NutraCea: Running With the Big Boys

Single-molecule drug discovery is not a new concept. Just take a look at prescription drugs. To sum it up - big pharma spends the big bucks to find “the molecule” that does what they want. And then once one of these drugs goes off patent, other companies tweak this molecule a tiny bit to get a not-so-tiny piece of the pie. It is really a pretty brilliant concept, but it will cost you close to $1 billion to bring a new drug to the market in today’s world.

These days, however, single-molecule drug discovery is no longer limited to prescription drugs. With all of the blockbuster drugs invented for some of the world’s most prevalent conditions, the focus (aka. the money) is being diverted into a less stringently controlled market: OTC (over-the-counter). The rules in this arena are simple – as long as nobody gets killed or seriously injured by your product, you can sell it. Efficacy need not be proven on any level. The fact of the matter is, however, that there are plenty of OTC products out there that work and have been extensively studied. On top of this, you will not have to shell out 10-figures to develop it.

What does this mean for NutraCea (NTRZ.OB)? Well imagine - you have patented processes that use your nutritional supplement (stabilized rice bran) to treat hypercholesterolemia, hyperlipidemia, atherosclerosis, diabetes, hyperglycemia, hypoglycemia, joint inflammation, pain, and loss of mobility. These are some of the world’s most prevalent conditions. Now say – you take some of your stabilized rice bran [SRB] and you analyze it just like big pharma does to make molecules like big pharma does using single-molecule drug discovery. You find that the cholesterol-lowering effects of SRB are due to molecule A that are naturally present in your SRB. Very excitedly you patent the molecule, or the process you used to extract it. Now what? You have a couple options:

1. You take as much SRB as you can and extract as much molecule A as you possibly can and you sell it somehow (pill, capsule, powder) with a drug developer.
2. You let the makers of prescription drugs use molecule A as an excipient in their pharmaceutical grade compounds to help promote its cholesterol-lowering ability
3. You hire somebody to make molecule A industrially and sell it in mass.
4. You license out the technology you used to get molecule A to anyone that wants to use molecule A for themselves.

Any option leads to potentially significant revenues, and NutraCea is doing this now. They have partnered with Herbal Science, a leading developer and producer of functional ingredients derived from natural sources. One of their two joint ventures, RiceRx LLC, is specifically devoted to “mining NutraCea’s proprietary Stabilized Rice Bran for single molecule drug discovery for licensing or sale to late-stage life science and pharmaceutical companies.”

Keep a watch out for specific announcements relating to this niche. It could very well spell success for shareholders.

Disclosure: Author holds a long position in NTRZ.OB

Comments

[Moral Hazards Amok]

Call me skeptical. This company has made grand claims in the past, only to later fail to deliver. Oh, and then there was that little stuffing the channel debacle not too long ago. For me and others the trust is gone. No hard feelings though, I hope you win big on this.

(I currently have no position in NTRZ and have no intention of assuming one.)

[Salvatorious]

You have a right to be skeptical. They haven't proven much beyond the fact that they can buy things, imo. But this is one of the things they Z is doing (among others) that could put them in a different ballpark. I just wanted to highlight how it is a SMART move.

[User 203843]

I have a small position in NTRZ and all I can say is that , yes, their concept seems great but the management leaves a lot to be desired ( they lose more money every quarter) Every day I wonder, " how low can she go?" Every conference call is like a trip in the twilight zone.

[Branmasterflash]

Among those who follow this company there is a strong,and excusable tendency to throw the baby out with the bathwater.After all,Nutracea has been confounding investors for over a year.The web was rife with ugly rumours about management last year,when the company really disappointed.In my opinion Nutracea's big problem last year was a simply an unexpected loss of supply that really constrained their ability to produce product and sign new sales contracts.In the end none of the rumours proved true.The one real knock against NTRZ is the share count- now up to 168 million.That dilution started before Brad Edson became CEO in '04 and unfortunately,has gotten worse as they've needed to raise more capital through offerings.But it's also worth keeping in mind that for the first two years he was CEO Edson grew earnings 100% YOY and last year by roughly 30%.I do agree with those who say the CC's are whacky.It's been clear that aside from COO Leo Gingras the rest of management has been almost incoherent trying to explain their difficulties.But I also believe that the company has made improvements on all fronts.They've hired a new PR firm,expanded supply sources,purchased a profitable bran oil facility[Irgovel],deve... a new process for stabilizing wheat bran,established new markets and have been doing aggressive R&D.I continue to feel that this company is sitting on a technological gold mine albiet with a management that is learning on the job.And while I don't currently hold a position I'm also not throwing the baby out with the bathwater.
Nutracea is still a company that warrants keeping an eye on.

[NTRZ is a joke]

What a bunch of bunk. The matter with Herbal Sciences involves only several hundreds of thousands of dollars to study a few things. This is just another bunch of hype and wasted money by a CEO out of control, out of his league and out issuing stock as fast as the printing presses can crank it out. Same thing he did at Vital Living. Yest that $.001 cent stock he's still doing major things with at Nutracea.

