Jospeh Krueger's  Instablog

          The Human Genome Project (HGP) was a 13-year project coordinated by the U.S. Department of Energy and the National Institutes of Health in cooperation with genetic bioscience giants Celera Genomics (CRA), Incyte (INCY), and Human Genome Sciences (HGSI). The long awaited completion of The Human Genome Project, which told us what the sequence of the average person’s genetic code is “supposed” to be, gave the necessary information for publicly funded research as well as for-profit research to begin understanding how the differences between individuals DNA affect health and disease. Indeed, this information gave rise to the concept of “personalized medicine”, which seeks to use precise genetic information about individual patients to custom tailor their mode of therapy for a disease. This concept of personalized medicine has fueled the growth of multi-billion dollar companies like Mercator Pharmaceuticals; Millennium Pharmaceuticals, Myriad Genetics, and Affymetrix.   

Like these well known giants, a lesser known company called Genelink (GNLK) had a similar bold idea back in 2001, even before the completion of the HGP, to use personalized medicine to maintain their well being. Long before it was trendy for companies to begin talking about "personalized medicine", GeneLink was taking a leadership roll in the development of individualized therapies by focusing on four important genomic research areas:

Nutragenetics - The study of the relationship between our nutrient intake and gene function, with a particular emphasis of how this information could be applied to optimize an individual’s overall health regimen.

Dermagenetics - GeneLink’s pioneering research and development efforts literally launched the exciting new field of Dermagenetics® –the scientific application of genomic sciences to guide personalized, more effective skin care products and therapies.

Applied Technologies - GeneLink innovations led the company to develop a proprietary mass customization system for nutritional supplements and skin care product delivery. In 2005, GeneLink introduced DNA UltraCustom™ - the first scientifically proven anti-aging skin-care products for consumers based on their individual Skin-DNA profile.

Pharmacogenenomics – The study of the effects of individual genetic variations on drug response aimed at the development of therapies that maximize benefit or minimize side effects in individuals.
 

At the same time, the concept of using nutraceuticals- drug-like chemicals found in commonly consumed plants- was arising. Nutraceuticals are extracts of specific plants which have been identified by scientific studies to aid in the prevention and/or treatment of disease. These dietary supplements typically contain a concentrated form of a specific class of bioactive ingredients that have been validated to target a biological process. Some more common examples of nutraceuticals are resveratrol (from red grapes), a potent antioxidant; psyllium seed husk (soluble dietary fiber) for reducing hypercholesterolemia, and soy (isoflavonoids) for cardiovascular health and cancer prevention. Other well known nutraceuticals ligans (fatty acids) from flax seeds, beta-carotene from orange vegetables, anthocyanins from berries, quercetin from apples and onions, dithiolthiones and isothiocyantes found in the cabbage and broccoli family; and lycopenes found in tomatoes and fruits. The list is of these types of products is quite extensive, as is the scientific research to support the health benefit claims of these types of products. 
 

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Medical diagnostics may not seem as glamorous a field like pharmaceuticals or medical devices, but it sure is a profitable one. In-vitro medical diagnostics is currently a $40 billion dollar market that provides revenue multi-billion dollar companies like BioRad (BIO), Abbott (ABT), Beckman Coulter (BEC), Johnson and Johnson (JNJ), Invitrogen (LIFE), Quest Diagonostics (DGX), Inverness (IMA), and the list goes on. So when a company with an established history of innovation and strong record of sales comes on the scene, you better pay attention, because there is a tremendous potential for them to gain a sizeable share of the profits in this multi-billion dollar market. You probably have never heard of Chembio Diagnostics (CEMI), but they emerged on the field in 2001 and are starting to make a name for themselves.   Although Chembio Diagnostics (and their stock) continue on relatively unnoticed, some recent developments are about to make them noticeable, and you can likely expect a renewed interest in Chembio Diagnotistics to increase the price of their stock also.

 

            Chembio Diagnostics is a player in the currently $7 billion point-of-care test (POCT) market. The demand for POCTs is increasing dramatically, as POCTs offer significant advantages over the traditional centralized lab tests. They reduce costs by simplifying the test procedure and by offering early and prompt diagnosis on site, and they eliminate return visits and expedite necessary intervention.   Chembio Diagnositics is a profitable company who already generates millions in revenue, increasing quarter over quarter, selling FDA approved test kits. Beyond this continued growth, the immediate future is bright for Chembio Diagnostics as they are seeking to gain CE Mark (European) approval, and approval in two developing countries before the end of this year. But the bright future for Chembio Diagnostics only begins there- their novel and patented DPP technology (US patent 7189522) is being used to develop several more news kinds of test kits that promise better sensitivity (10-50 times over existing lateral flow kits) and faster results (read more at www.chembio.com/newtechnologies.html). Chembio plans on gaining CE Mark and FDA approval for its HIV DPP kits in 2010 through 2011. Chembio diagnostics has also an extensive development program and collaborations with major diagnostic companies, the World Health Organization, the National Institute of Health, Brazil’s Oswaldo Cruz Foundation to accomplish it goals of gaining market share elsewhere.

