This is one of the shorter teaser pitches I’ve ever covered — so, bonus for you, it’s also likelier to be one of my shorter articles!
The spiel is an ad for Bill Patalon’s Private Briefing, which is one of those “greatest hits” newsletters … it’s intended to cherry-pick the “best” ideas from all the newsletters published by Money Map Press/Money Morning (by folks like Dr. Kent Moors, Michael Robinson, Shah Gilani… we write about their “teaser” picks pretty frequently, partly because they advertise so aggressively) and serve them up to you at a lower cost than you’d pay to get all the newsletters.
Of course, this works for them primarily as a marketing device — if you start to love the picks at this little newsletter, you’re going to be enticed to buy the far more expensive letters from the editors who are actually generating all those ideas and publishing them the first time around. Newsletter publishers know that a huge hurdle for investors is subscribing to that first, usually inexpensive newsletter… once they’ve convinced you to do that, and to effectively pay for advice or information for the first time, your sales resistance starts to disintegrate and you become a hugely valuable prospect for their pricier letters.
Private Briefing recently (well, over the last year or so) bucked the trend of these “entry level” newsletters by increasing the price — most publishers have been slashing prices to get people in the door, dropping the industry standard $49/year down to $39 or $29 or $19 for new subscribers… and a couple years ago, when Private Briefing was started, a bunch of publishers were experimenting with even lower price points to entice folks by switching to a monthly “pay as you go” price. They hit in the middle of that group when it came to pricing, charging about $8/month among competitors who were mostly in the $5-10 range, and this year they’ve ramped up the fee and are selling it for $20 a month. That’s not “entry level” pricing anymore — anything over $80-$100 usually gives investors pause, from what I can tell — but perhaps it gives subscribers some solace that they’re only on the hook for $20 if they don’t like it.
Past pitches from Private Briefing have not necessarily inspired confidence that they’re teasing unbeatable investments — the most recent one was JG Wentworth (JGW), the structured settlement buyer they touted in May (it has now fallen by 50% or so after a terrible quarter), and Patalon’s “best of” picks like Kratos (KTOS) in mid-2013 (down 30% or so), and his insider buying-driven recommendation of Delcath in 2012 (down 75% now) have been equally weak.
That doesn’t mean all their stock ideas are bad, of course, but it should remind us that the simple fact they’re teasing them and building captivating, well-written arguments for why they’ll double or triple doesn’t, by itself, guarantee anything. We don’t know what Patalon might have recommended to his subscribers, they may have been short-term trades or they may be the only losers in a sea of winning recommendations — but we’re not cherry-picking the results, those are the the only three teaser picks of his that have been heavily touted enough to make us cover them in recent years, and each came with the “promise” of having possible gains of 201%, 300% and 295%, respectively.
But that doesn’t mean they can’t present interesting ideas… or that we can’t, at least, satisfy your curiosity and let you do your own research. So, now that we’ve cooled your jets a little bit, what’s the latest stock?
They’ve been pitching this one for a couple weeks, and this is all we get in terms of details:
“The Next Blockbuster: Insiders are Grabbing This $6 Biotech – You Should, Too
“Bill Patalon just uncovered a rash of ‘insider buying’ at this under-the-radar biotech – including a brand-new $109,000 ‘Buy’ by the company’s CEO. This little-known micro-cap serves the exploding $53 billion market for ‘in-vitro diagnostics.’ Forecasters believe the shares are poised to double – in the near term alone. And its pioneering “medical tests in a test tube” technology makes it a possible buyout target. The ‘insiders’ know something… don’t miss out.”
So who is it? Thinkolator sez this is… Trovagene (TROV), a little diagnostics company that has come up from time to time in Dr. KSS’s biotech discussions but that I’ve never looked at.
And after we got that result, I went back to check and see if Money Morning had written any free articles about it, to see if they had a public opinion on the stock — and it turns out that pitch was very similar to a free article Michael Robinson wrote back in March recommending TROV. It wasn’t seeing big insider buys back then, but there was a substantial outside investor that Robinson was excited about (Bridger Management, which was buying back then… and has continued buying into the Summer, so they now own more than 10%)… and the stock did quite well after that, doubling in fairly short order.
But it wasn’t to last — the stock is now back down to where it was when Robinson recommended it, and there has been some insider buying (including that $109,000 buy by the CEO, Antonius Schuh, who bought 20,000 shares at $5.45 each — shockingly enough, the only shares he owns after almost four years as CEO… The CFO also bought some shares last month, as did a director).
The big impetus for the shares coming back down appears to have been their secondary offering in mid-July, though they were off their highs before that and have continued to fall since… perhaps partly because results disappointed when they released earnings in August (the offering was made at $8.75, well below the $12+ highs of a month earlier, and Bridger, their largest investor, did participate in the offering).
You can see their last quarterly conference call transcript from August 10 here — do note that the latest offering won’t be reflected in those results, they’ve raised another $32 million or so and added 4.6 million shares outstanding since the quarter closed (they also raised $23 million back in February in an earlier offering, so they’re now genuinely cash-rich — and have genuinely scared off at least a few shareholders).
This company is indeed trying to serve the market for in-vitro diagnostics — it seems that much of their push right now is to test blood or urine samples for “cancer causing DNA mutations” cancer as a way to supplement tracking of cancer patients, following the progress of the disease as a supplement to standard biopsies, imaging, or whatever else is done to monitor disease progression (or treatment success or failure). Sounds like a lovely idea, though perhaps not a unique one, and I have no idea what their market positioning might be. From browsing their website, it doesn’t look like their tests require FDA approval, though I don’t know if that’s true for all of them — and I don’t know whether they have trouble getting insurance to pay for this testing.
That’s about all I know about this one — if I were looking at it as a possible investment, which I’m not (I try to avoid little biotechs, partly because our readers have such an active discussion of those stocks and partly because most of them just don’t appeal to me), the thing that would stand out for me is the very slow pace of revenue growth. Some of their tests have been available since they tried to start their “commercial rollout” a year or so ago, and the revenue has not bee growing — which may not be surprising, it takes a lot of effort to change the standard of care or justify new tests or replace incumbent procedures, but it indicates to me that there wasn’t a groundswell of demand for this testing regimen before it became available. The market wasn’t clamoring for it, they have to build the market — and that takes time, probably more time than they’re guessing, and money to build a sales force and develop a cadre of “evangelist” doctors who can influence and convince their peers. And, of course, it takes continuing successful trials to validate your test and procedure.
So it may work, but it’s not like a biotech that sells a drug which treats an unmet need and which has a billion dollars in sales just waiting for the drug to be approved by the FDA (and those, of course, are rare enough as well). It seems to be a much slower process. The company says they expect more catalysts late this year from continued clinical trials that validate and spread the word about their cancer tracking/detection prowess and their “better than biopsy” results, and that they expect more insurance reimbursement and big improvement from their sales and marketing work in 2016… which is, no doubt, why they raised all that cash this year.
Whether or not that means they’ll make money, I have no idea — even beyond competition, which I know nothing about, I didn’t see any indication of what pricing might be, how their sales work, even whether they’re selling machines or simply doing the testing in their own labs or partnering with equipment companies (not that the info isn’t there, but I stopped looking). You can see Michael Robinson’s free article about this one from back in March here, and the price — after their rise, secondary offering, and fall — is about the same as it was then.
Beyond that, you’re on your own — I know there are some Gumshoe readers who’ve been interested in this stock in the past, and that many of you are far better versed in biotech investing than I am, so feel free to let us know what you think with a comment below.