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.

Now, with one company’s failure all but assured, our path to stem cell fortunes is clearer than it’s ever been.

If you had been listening to mainstream financial media, you probably believed that Osiris (NASDAQ: OSIR) was going to be the first company to deliver real stem cell-based therapies. Now Osiris is all but out of the running…

I’ve written about Osiris several times in the past to my Breakthrough Technology Alert readers, always to explain why I wasn’t recommending its stock. Briefly, I’ll recap.

Osiris has led the effort to utilize adult or mesenchymal stem cells. These MSCs are found in bone marrow and are capable of becoming multiple types of tissues. They are, therefore, “multipotent” stem cells. Embryonic and induced pluripotent stem cells, however, can become any cell types. They are, therefore, “pluripotent.”

Osiris was working on ways to jump the hurdles associated with programming embryonic stem cells to do specific tasks. This was before it became known that one researcher had figured out how to convert any cell in your body to an induced pluripotent stem cell with all the same potentials of embryonic stem cells. Big Pharm invested considerable hope and money in OSIR’s technology as a result.

At the time, I speculated that MSCs might have some therapeutic value, but even so, they would inevitably be superseded by pluripotent stem cells. I’ve spoken on several occasions to Osiris people, including one of its top scientists. He told me the company believed its MSC therapies had a 15-year window of profitability. Then he admitted programmed pluripotent cells would take the market away from less-effective MSCs.

I didn’t believe the 15-year projection for several reasons. One, I knew about the progress being made by elsewhere by one very exciting company. They’d essentially developed a methodology for cracking the programming codes that turn pluripotent cells into specific cell types.

The company has already announced the discovery and successful creation of various cell types, including cartilage cells. Recently, as you know, the platform won the biggest grant in the history of the California Institute for Regenerative Medicine. Cartilage, incidentally, was the focus of Osiris’ MSC efforts. It was also testing what it believed were immune-suppressive qualities of MSCs.

Last week, however, it was announced that Osiris’ MSC-derived Prochymal failed two late-stage studies. The company’s stock plunged and the CFO resigned, “to pursue new professional opportunities, effective immediately.”

So what does this mean for stem cell stocks? It means that Big Pharm’s attention is returning to the stem cells that we know turn into cartilage: pluripotent stem cells. All the cartilage in your body, for example, came from embryonic stem cells. Now induced pluripotent stem cells can do the same thing.

Osiris, however, was among those companies that hoped a shortcut to effective SC therapies existed in MSCs. That hope has apparently been dashed, or at least severely set back.

This leaves a single researcher, the creator of the regenerative medicine industry, in the veritable catbird seat. Once again, I’m awed by his vision and dedication.

And as I’ve mentioned, on September 23, his presentation could be the next catalyst for his company’s share price to rocket – why not, the company has already shot up 150% in 2009. And with the developments going on behind the scenes, the chances of seeing even more triple-digit growth are phenomenal. Stay tuned for details on this one…

For transformational profits,
Patrick Cox

September 18, 2009

This Company’s Failure Clears Your Path to Real Stem Cell Fortunes was originally featured in the Penny Sleuth.

For those of you who are not familiar with RNA interference, here’s what it is and how it works: DNA is, in a sense, the operating system software for our cells. As such, DNA does not directly interact with genes. It’s too important to risk corruption through unnecessary exposure. Instead, DNA operates by sending out chemical instructions. These instructions are in the form of complex RNA molecules. They are similar to double-stranded DNA, but are usually single stranded.

Basically, these extraordinarily complex RNA molecules control gene activity or expression. This is important because nearly all diseases are either caused or cured by the proteins produced by genes. You can, therefore, think of the ability to increase or decrease the production of these proteins as an on/off switch for diseases.

The remarkably young science of RNA interference is based on the accidental discovery that it is possible to flip these switches. The remote control, so to speak, for these switches consists of portions of RNA molecules. Because these portions are recognized as invaders by the body, they provoke the rejection of larger disease causing RNA molecules. The other side of the coin is “RNA activation.” This is the process that increases gene expression.

The birthday of the science, according to many, was in 1998. That was when an academic paper by Craig Mello and Andrew Fire was published. Based on RNA interference in a nematode worm, it won them the Nobel Prize in physiology or medicine in 2006.

RNAi companies, unlike stem cell firms, have grown very rapidly. Many have already been gobbled up and their value diluted in big pharma umbrella companies. This is not, by the way, because RNAi is further along. Nor is it because RNAi has more potential than regenerative medicine.

It is because RNAi was spared the legal and ethical concerns that stem cell companies had to deal with. Now the legal situation has been clarified and embryonic stem cells have been replaced for therapeutic uses by iPS and parthenogenetic cells. As a result, we can expect important stem cell companies to make similar deals.