I would like to take the time to release a two-part article for my readers to discuss the potentials profits and pitfalls in penny stocks, and how to invest in them. Readers of my blog who may have watched the stocks I have profiled have had the opportunity to witness the extreme gains and losses that are inherent in penny stock trading. Penny stocks are only for the most aggressive and watchful investors, and should only be a very small part of a portfolio. Traditionalists would advise to avoid them all together, but the profits are too great to resist, and a smart investor can avoid the pitfalls. The recent downturn in the market sell-off of more speculative investments has created many “new” penny stocks out of many good companies This time is a unique time, in that the lack of ability for companies to raise necessary capital has turned many cash poor companies into penny stocks. For example, I will remind readers that earlier this year, Citibank (C) was technically a penny stock. In fact, if you look at virtually every penny stock from July 2008 until July 2009 they have nearly identical declines and patterns in price as the major indices have, with the important difference that many of them have not recovered at all like the broader markets have. 

A stock price recovery for many companies has not occurred because these companies will most likely (statistically) suffer the fate of withering away, and are thus ignored by investors. Yet there are still there are many viable penny stock companies that remain unfairly valued, in my opinion. These companies may be hanging on the results of an important clinical trial, or turning the corner into profitability, or simply under the radar due to exchange de-listing or lack of investor interest. These kinds of extreme small cap value type investments are the ones that I write about and the ones that I feel that penny stock investors may find to be the most rewarding with the least amount of risk. Keep in mind by no means the risk is trivial with these companies, but yet given their low valuation, the risk is worth the reward. That being said: It is a jungle out there. For every good penny stock company there are 100 lousy ones, and many penny stock companies are worthless shells or deliberate scams. So the penny stock investor must be extra astute, and make extra efforts into research to ensure they are not falling victim to investment which had risks they did not understand. 

Penny stocks are quite popular, with good reason. Many penny stock holders can see regular gains of 50% to 100%, with occasional gains up to even 1000% in a single day. Penny stocks can range in price from one hundredth of a penny (.0001) to one dollar (or more, depending on your perspective). Often it is within an average investors reach to purchase a million shares in a company for $1,000-$10,000. Not only does this number of shares look impressive in your portfolio, it is conducive to dreams about each share reaching one dollar and allowing you an early retirement. But penny stocks have a well deserved reputation for an extreme level of risk, as many penny stock holders have seen losses of 50% to 80% in a day. Penny stocks are extremely susceptible to the influences of traders who can work together, or independently, to drive prices up by buying mass amounts of shares for relatively low amounts of money; or drive prices down by shorting massive amounts of shares. Penny stock traders en masse can drive the price of a stock in either direction at a whim leading to massive gains or losses without warning. There are also many “pump and dump” schemes or outright fraud scams run for the sole purpose of fleecing investors. There are hundreds of zombie ticker symbols that continue to trade on the Pink Sheets that have no company behind them, and are just the defunct shell of a company long since gone or bankrupt. Indeed, “reputable” brokers avoid penny stocks altogether, but there are indeed hundreds of viable, growing companies that are trading as penny stocks. All of these companies are trading for pennies rather than dollars with good reason, but occasionally you can find good SEC reporting companies that are truly undervalued or have unrecognized potential and are indeed the proverbial “diamond in the rough”. With careful action, the average investor can include penny stocks in their portfolio as part of a healthy balance of risk-weighted assets.      

As humans, we would all like to hear about a company which holds novel technology that could solve an age-old problem and could save millions of people’s lives per year. As speculators, we would all like it if the company was publicly traded and seeking approval for this life-saving technology at the end of this year. As investors, we would like it if the company was financially healthy but unknown and extremely undervalued. On top of it all, the risk taker in us would like to have the company’s long term future rest on approval for their medical device, which could generate them $5 BILLION per year in revenues. Well now you can have it all with Medasorb (MSBT).

