Michael Robinson has been pitching “Living Metal” again recently, as an add-on to some of his ads for Nova-X Report over the last few weeks, so I thought I’d take another look at it for you.
This is no longer the centerpiece of any promo campaigns that I can see, it was mentioned late in the “immortality” teaser ad for Nova-X, which is Robinson’s cheap newsletter ($39), so it’s a bit of a filler “bonus” pick in those ads, a far cry from the days (in 2013 and 2014) when this “secret” stock was the big promised winner from Robinson’s Radical Technology Profits (his $4,000 newsletter) a year ago, or for competitor Nick Hodge’s Early Advantage letter ($999). (Hodge was first on this one, if you’re keeping track — not that it has necessarily worked out any better for his subscribers if they held.)
If you missed it the last few times this stock was teased by different newsletters, here’s how Robinson gets us all hot and bothered about it:
“It’s called living metal.
“And it is formed by a gene in the blood of a very rare sea mollusk. This animal only exists in one place on earth, a 14 mile stretch of water off the coast of Southern California.
“But its scarcity isn’t why it costs $141,748 for an amount that barely fills a thimble.
“This is: An international panel of 15 doctors from the University of Liverpool, London’s Institute of Neurology, and the Alzheimer’s Institute in the U.S. have collectively analyzed this living metal.
“They officially concluded it can prevent – and possibly treat – Alzheimer’s dementia.”
Who wouldn’t want that, right? That probably triggered the memories of a great number of you, anyone who’s been an attentive Gumshoe reader for more than a few months probably remembers the past pitches for this “living metal,” or, years before that, the even-more-aggressive spiel about “blue blood” and this mighty mollusc … the stock is still the same, this is the little aquaculture company and aspirational biotech firm Stellar Biotechnologies (KLH on the Venture exchange in Canada, SBOTF on the pink sheets).
Ring a bell? Well, part of the reason I had to call this one up again is because of the balderdash in this next bit of the tease, from Michael Robinson about how he helped his subscribers get in on this fantastic stock last year:
“I delivered them a Money Morning prospectus on the one company that controls the only production facility of its kind for this living metal.
“I presented them with all of my research. Through my interviews, we talked with the CEO and chief science officer. We virtually toured the heavily guarded facility where this living metal is produced, and we dug into the clinical trials.
According to company projections, revenues from this living metal are expected to surge from $2.63 million in total sales to $620 million a year.
“And I showed a group of Main Street venture capitalists how they could purchase stakes in this company before its NASDAQ listing.”
Yes, that was a big part of Robinson’s tease of this company last year — he said you could get in before their NASDAQ listing through his special private placement (though really, anyone could have bought the shares, at pretty much the same or better prices, on the Canadian exchange or over the counter in the US). That hinting about an imminent uplisting to NASDAQ was a big part of why the stock soared for a very brief while after Robinson’s ad campaign.
You can read my article from last year’s Robinson pitch here if you like, but these are the promises he made in that ad:
“Guarantee #1: 30-Day Grace Period
“If, for any reason, I feel Radical Technology Profits is not right for me in the next 30 days, I’m entitled to a full refund of my membership. No questions asked.
“Guarantee #2: The NASDAQ Listing Will Take Place By November 30th
“If this company is not listed on the NASDAQ by November 30, 2014, I will receive 12 months of access to Radical Technology Profits service for free.
“Guarantee #3: At Least One Commercialized Drug Will Reach The Market Within 12 Months
“If this biotech firm does not have at least one MCh-based drug reach commercialization before September 2015, I will receive an additional 12 months of access to Radical Technology Profits service for free.”
OK, so… that last guarantee was obviously hooey. No drugs that depend on Stellar’s Keyhole Limpet Hemocyanin were in Phase III trials last year, as far as I can tell, so obviously none were going to be commercially available, at least in the US, within 12 months. Maybe he can get by on a technicality, but from Stellar’s own presentations (and if anyone is motivated to find a customer of theirs in Phase III, they are), they say two companies have Phase III trials ongoing for KLH-enabled immunotherapies, which seem to be the major area of possible value. Those are OBI Pharma’s OBI-822, which the OBI says is in Phase 2 (with a December 2016 study completion) but Stellar says is in Phase 3; and Celldex’s Rintega, which is in Phase 3 now but isn’t a Stellar customer — they use KLH from Biosyn, a company that’s been a commercial KLH producer for many years (unlike Stellar, whose unique selling proposition is that they can keep these animals alive and reproducing in aquaculture to harvest their blood, Biosyn rejected the idea a limpet aquaculture 15 or 20 years ago and uses wild Keyhole Limpets, bleeds them to some defined degree, then returns them to specific parts of the ocean to recover and be re-caught at a later date).
And Guarantee #2 obviously failed — Stellar has never gotten a NASDAQ listing (or really started the process of listing, unless I missed it), they have upgraded their financial reporting slightly and become a US issuer, and they do seem to still have the goal of getting a NASDAQ listing, but they are trading on the OTCQB in the US right now, which has very minimal “listing” requirements and only charges them $10,000 a year, much cheaper than a real US market listing. It’s unclear whether they could upgrade to NASDAQ at this point, they’d have a hard time meeting most of the requirements for revenue, cash flow, liquidity, stock price and market cap.