Regardless, many RNAi companies already have significant capitalization and big pharma partnerships. Even at that stage of their development, however, they still have profound transformational potential. For example, I would have added RNAi pioneer Sirna Therapeutics to our portfolio. Sirna, however, was acquired in 2006 by Merck & Co. Inc. in a deal worth $1.1 billion.

That deal, the largest in the RNAi space so far, was followed by others:

Anglo-Swedish pharm firm AstraZeneca Intl. made a $400 million deal with a European RNAi firm Silence Therapeutics.

Alnylam formed a $1 billion partnership with Swiss giant Roche.

The high-water mark for RNAi stockholders, however, is still the Sirna Therapeutics acquisition by Merck in October 2006.

As I’ve written before, RNA interfering molecules work. There is no question that they flip the switches they’re supposed to flip. The challenge, however, is getting them to their target genes before they are recognized and destroyed by the body’s immune system. Various companies are homing in on specific delivery solutions now. There are, however, many different solutions to the delivery problem. Each gene switch has its own special considerations and there is no “one size fits all” solution.

For transformational profits,
Patrick Cox

March 31, 2009

RNAi’s Huge Buyout Deals: Who Will Benefit? was originally featured in the Penny Sleuth.

Mencken had a genius for stating overlooked truths. One, which I’ll paraphrase, is that we all know that the media get it wrong when they’re covering our areas of expertise. Then, defying logic, we believe the media when it covers something outside our fields. There are exceptions, of course, but his observation is too often true.

This is the case, by the way, not only for the newspapers and networks. Even the more respected scientific journals are making huge mistakes. If you subscribe to Nature, you may have seen the recent article titled “Virus-free pluripotency for human cells.” The authors write, “For the first time, specialized human cells have been transformed into a state similar to that seen in embryonic stem cells, without using viruses.”

If you’ve been reading Breakthrough Technology Alert for any length of time, you know this is not true. In fact, there was one doctor who accomplished this virus-free transformation several years ago…

I suppose I should actually be happy when journalists get it wrong. It means that my readers are among the very few people outside of the scientists doing the research who know what’s really going on.

Incidentally, my colleague Chris Mayer once took a group of us to the bar, not far from Agora Financial headquarters, where Mencken often drank. Let me give you one more quote from the Sage of Baltimore. He wrote, “The whole aim of practical politics is to keep the populace alarmed (and hence clamorous to be led to safety).”

The new administration is now saying the economy is “fundamentally sound.” Since it mocked Sen. McCain for saying the same thing before the election, we are being asked to believe that the stimulus bill has fixed the problem.

Unfortunately, this is not true. I agree that the economy is sound in the sense that it will overcome the damage done by the political classes. Most stocks, though, continue to suffer. The evaporation of investment capital is even more of a problem. Some startups and small-caps that would have succeeded wildly will not survive.

That’s why I’ve always diversified into transformational stocks. If you had bought into the leading six or seven computer companies at the start of the computer revolution, more than half would have failed, but the winners would have made you rich.

It’s important to remember that there are several sectors now that will be bigger than computers. Stem cells is one of them, but so are RNAi and nanotechnology. Don’t be alarmed. Don’t mistake temporary problems for long-term trends.

The people who are getting their cues from the mainstream media have bid up stem cell companies, including the wrong ones. For that reason, I’m going back to RNA interference in the next issue. This industry is making miraculous progress toward controlling the genetic switches that cause most diseases.

Sincerely,
Patrick Cox

March 19, 2009

How Transformational Biotech Will Make You Richer Than Early Computer Investors was originally featured in the Penny Sleuth.

A recent article was subtitled, “American attitudes to stem-cell therapies are changing fast.” Inside the article is this critical paragraph:

“Barack Obama has promised to reverse the ban. When that happens, American academics will no longer have to watch enviously from the sidelines as their colleagues in Australia, Britain, China, the Czech Republic, Israel, Singapore and South Korea push ahead. But though the legislative wheels have yet to start turning, the mood has already shifted.”

This article is particularly applicable, as it cites two important SC players — both in my Breakthrough Technology Alert portfolio.

Despite the great performance of the SC sector recently, I’m not encouraging you to buy these stocks for short-term gains. Even if prices do go up significantly in the near future, these are long-term plays. Don’t be distracted by fluctuations. This is the wrong time to even think about taking profits. With prices so low, this is the time to pick up ridiculously underpriced stocks and hold onto them until they produce truly transformational profits.