Medasorb is the owner of 26 key patents surrounding their two products in development, CytoSorb and BetaSorb. These medical devices utilize their adsorbent polymer technology; known medically as hemoperfusion devices. During hemoperfusion, blood is removed from the body via a catheter or other blood access device, perfused through a filter medium where toxic compounds are removed, and returned to the body. The most common of hemoperfusion you are probably familiar with is kidney dialysis. The BetaSorb device is indeed for kidney dialysis, but the Cytosorb is a device that seeks to fulfill the unmet medical need of treating sepsis. 

Sepsis, known in layman terms as “blood poisoning” is caused by a systemic infection from a pathogen (bacteria, fungi, etc). This can arise from a wound, ingestion of contaminated food, and even surgery. In the United States alone, there are more than one million new cases of sepsis annually; the worldwide incidence is estimated to be 18 million cases per year. With sepsis, the body undergoes a systematic inflammatory response (SIR). This causes an increase in temperature, increased heart and breathing rate, and dramatic changes in white blood cell count and cytokine levels. Sepsis is mediated by high levels of cytokines which are released into the blood stream as part of the body’s auto-immune response to severe infection or injury. These toxins cause severe inflammation and damage healthy tissues, which can lead to organ dysfunction and failure. Sepsis has a high mortality rate, and an effective treatment for sepsis has not arisen yet.

On Monday, Feb 25^th 2008 Medicure, (TSX:MPH; OTC:MCUJ), a Canadian pharmaceutical company traded on TSX and OTC, had a heart attack. That day, its stock price dropped from about 90 cents to 25 cents after announcing negative results from its pivotal phase 3 trial of MC-1. Medicure had invested heavily in the MEND-CABG II clinical trial of 3,000 patients to demonstrate a benefit of MC-1 in the incidence of cardiovascular death or nonfatal myocardial infarction up to 30 days following coronary artery bypass graft (CABG) surgery. Because the trial did not meet its primary endpoints, the company did not submit an application for MC-1 marketing approval to the FDA. After this “heart attack”, Medicure was effectively pronounced dead: The stock price floundered into oblivion, it was delisted from AMEX to the OTC where it continued to whither on low volume. The funeral was planned for Medicure when its stock price eventually fell well to less than a penny during the market downturn last fall. Medicure seemed to buried and forgotten on the Pink Sheets. But don’t be fooled- despite the fact that its stock price is well below that of many bankrupt companies (“Q” stocks), Medicure is not dead, and was in fact buried alive and is digging itself out of the grave. Medicure is in fact generating significant revenue, continues to find new life for MC-1, and even is runing clinical trials for its main clinical candidate Tardoxal. Medicure is indeed quite alive and active, as a fully SEC reporting company, who has sufficient promise to turn into a profitable, growing pharmaceutical company in the near future.  

Medicure has a growing revenue base from its core commercial business of selling Aggrastat (tirofiban), a GP IIb/IIIa inhibitor (anti-coagulant). Aggrastat is sold by Merck (MRK) outside of the US, and Medicure bought exclusive rights to sell Aggrastat in the US from MGI Pharmaceuticals in 2006. In this short time, Medicure has been quite successful in capturing a market share for this drug. US revenue from sales of Aggrastat grew for the fifth consecutive quarter, and year to date revenues are over triple the revenue seen in the previous year. Medicure shows continued improvements to their sales and marketing organization, and they are betting that the lower cost of Aggrastat compared to its competitors, Reopro [(abciximab); Johnson and Johnson (JNJ)], Angiomax [(bivalirudin);The Medicines Co (MDCO))], and Integrelin [(eptifibatide); Schering-Plough (SGP)] will drive sales. Aggrastat is half the price of these drugs, and has been shown repeatedly to be as effective as these drugs.  Medicure is betting (rightfully so, I believe) that healthcare reforms and the current economic downturn will increase Aggrastat sales.  This gives sufficient reason to believe that Aggrastat sales and its share of the US $450 million market for this drug will continue to grow at its current pace. This alone would turn Medicure profitable.

            However, beyond this, Medicure is seeking new indications for Aggrastat to increase its market share. In September 2008, Medicure announced the results of their “3T/2R Study” which demonstrated that Aggrastat significantly lowers the incidence of heart attack after elective coronary angioplasty in coronary artery disease patients who have shown poor response to standard oral antiplatelet agents, aspirin and clopidogrel.The study, which involved a high dose bolus administration of Aggrastat in patients undergoing angioplasty and/or Percutaneous Coronary Intervention (PCI) in patients who do not properly respond to standard oral antiplatelet agents. Although the study's dosing and patient population is outside of the current indicated use of Aggrastat, the results supports the further investigation of the use of Aggrastat in this manner. I would expect to hear about a phase III trial investigating this use in the near future.