, in fact, know this well. The famous Japanese enthusiasm for humanoid robots is often scoffed at, but they will tell you there is a logic behind their efforts.

More than a fifth of Japan’s population is over 65 years old. A major thrust of Japanese investment is aimed at developing robotics capable of providing the sorts of care that now depend on human workers. With a dwindling work force and an increasing demand for basic care in homes and health care facilities, the solution is very likely to resemble a humanoid robot.

I’ve got my eye on a couple of small robotics companies that could bring the first humanoid robots to commercial applications. I’ll continue to fill you in as the situation progresses…

For transformational profits,
Patrick Cox

February 5, 2010

Your Window to the $66 Billion Robotics Revolution was originally featured in the Penny Sleuth.

Simply put, unless you are one of the few people with optimal serum D levels, such as lifeguards and roofers in South Florida, you can cut your risks from most major diseases by 50 to 80 percent. All you have to do is get enough D. This also means we can significantly reduce healthcare costs by taking a few simple steps.

As a financial writer, I bemoan the fact that no one can patent sunshine. I’d buy stock in any company that did. Biotechs with therapies supported by far less evidence have exploded in value. GlaxoSmithKline, for example, bought Sirtris for $720 million to acquire IP for certain resveratrol-like substances. If you compare the evidence supporting the benefits of resveratrol vs. sunshine, sunshine leaves resveratrol in the dust.

I realize, incidentally, that such bold claims probably inspire skepticism. They should, in fact, and I’m going to make even more bold claims. So allow me to make the necessary disclaimers and move on.

I’ve come to the conclusions I’ve written here because my job, as a tech investment researcher, requires that I survey thousands of the most recent scientific studies. In the last few years, an overwhelming flood of new evidence has been produced supporting the view that the medical and nutritional establishments have been fundamentally wrong about vitamin D’s physiological role and optimal dosage.

If researchers on the cutting edge are right, the benefits of raising your serum D levels to about 40 ng/ml are enormous. If they are wrong, the risks associated of the recommended therapy are trivial if not nonexistent, especially if done through supplementation. This is simple Bayesian analysis.

What You Aren’t Being Told About Vitamin D

Behind the scenes even as I write today, the NIH is looking for a face-saving way to change positions on vitamin D without taking too much blame for having resisted those who have urged reassessment for decades.

The stakes are huge as are the benefits of attaining optimal vitamin D levels. The embarrassment for those who must admit past error, however, may be even greater. The reason is that untold millions have suffered and died prematurely because those who challenged the “settled science” regarding sunshine and D decades ago were treated like crackpots and demonized.

Now we know that very few people have optimal serum levels of 25-hydroxyvitamin D [25(OH)D], the principal form of vitamin D circulating in the blood.

Dr. Michael Holick, the researcher most responsible for this radical change in thinking, has described the current state of widespread vitamin D deficiency as a “silent epidemic.”

Vitamin D deficiency is not one of those metaphoric “epidemics.” It is an extremely serious public health problem that affects virtually all diseases. To understand this change in thinking, we need to review briefly the history of vitamin D and our understanding of its function.

After Decades of Bumbling, One Researcher Strikes Out on His Own Path

In the 1890s, the bone-softening children’s disease rickets was still widespread in northern states, which has more pollution and a thicker ozone layer than the northwest. Ozone blocks the invisible component of sunshine, ultraviolet-B, which produces vitamin D in the skin.

In the early 1900s, it was demonstrated that summer midday sunshine prevented rickets. As a result, there was an effort to educate the public and nearly everybody learned that a little sunshine was good for you. If you’re of baby boom age, your mother undoubtedly told you to “go outside and get some sun.” That’s why.

Ironically, the beginning of the end of this attitude came in 1923 when a means of producing dietary D was found. UW-Madison biochemistry professor Harry Steenbock discovered that the vitamin D content of milk could be increased with ultraviolet (UV) irradiation. This led to the enrichment of milk and the near elimination of rickets. Slowly, the perception of sunshine as healthy began to fade.

For the most part, scientists lost interest in the biological role of sunshine for higher animals. Dr. Michael Holick was the notable exception. For the last thirty years, Holick has been gathering data, doing research and studying the role of sunshine and vitamin D.

When Science Overcomes Conventional Wisdom, Opportunities Pop Up

We now know, however, that D is not actually a vitamin. It is prohormone, meaning that it is a precursor form of a steroid hormone created by conversion in various organs. This active hormone acts to regulate multiple important biological functions. Every single cell in the body has a D receptor; even stem cells.