[NTRZ is a joke]

This is the type of regular hype that gets NTRZ investors under water. There was a major promotional hype launched in later 2007 and early 2008 to drive the stock up 100% only to see it collapse. This was stimulated by another horrible Conference Call in March. Then Nutracea was working on issuing a lot of new stock. They issued a bunch of press releases in a 4 week period. Some of these played on topics like feeding orphans, soaring food prices and world hunger. At the same time some people on the internet and message boards pumped this stock up really hard on these press release topics. This sent the stock up from 93 cents to $1.23 in 4 days. On day 5 Nutracea issued a large amount of stock at 90 cents a share and a lot of warrants at exercise prices of only $1.20 a share. The stock went as low as 82 cents that day. This meant a buyer just the day before could have been down 33% in less than 1 day. This is the kind of hype that just creates losses on this stock.

[how long do we have to wait]

I'm convinced that ntrz has to sell out to one of the big boys, like General Mills, for any of us investors to ever see a dime of profit. We have waited and waited while the company continues to create more and more stock that they then give a way for under a dollar now. We poor saps that purchased it while it was skyrocketing with all the hype of it going to the big markets just keep watching it tank. Who would have thought we'd be looking forward to it hitting a dollar?

[putnotic]

It's clear that the Board is ignoring its fiduciary duty to shareholders by allowing management to continue operating as it is. Something has to snap soon (aside from my investment). Personally, I think Pepe's giving this company's execs way, way too much credit.

[Stock Miser]

I bought at $1.18. I bought because of the multi-tiered approach to the product mix, and because the product, SRB, was actually being produced and shipped. About a week after I bought, they had an earnings disappointment which, in large part, was due to a significant product return, without which they would have made a profit (some of us do read every line of every SEC filing). So, bad timing on my part. I was expecting it to do much better than that.

The primary problem since seems to be a lack of communication between management and shareholders concerning what management has expected for ongoing sales results. The most recent quarterly came as a surprise to me as I was expecting them, all things being equal, to come close to breaking even. That didn't happen either.

However, when they get their patent issues settled (the annual report indicated they needed a Proof-of-Concept working model), they are going to have intellectual property which, it seems to me, will be essentially a cash cow. They can then either sell SRB directly to companies for ingredients in human or animal food, or they can license the ability for other companies to produce it and make lots of money on the licensing fees. Either way, IF THEY CAN GET THEIR LOGISTICAL HOUSE IN ORDER, it seems to me there is a lot of money to be made. The real question is this: Can they pull it off? I have 500 shares that say they will, but I don't hold a crystal ball. I'm prepared to sit and wait for a long time though to find out.

Warren Buffett didn't make his money chasing stocks. He made it sitting on stocks for a LONG time. *I* think this one is going to be worth waiting for.

[davemcc3300]

Lots of sour grapes comments from folks who hate having gotten in "early" on a known speculative bet. Salvatore Pepe's a young, smart guy. I encourage him to revisit NTRZ after it starts to turn profitable and hit its growth stride.

I'd hate to see a big ag company take NutraCea over: the big money goes to those of us who were "early" ...who have a bit of vision, and patience.

[Show me the earnings]

I agree with all of the above. I have lost 75% on my NTRZ stock but still hold all of my shares hoping a miracle will occur. We have watched as management issued tons of stock to themselves and to pour money into worthless acqusitions previously owned by insiders instead of spending it on plant expansion while lying about having so many orders they can't keep up. It has been nothing but hype and lies the whole way. I would never have bought the stock if I knew that even the earnings were a lie. I smell reverse stock split.

[peoria player]

I bought a s---load of this stock last year at .91 watched it nearly double. My broker "unofficially&quo... had been suggesting it since it was around $5. before it took the long slide due to the president's questionable bail out of his previous company's fiasco.

The concept is great and potentially it could really go, but I also find the comments of smelling a reverse split disconcerting. Anyway I bought it on a lark just as I did Telmex about 20 years ago. Telmex gave a dividend one year in the early 90's of American Movil of share for share, then both stocks doubled, and then Am Movil tripled while TelMex only doubled again. At the time people said to me that buying this stock was like buying two tin cans on a string. Some tin cans --some string!!! And it made its president-Carlos Slim the richest man in the world at one point.

So if the management has good intentions and are not crooks as some think they are they are poised for astronomical growth. In any event isn't that what risk is about???

[pilgrimbill10]

NERTZ; YOUR EITHER WASTMONIES ON SOMETHING/OR YOUR SELFS.WITH ALL THE OPPERTUNITIES SOMETHING IS NOT KOSHER.YOU NEED NEW MANAGEMENT,STRATEGISTS ETC. NUTRACIA SHOULD WITH WORLD FOOD SHORTAGES BE AT THE FORFRONT.TOTALLY DISGUSTED SHARE HOLDER. W. KOTKO