Inevitably, the wider community of investors will get the stem cell message. Then, we’ll see truly dramatic increases in SC stocks. In fact, I’m predicting another irrational bubble and correction before prices head up permanently. I suspect the bubble will be sparked by high-profile news stories. My guess is that a group of celebrities will admit they’ve rejuvenated their hearts and skin using offshore SC treatments. That may be the time to cash in some, though not all, of your holdings.

Just as you shouldn’t jump at short-run upturns, don’t overreact to downturns. There has never been a medical technology as powerful as stem cells. They will entirely remake the face of medicine. As Sanjay Gupta, Obama’s surgeon general pick, has said, “A new kind of medicine is being created that will definitely break out of the realm of science fiction and become reality. There are places around the world where people are already doing this, such as Moscow… and, certainly, Korea.”

Don’t let yourself be panicked by high-profile analysts who give short sell orders and then talk down the companies they’ve shorted. This happens in every sector, and regenerative medicine is no exception. Prices may dip in response to highly publicized attacks, but this is simply self-fulfilling prophesy. It says nothing about the long-run fundamentals of the targeted companies.

Similarly, don’t get distracted by stories such as the one that broke last week about the Israeli boy. He had developed benign tumors after getting some sort of SC therapy. The therapy included injections delivered directly into the brain from an illegal source in Russia in 2002. That was long before the real breakthroughs in the science. One horrified stem cell company insider told me, “We have no idea what they injected into the kid.” Despite the fact that reports indicate that the therapy did save the child’s life, news seemed to send stem cell stock prices down temporarily.

For perspective, let’s sample some other recent stem cell news.

Miracle Stem Cell Cures Keep on Coming

Egyptian scientists have announced that adult stem cells can prevent diabetes-associated heart dysfunction. I’ve already written about the successful treatment of multiple sclerosis by rebooting the immune system with stem cells. Within a week of that news, a similar procedure was shown to successfully treat AIDS.

The stem cells used in the AIDS therapy came from a donor with a rare genetic resistance to the disease. It worked so well, in fact, that the patient no longer takes AIDS drugs. The donor stem cell transplant also cured his leukemia. This is reality, not science fiction.

The success of the AIDS SC therapy has huge implications. The most important is that it demonstrates the potential of genetically engineered stem cells to give individuals new immunities and biological capabilities.

This is critical because humans are born with a broad range of genetic strengths and vulnerabilities. Now, we’re seeing that those strengths can be transferred via stem cells. These donor cells will give your body the ability to knock out diseases you would not otherwise have the ability to fight. Eventually, designer stem cells will be used not only to cure, but to enhance our physical states. Immunities to cancers, Alzheimer’s and other diseases will be routinely delivered via GE stem cells as a new form of inoculation.

The company I’m recommending this month, in fact, is on the cutting edge of the convergence between genetic engineering and stem cell technologies. Fortunately for early investors, it has been largely ignored by the financial media. The Economist article I referred to above, however, indicates that this is about to change.

This company controls an entire branch of stem cell science and patents. Moreover, it is far closer to market than many of the “big” SC companies that are getting so much old media attention.

The SC Company to Look for in the Short-Run

An odd thing about stem cell science is that we have a pretty good idea about many of the long-run applications. For example, we know that personalized induced pluripotent stem (iPS) therapies will be used for general regenerative therapies. You will provide a blood or tissue sample to a SC company. Those cells will be robotically converted into iPS cells. Then, those cells will be programmed to repair specific organs or tissues. They will rejuvenate everything from retinal nerves to hearts, cartilage and kidneys. Because the cells will be your own, they will cause none of the immune problems associated with donor cells.

This technology, however, is a few years away even for wealthy first-world patients. For billions of others, it could well be more than a decade. This means that most early profits will come from donor stem cell therapies. And as is the case with transplants, this raises the issue of immune reactions.

Fortunately, a great deal is known about immunosuppression. This is due to a long history of organ, graft and marrow transplants. A number of companies are developing stem cell therapies now that rely on immunosuppression technologies.

For transformational profits,
Patrick Cox

March 11, 2009

Breaking Stem Cell News on Immunosuppression was originally featured in the Penny Sleuth.

The administration’s health care summit takes place this week. It is widely expected that the president will make official his pledge to lift the limitations on embryonic stem cell (eSC) research. Last week, Democratic Sen. Tom Harkin and Republican Sen. Arlen Specter introduced a bill that would make it illegal for any future president to impose such limits.

Once again, the media are getting the stem cell story wrong. This change will have little impact on companies working on SC therapies. As I’ve said many times, the ability to create induced pluripotent stem (iPS) cells from adult cells has changed everything. The use of embryonic cells in future therapies is now unnecessary, if not foolish.