Holick, a professor of dermatology himself, lost his teaching position when he published his findings. When he wrote a book on the subject, he was targeted by a well-funded PR campaign, aimed at debunking him, by the leading dermatological organization.

Supposedly objective journals, including the New England Journal of Medicine, refused to publish his exhaustively documented research; research now accepted as both accurate and pioneering.

About five years ago, the vitamin D climate began to change. Holick has finally begun to get the recognition he deserves and now serves on multiple prestigious boards as well as advising the NIH. He is, incidentally, Professor of Medicine, Physiology and Biophysics at the Boston University School of Medicine. Holick is also director of the General Clinical Research Center, the Vitamin D, Skin and Bone Research Laboratory and the Biologic Effects of Light Research Center at the Boston University Medical Center.

Holick explains that new breakthroughs in the biological sciences have helped him make his case. With the decoding of the human genome, for example, it now appears that a remarkable 2000 genes are influenced by vitamin D.

A Trend to Watch – Vitamin D Awareness and Opportunities for Investors

Optimal vitamin D serum blood levels, attained through sunlight or supplementation, dramatically reduces the risk of many diseases other than bone maladies. Many of the most serious are ameliorated by an astonishing 50 to 85 percent. These diseases include cancers, from breast and colon to deadly melanoma skin cancers.

Yes, that’s right. The really nasty skin cancers can be prevented by getting moderate, sensible sunshine or through vitamin D supplementation. Non-melanoma skin cancers do increase somewhat with sun exposure, especially with sunburns. These skin cancers, however, are relatively benign as they tend not to spread into other parts of the body. They are easily detected and removed because they appear on skin exposed to the sun.

Melanoma, on the other hand, is the deadly skin cancer that most people erroneously relate to sunshine. Melanomas, however, do not tend to occur on parts of the body that get direct sunlight. The bottom line, which is worth repeating, is that the incidence of truly nasty melanoma skin cancers goes down significantly with sensible exposure to UVB-containing sunshine or with vitamin D3 supplementation.

This is not the end of the list, though. The big killers and most expensive diseases respond similarly to adequate D. I’m talking about hypertension, cardiovascular disease and stroke. So do type 1 diabetes, type 2 to a lesser extent, rheumatoid arthritis, peripheral vascular disease, multiple sclerosis, dementia, autoimmune diseases and apparently even viral diseases such as H1N1 and AIDs.

I predict, in fact, that other diseases will also be linked to vitamin D insufficiencies as more studies are performed. I’ll keep you posted on any further developments I discover. In the meantime, you might benefit from doing some personal research on vitamin D.

Your body and your portfolio might thank you…

For transformational profits,
Patrick Cox

January 27, 2010

What Vitamin D Means to Your Technology Profits was originally featured in the Penny Sleuth.

I’ve been writing about Multiverse (The Multiverse Network Inc.) for years. This Silicon Valley startup is, without question, one of the most exciting investment opportunities on our horizon. Last month, I’m happy to say, the company accomplished a major milestone on its path to IPO.

Multiverse has built, and continues to develop, an extraordinary software platform for both 2-D and 3-D interactive virtual worlds (VWs). The company is unique in that these rich virtual environments can exist entirely on remote servers.

Let me restate that in English. With little more than the software that comes loaded on a typical laptop, you can enter into one of Multiverse’s realistic computer-generated environments and interact with others. Multiverse is unique in that it has optimized its platform to work with the fewest resources possible as well as the most tricked-out systems.

This means that a mobile device, such as an iPhone, Droid or netbook equipped to run Adobe Flash, provides the ability to access a Massively multiplayer online game (MMOG) or a corporate collaboration space.

The same VW could also be used simultaneously by someone in a completely immersive “holodeck” environment with haptic sensory-feedback systems.

The most obvious use of VW technology is gaming. The gaming industry is already bigger than the movie business and on track to soon surpass online music sales. Gaming generates more online revenue than any other form of content, including movies and news. Game revenues grew from $2.6 billion in 1996 to an estimated $44 billion today.

Though sales fell somewhat during 2009 due to the international economic downturn, sales have already begun to recover. Massively multiplayer online games (MMOGs) are the fastest growing segment of the industry, at an estimated 25%, or $11 billion total. That’s up from about $3 billion in 2005.