I expect Guarantee #1 probably worked just fine — as with most publishers, at least the big ones, if you asked for your refund during the grace period you should have gotten it.
Will Stellar’s business ever work out? I don’t know — it might, to be sure, but there’s still a big area of opacity to their key operating metrics that makes me very uncomfortable. How much can they sell KLH for in their supply contracts? How much volume will be required by their customers if substantial drugs get approved? If you know those things, you can work out possible margins or speculate on profitability by guessing that the cost of maintaining the aquaculture environment will probably remain the same, and they’ll get some scalability as they process greater quantities of purified KLH for their customers — but with other suppliers also selling the same stuff, and with several “supply agreements” by both KLH and Biosyn (and probably others) in place for many years without commercial demand really hitting and driving up the price of KLH in any way that’s obvious to outsiders like me (the price to buy it from biology supply houses is about the same now as it was a couple years ago), it’s really hard to imagine how much the company should be worth.
The stock was in the 90-cent range as Robinson started his ad campaign last August, and despite the fact that his big ad push and the associated hinting about a possible Nasdaq “uplisting” drove the shares briefly to $1.50 (giving some relief to the folks who’d bought a year or two before on Nick Hodge’s “blue blood” teaser pitch at close to $3), the stock is now back down in the 70-cent neighborhood and has been very slow and stagnant since Robinson’s teaser ad attention “wore off.”
So is the stock more appealing now, now that it’s not being as aggressively pushed by newsletters or hinted about as an “uplisting” stock? You’d have to do quite a bit of arguing to convince me unless you can tell me how much physical demand for KLH (how many grams) a new commercial immunotheraphy product will create. Stellar says they can produce 1,000 grams a year of KLH now, and can scale that up to 4,000 grams (presumably over at least five years, since they say the limpets need to be five years old before they can produce — don’t know how long they live when they’re donating blood every few months), so if the research-stage pricing holds and this is the same stuff Sigma-Aldrich and others are selling for about $300 for 100 mg, that would mean it’s $3,000 a gram, which would mean Stellar maxes out at $3 million in sales on a good year right now and $12 million in sales after they quadruple production in a few years (to get to $620 million in revenue, as Robinson teases as the company projection, from just material supply, they’d have to raise prices 50X and get more than $150,000 a gram if they’re producing 4,000 grams a year… it may be that they expect revenue from elsewhere, too, but it would all have to come at least tangentially because of the unique value of KLH, it seems to me that their patented captive KLH production process and the aquaculture facility are really their only meaningful assets).
Something in that picture doesn’t make sense for a $50 million company that has consistently had operating expenses of about $5 million a year even before they have all-out commercial production — either they’ll be able to sell the KLH for substantially more and generate a profit, either because of different purities or because of higher demand jacking the prices up as some scarcity is created, or people are relying on their nascent R&D programs like their in-house early-stage C-Difficile vaccine to create some value, or their stock is just too expensive (still). I’m kinda guessing that it’s still number three: too expensive… but there is that outside chance that the “secret sauce” of being a perhaps more sustainable producer than others, thanks to aquaculture, will give them a pricing boost at some point, particularly if harvesting the wild KLH or in-ocean aquaculture is prohibited, or that the price of KLH will jump dramatically higher because of the new demand from commercial immunotherapies and other drugs in clinical trials. They’ve gotten some impressive-sounding supply deals, including with Araclon, the Spanish biotech working on KLH in Alzheimer’s Disease, but these deals don’t seem to be coming with anything like milestone payments or up-front investments that would help reinforce (in my mind) the unique value of Stellar’s KLH product… and, of course, many or all the drugs might fail to get approval or achieve meaningful sales volume.
That’s my update — you can see that I’m still fairly skeptical of Stellar, largely because of a couple holes in my understanding of the market… but, to be fair, I often come up with this level of skepticism for early-stage biotech companies (which Stellar sort of is, in some ways — or would like to be, despite the fact that they’r primarily, today, a money-losing material supplier) because the economics so rarely make sense to me without having a grasp of end market demand or potential revenue. For those of you who hold the stock, and I imagine there are some, I hope those holes are full of gold or that you can get better answers than I have in my (pretty cursory) research… and, yes, I’m a little grumpy that Michael Robinson is still pitching his newsletter based on the “accomplishment” of having gotten his readers into a private placement at presumably about $1 last year when the price is now around 70 cents.
So whaddya think, Stellar fans and foes? Is it now time to get interested in Stellar Biotech again, now that the price is back to where it was when the first newsletter booster, Nick Hodge, touted it at about 65 cents two years ago? Have we finally “burned off” all the speculative excess created by Hodge (who also teased it just as heavily at $1.50 a few months later) and later by Robinson (and probably fueled by the fact that we discussed it here several times, too), to get to something more fiscally reasonable? I kinda don’t think we’re there yet, but maybe I’m just being a nervous nellie — let us know what you think with a comment below.