This is not to say, though, that lifting the ban on the use of federal funding will not produce winners. The reason is that stem cells have important uses beyond therapies that were stifled by the funding ban.

Theoretically, it was possible to privately fund research on unapproved eSC lines under the Bush ban. To do so, though, researchers would have had to cut themselves off from any other work involving federal grant monies. In most cases, disconnecting from the intricate network of federally funded research was a practical impossibility. You would be hard pressed to find a university or big pharmaceutical company that does not accept government grants in some form. The impact of the ban was, therefore, enormous.

The field of research that suffered most was genetic disease drug discovery. Specifically, it was research aimed at finding cures for the inherited genetic diseases that afflict millions of Americans alone. What scientists have long wanted is access to stem cells that carry the diseases they want to treat. With an unlimited number of disease-carrying cells, potential treatments could be tested and analyzed with far greater efficiency.

Now, let’s move to the thorium front…

I previously told you about The Thorium Energy Independence and Security Act of 2008. Sponsored by Senate Majority Leader Harry Reid and Republican Sen. Orrin Hatch, this bill is designed in large part to produce an alternative solution to the problem of nuclear wastes. Thorium reactor technologies fit that bill for two reasons. Not only do they produce fewer byproducts, they can be used to burn the wastes produced by other nuclear technologies.

Last week, President Obama dramatically moved the thorium industry forward. He announced that he would kill the Yucca Mountain nuclear waste depository project. This is despite the $9 billion already spent on the project.

Reid, of course, is bragging about his role in the decision. So where does this leave us? The Yucca Mountain project, located in Reid’s home state of Nevada, was considered critical to the future of nuclear power generation in America. Since Obama, Reid and Pelosi all promote nuclear power, this significantly increases the likelihood that thorium reactor technologies will be fast-tracked.

Sincerely,
Patrick Cox

March 4, 2009

The Media Are Wrong on Stem Cells… Again was originally featured in the Penny Sleuth.

The specific opportunity that has everyone excited is regeneration of damaged organs by growing new ones.

That’s a “half-full” kind of opportunity. Recently, researchers made a discovery of the “half-empty” kind that opens up a whole new possibility for StemCells Inc.

The New York Times reports that researchers are now persuaded that most cancers result from stem cells run amok. This helps explain why, in many cases, tumors regenerate when just a few cells survive therapeutic treatment.

It is only since 1997 that scientists have been able to identify stem cells within cancers. Now, they’ve been identified in both leukemia and solid cancer masses. In 2003, they were identified in breast cancers.

In a critical associated discovery, researchers discovered that very few cells within a tumor mass were actually capable of expanding the tumor. On the other hand, they determined that these cells either resembled or actually were stem cells.

These cells are very difficult to separate from a tumor mass, but have more recently been found in bone and brain cancer. Many researchers now believe that such cells are at the heart of all cancerous tumor formation.

It is not yet clear whether stem cells that become cancerous are victims of mutation, or whether the cells that are progenitors to stem cells become damaged and behave in an aberrant stem cell-like fashion.

Each stem cell can divide into a new stem cell and a progenitor cell. The progenitor cell can no longer divide but instead changes into the mature cell need for some specific purpose (for example, blood or skin).

Every organ maintains a small population of stem cells throughout its life. A curious fact that researchers have noted is that the population of stem cells in an organ tends to remain stable.

Now, researchers suspect that when this stability is lost, cancer can result. Cancer takes a long time to develop, yet is most prevalent in short-lived tissues such as skin.

If stem cells are the culprit, it would help to explain this paradox.

Scientists, such as Dr. Irving Weissman of Stanford University, are excited that this understanding may enable a new class of “supplemental” anti-cancer drugs. Such drugs would not be the primary line of attack against the cancer, but would basically finish the job by taking care of aberrant stem cells.

One challenge in such a therapy would be killing the aberrant stem cells without also killing the stem cells necessary for regeneration of an organ.

Pharmaceutical giant Genentech (DNA: NYSE) has invested in OncoMed, a company developing monoclonal antibodies against cancer stem cells. Meanwhile, STEM is sitting on a portfolio of patents, which may help in the identification of such stem cells and in sharpening the biochemical knives of treatment.

Should such patented methodologies prove to enable this new line of treatment, StemCells will enjoy handsome royalties from licensing.

It’s too soon to tell whether STEM will benefit significantly from this line of research or not. However, this is an excellent example of the fact that transformational technologies companies can enjoy major windfalls when unexpected new uses for their technologies appear.

To your profitable future,
Jonathan Kolber
June 6, 2007

Investing in Stem Cell Technology was originally featured in the Penny Sleuth.