Everything about Multiverse’s approach to serving this market has been brilliant. To begin with, the company gives away its platform, with programming tools, free of charge. This allows widespread and low-risk experimentation. It charges only for profitable uses of its technology. This is analogous, incidentally, to the game platform companies that distribute PlayStations and Xboxes as loss leaders, making their money in game and game licensing sales.

I know about this company, incidentally, because I consulted for Netscape in the seminal days of the Web. Back then, I got to know the key technologists behind the company that changed the world. To this day, most people don’t understand the role Netscape played in the development of the Internet as it exists now. Just about everybody knows that Microsoft came late to the game and backwards-engineered Netscape’s Web browser. Netscape, however, did far more than create the first user-friendly browser.

The company innovated all of the most important aspects of what we think of as the Internet. That includes interactivity, individualized Web pages and the ability to share, rather than just consume, media and data. Moreover, Netscape developed the security and privacy protocols that have made online commerce possible.

That’s the reason I’ve always been interested in what the smartest of these people are doing. Multiverse, I’m convinced, has the greatest concentration of that original talent and vision. The most obvious evidence is the recent collaboration with Coke and McDonald’s, launching promotional MMOGs in conjunction with Jim Cameron’s new 3-D film Avatar.

Cameron, incidentally, is on Multiverse’s board of advisers. Using Multiverse’s Remix software, the digital models Cameron used to generate lifelike 3-D characters were converted into forms appropriate for games on various other computer platforms. Multiverse has, in fact, its own game development studio and expects to unveil revenue-generating games in 2010.

The company’s clients are not limited to the game business, however. Though Multiverse has gone through only one round of angel venture capital funding, it already has major Fortune 50 corporations as well as military and intelligence agencies as clients. I am convinced, in fact, that the corporate market will be a far greater source of revenue than gaming in the long run. The reason is simple.

Training simulations are already an industry five times larger than the movie business. The unique Multiverse platform, designed for educational as well as entertainment purposes, lends itself readily to sales, customer support and other training regimens. Eventually, those sales and support simulations will become the real thing, bringing real human contact as well as advanced artificial intelligences to 3-D Web commerce.

The second major corporate use of VWs is in collaboration or conferencing. Users of these 3-D environments find the VWs extremely productive for meetings and collaborations. Without the cost or inconvenience of travel, participants can meet in computer-generated environments and see one another face to face. They can manipulate and present data in real-time from anywhere in the world while working as if they were in the same room.

Eventually, these VW tools will become common. Gartner, the preeminent IT research and consulting firm, predicts that the widespread implementation of VWs will be as big and profitable as the innovation of the Internet itself. I don’t think there is any doubt that this is true.

Moreover, it looks more and more certain that the software that runs our “holodecks” will be written by Multiverse. I look forward, in fact, to meeting with you in a VW of our own. I also look forward to Multiverse’s IPO, when I can give the buy recommendation for this world-changing and world-creating company.

For transformational profits,
Patrick Cox

January 12, 2010

Virtual Worlds that Make Real Cash for Investors was originally featured in the Penny Sleuth.

This is often and accurately called the Information Age. Nations and enterprises succeed or fail because of the use, disuse or misuse of information. Indeed, the growth in the importance of information has been outstripped only by the sheer volume of information at our disposal.

A recent University of Southern California study, for example, revealed that the typical American now consumes 34 gigabytes of content and 100,000 words of information every single day outside of the work environment.

Occupational information is even greater.

To contrast, a mere century ago, a typical corporation generally created no more than a few dozen megabytes of data, these being stored in dead tree format. In modern times, these data pools have grown into many terabytes and have become accessible to individuals within an organization almost instantly and without regard to physical location.

All these data have not come without their drawbacks, however…

Uninterpreted data are of little worth. They must be processed into meaningful information that can be utilized in decision-making. But how can a human being sift through the mountains of seemingly unrelated data available? It is a task apparently beyond normal human ability. An urgent need has arisen for technology that can change the vast amounts of data into useful information.

By far, the largest store of data is publicly hosted on the Internet. Search giant Google (NASDAQ: GOOG) has built a vast financial empire extracting desired information from that data. However, conventional computing based on the von Neumann architecture, the basis of all modern computers, has definite limitations. So the world’s Googles are casting about looking for more powerful ways to extract useful information.

One solution exists in quantum computing.

As you know, quantum computing harnesses the basic properties of quantum particles to manipulate data. Quantum computers can theoretically solve large complex problems much faster than classical von Neumann architecture computers. They also possess the theoretical capacity to apply extremely advanced artificial intelligence techniques to harvest and classify data.

For example, a new computer algorithm, published in Physical Review Letters, demonstrates a potential for a revolutionary explosion in the ability to solve problems with millions or even trillions of variables. A quantum computer running this algorithm would be able to solve problems in a few hundred steps that would take a classical computer a hundred trillion steps to complete.

Like all new and revolutionary technologies, however, quantum computing has been met with a chorus of skepticism. This may finally be changing.

Recently, Google executives announced they have spent the past three years investigating the elusive properties of quantum computers to more efficiently perform search operations. To do so, they partnered with Canadian early-stage quantum computing company D-Wave Systems.

[Ed. Note: While D-Wave is privately held, Patrick’s Breakthrough Technology Alert readers have already been filled in on a backdoor way to pick up shares…]

To date, D-Wave has the only commercially available quantum-based computing platform. Google’s involvement, of course, serves as a major validation for D-Wave’s technology.

Among other things, Google has been utilizing D-Wave’s quantum computers to perform advanced pattern recognition. For example, at a recent Neural Information Processing Systems conference, Google was able to demonstrate a detector that can identify cars far better than any conventional system.

The detector was powered by D-Wave’s C4 Chimera quantum chip. The potential for this sort of advanced image-processing technology is staggering.

Google has recently deployed an Android mobile platform-based application called Goggles. This application allows the end-user to simply take a photo with their Android-based mobile device. Google pattern recognition then can often identify it and pull up information from the Google search engine.

Walk into an art museum, take a snapshot of a masterpiece, and there is a good chance that the Goggles application will be able to pull up relevant information regarding the work and the artist. Let me add that this application is being enabled using only traditional technology at this time. Quantum-based pattern recognition should make these kinds of information searches far more powerful.

And you can bet that they’ll be just as powerful for the fortunes of the early stage investors in these companies.

For transformational profits,
Patrick Cox

January 5, 2010

How the Launch of Practical Quantum Computing Could Change the World was originally featured in the Penny Sleuth.

Two weeks ago, I told my Breakthrough Technology Alert readers that there were reports that our SC companies were under “short attack.” As you know, a short attack involves the coordinated selling of large blocks of stock. This creates a huge, rapid downward price plunge, intended to panic investors into selling. The point of a short attack is that the attackers get to buy back their own stock, and more, at artificially deflated prices.

They do so, of course, because they expect the stocks to return to or surpass their previous prices.

Stem cell companies are a logical target for such a strategy: The sector remains relatively small compared with other medical industries, and they are known for volatility. A really well strategized short attack would even include some sort of insider information that would send the company or sector careening back up quickly so the attackers could take a huge quick profit.

So it didn’t surprise me that on Dec. 2, the day after I warned readers about the short attack rumors, SC stocks shot up again. The National Institutes of Health approved 13 more embryonic stem cell lines for use by organizations that accept federal research funds and announced many more lines would be approved soon. As usual, such an announcement had a widespread and completely illogical impact on SC company prices.

Even companies working on adult SC therapies rode the news up. StemCells Inc. (NASDAQ: STEM) increased by more that 30%. This, obviously, makes no sense, because STEM works only with adult stem cells and sells nothing in the market of NIH-funded researchers. (At least several of my BTA holdings are in the business of selling SC research products.)

I can’t know for sure, incidentally, if there was any real connection between the huge dip in prices before the NIH announcement that drove them back up. I probably never will. The take-home lesson, however, is to look at the science, instead of market fluctuations. If the science is valid and the demand for the product is legitimate, you should buy transformational stocks and forget about them. These stocks, by definition, yield such extraordinary gains that you can afford to sit on them for years before they pay off.

So let’s review the market potential and the science of regenerative medicine once again. The market potential is, in my opinion, unmatched. Regenerative medicine is completely unlike even other transformational medical technologies for one simple reason. Most medical technologies cure or treat the causes of premature death. Regenerative medicine, however, is unique in that it can actually turn the clock back, extending maximum healthy life spans.

So how are they doing? I am completely enthused by the progress that the stocks I’ve already endorsed are making. One company continues to solve the riddle of how stem cells develop into their many end forms. Another’s breakthrough, which allows it to use unfertilizable eggs to create its bank of cell types immune-matched to 95% of the population, is an incredible advance. Few understand these points now, but word will get out.

Speaking of which, I’ve learned from sources that National Geographic is working on a documentary about the “immortalizing enzyme,” telomerase. This is good news not only for the stocks that control telomerase IP. It’s good for the entire regenerative medicine industry. Word is that the producer working on the show is smart enough to understand the science involved. Here’s hoping.

For transformational profits,
Patrick Cox

December 18, 2009

An Update on Stem Cell Stocks was originally featured in the Penny Sleuth.

During the last several decades, there has been a dramatic increase in obesity in the developed world. With the rise in body mass indexes are negative effects on metabolism, including cholesterol, blood pressure and insulin resistance.

A recent CDC study estimates that more than $147 billion per year of health care expenses are attributable to obesity. The Department of Health and Human Services believes that obesity may account for 300,000 deaths a year in America. A plethora of pills, potions, creams and lotions of dubious effectiveness are peddled in order to satisfy this growing need to reduce body fat.

Usually, we treat weight loss as an act of willpower and discipline. There are, however, clear biological signaling pathways that influence appetite, metabolism and body weight beyond our direct conscious control.

For instance, in 2007, researchers demonstrated that when a population of mice were fed a high-fat diet, some grew obese, while others did not. Fatty tissue produces a hormone called leptin.

Leptin sends a signal to the brain that makes it control appetite and metabolism. The researchers thought that increasing leptin levels in the obese mice would cause weight loss. It didn’t. They discovered that while both obese and normal mice had leptin circulating in their bloodstreams, the mice that gained weight had a deficiency in leptin receptors in the hypothalamus region of the brain. These mice did not respond to increased body fat in the same way as the others did.

More recently, Harvard Medical School collected blood samples from newborns and measured them for the leptin hormone. They discovered that the more leptin the babies were born with, the lower their body mass index was at the age of 3.

But that’s not all. There may also be a viral vector that leads to an increased risk of obesity.

Closely related to the common cold, human adenovirus 36 (AD-36) was first identified in humans in 1978. More recently, this virus has been shown to be associated with obesity. For example, in 1988, a viral epidemic had swept through poultry flocks, killing thousands. Oddly enough, however, the dead poultry had a larger amount of body fat than healthy birds.

This got Dr. Nikhil Dhurandhar of Louisiana State University researching a possible connection. He showed that AD-36, when injected into chickens, caused a large increase in body fat. This effect has also been demonstrated in nonhuman primates.

Further investigation revealed that stem cells infected with a gene from AD-36, called E4 ORF-1, were much more likely to differentiate into fat cells than cells that did not express the gene. This, by the way, makes obesity a prime candidate for the anti-viral technologies of last month’s Breakthrough Technology Alert pick. These therapies also have the potential to turn off the fat switch.

Dr. Dhurandhar has coined a neologism for this kind of obesity, “infectobesity.” According to him, seven viruses have to date been reported to cause obesity in animals. The possibility that the origin for much obesity is viral has enormous health and investment implications.

If this new theory of obesity seems unlikely to you, remember the resistance to the discovery that H. pylori bacterium caused stomach ulcers. The medical establishment ridiculed such an unconventional explanation for a condition widely attributed to the anxiety produced by modern living. Ultimately, however, these researchers who identified the bacterial cause were proven right and received the Nobel Prize for their efforts.

To quote Baruch Spinoza: “Be not astonished at new ideas; for it is well-known to you that a thing does not therefore cease to be true because it is not accepted by many.”

In the meantime, privately held Cambridge, Mass.-based Zafgen is designing a nanotechnology-enabled drug that directly homes in on human fat tissue. Most experimental drugs for obesity work by helping the brain improve its ability to interpret biological signals to regulate appetite and metabolism. Zafgen takes an entirely novel and revolutionary approach, based in part on research by MD Anderson Cancer Center researchers Wadih Arap, Renata Pasqualini and Mikhail Kolonin. Essentially, they treat adipose tissue similarly to tumors.

Understand that all cells have expiration dates. When the signal comes to die, they should do so. But in some cells, mutations arise that cause them to ignore these signals. So they continue to divide uncontrollably and cancers develop. These researchers had been developing technology to cure cancerous tumors by destroying their blood supplies, literally starving these cells to death.

That’s when they had the game-changing idea. The same technologies could be applied to obesity.

Zafgen is testing new drugs that shrink fat tissue by attacking its blood supply and inducing apoptosis — cell death. In animal studies, subjects lost 25% of their body weight in weeks. The method not only removed external body fat, which makes up beer guts and love handles, but it also removed the dangerous fat that envelopes organs. Moreover, the drug took out only the “bad” white fat, leaving beneficial brown fat untouched. Obese mice used for the early tests remained healthy. They also ate less. Once their weight leveled off, they started to eat more food without putting on weight.

No one is really sure why this happens, but it is possible that fat tissue creates its own positive feedback loop to encourage more fat tissue to form. Possibly, it creates a source of stem cells that differentiate into new fat cells and grow into more fat tissue.

Zafgen plans on putting its new pharmaceutical into clinical trials soon. If successful, it will have developed a “magic bullet” cure for obesity. We are watching this space carefully and will keep you up-to-date. This could come to market before almost anyone expects.

For transformational profits,
Patrick Cox

December 9, 2009

The Fat Burning Technology That Could Make You Rich was originally featured in the Penny Sleuth.

It seems callous, I suppose, to enjoy the effects of a storm that has already killed scores and could still claim more. That, however, is exactly what I’m suggesting you do in regard to the economy.

An economic storm continues to wreak havoc globally. Moreover, the same idiotic policies that caused the problem are now being offered as solutions. The “crowding-out effect” guarantees that it will continue for some time.

This view, that government spending and debt crowds out investment in areas that produce the greatest economic growth, is widely held at the University of Chicago Economics Department. Though this department has dominated the Nobel Memorial Prize for economics for decades, it has little or no sway with the current Chicago-centric administration.

The House’s just-passed health care bill, for example, is written primarily by Ivy League lawyers. As a result, it contains no real malpractice tort reform, the one public policy change that has been proven to lower significantly both medical and insurance costs. Instead, it puts a huge and incredibly complex part of our economy under control of the same people whose blunders stalled H1N1 vaccine delivery. Additionally, uncertainty on the part of businesses about the costs that health care “reform” will impose on employers is a major contributor to the current unemployment rate.

Regardless, my job is to identify the financial opportunities created by such blunders. The answer, more than ever, is emerging technologies stocks.

The market in general has edged back somewhat. Index and other broad financial instruments are no longer the bargains they were when the market was on its knees and whimpering. No one has real faith that this uptick will last, though, so most investors are still “playing it safe.” This means they are avoiding emerging technologies, which are, in turn, underpriced.

This is always the case in uncertain markets. When markets are shaky, the vast majority of individual and institutional investors flee risk in favor of “proven” investment opportunities. This is clearly the case today, and we may never see another time like this.

So let’s review. Scientific and technological progress cannot be stopped. It is, in fact, accelerating. If you need evidence, check out the newly released Motorola Droid.

Moreover, globalization has expanded the scientific and financial playing fields dramatically. Top American researchers are being wooed by Asian and Eastern European companies. If the U.S. legal/legislative oligarchy hobbles our pharm industry, research and development will shift offshore. So will our portfolios.

That’s one reason I’m happy to see one of our most important companies is strengthening its global strategy. For about a year and a half, the company’s founder and chairman of the board has led the executive search to replace its former CEO, who died unexpectedly last year. In fact, he has been replaced by two people: one with important international connections and one with domestic big pharm experience.

The company just announced that a noted Russian scientist and businessman will become CEO. The press release makes it clear, I’m happy to say, that his selection is in keeping with plans to explore international opportunities. The new CEO is a member of the Russian Academy of Science, specializing in management theory, strategic planning and system analysis. He has written several books in those fields and is the recipient of the Russian Federation Government Award in Science and Technology.

This man has serious influence in Russia, which is one of the world’s hotbeds of stem cell science. I wrote about Dr. Sanjay Gupta’s book Chasing Life when Gupta turned down the administration’s request to become surgeon general. In his book, the neurosurgeon details trips to Russian stem cell clinics where some of the world’s wealthiest people are receiving crest-of-the-wave stem cell therapies that are years away from approval by the FDA.

Other Russian clinics, I should add, are selling pure stem cell quackery and snake oil, so I’m not recommending that you fly off to Moscow yet. Nevertheless, Gupta reports that the wealthiest of the wealthy have succeeded in virtually stopping the aging process.

But that’s not all…

The company’s new president brings connections and experience working with big pharm. He is trained in immunology, molecular biology, finance and marketing.

Moreover, he worked previously with companies that address many of the markets that I believe stem cell therapies someday will control. This puts him in a position to further collaborations with pharm. If the market misinterprets this bolstering of our company’s executive team, I’m recommending my Breakthrough Technology Alert readers to buy on the dip.

For transformational profits,
Patrick Cox

November 12, 2009

Profit from the Government’s Blunders with Overseas Breakthroughs was originally featured in the Penny Sleuth.