$5.00
QuarTer 2 • 2011
microcapreview.com
Biotech • MedTech Life Sciences • Healthcare Issue
Pro-Pharmaceuticals, Inc. Small Biotech Company Fights Cancer with a Big Drug (21]
Can Patents Create Positive Black Swan, Super Growth Opportunities? Dr. Gordon Chiu [15]
Biotechnology: U.S. Jobs Depend Investing in on Funding MicroImproving the cap Companies Human Condition Chester Paulson [67] John Calcagnini [18]
Stellar Biotechnologies Q&A
The Deadliest Deficiency Dr. Lawrence May [61]
Sheldon Kraft [45]
[58] XBRL-What you need to Know Now! (VFilings)
E D i T o r i A l
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ver since I first heard the word bio‑ tech, I have been fascinated by the field. The term comes from the com‑ bination of biology and technology. My fas‑ cination with the subject actually originated with my parents. My dad attended Dartmouth University and then enlisted and became a chief phar‑ macist’s mate in the U.S. Navy. He served in WWll, Korea, and Viet Nam. He often shared his reading materials with me at home. Growing up I was exposed to The Physicians Desk Reference (PDR) and technology mag‑ azines, such as Mechanics Illustrated and Popular Mechanics to name a few. One of my father’s hobbies was the study of pharmaceuticals. He was interested in understanding how drug combinations and cocktails worked. He looked into treating the side effects of drugs with other drugs. His hobby ultimately became an obsession after my mom was first diagnosed with Parkinson’s disease. At the time, around 1970, there was no cure, and few treat‑ ments were available. In later years, only experimental drugs like El Dopa were avail‑ able. Even to this day there is no cure for Parkinson’s disease. My mom was part of the El Dopa experi‑ mental drug program. My dad helped design
Micro-cap Review P.O. Box 4216 Metuchen, NJ 08840-1848 T 646-837-0351 F 212-202-6020 PUBLISHER Sheldon Kraft skraft@snnwire.com Wesley Ramjeet wesley@microcapreview.com EXECUTIVE EDITOR Lynda Lou Kane Kraft WRITERS Leslie Bardolino John Calcagnini Gordon Chiu Barbara Duck John Faessel Bill Garland Frank Grossman Robert Handfield Chet Hebert Lynda Lou Kane Kraft Sheldon Kraft
Jack Leslie Larry May Erik Nelson Elvis Oxley Chester Paulson Charles Payne Stephen Robbins Laura Stein Marshall Sterman Seth Yakatan
ACCOUNTING Jennifer Anglade Accounting@microcapreview.com ADVERTISING Sheldon Kraft skraft@snnwire.com 818-730-6000 BUSINESS DEVELOPMENT Ron Stone Ron@microcapreview.com CIRCULATION
the first drug cocktail solutions to reduce the side effects of El Dopa for Parkinson patients. I credit my dad with saving my mom from the side effects El Dopa, such as lock jaw, nausea, and skin rash. At many breakfasts, our family would have a discussion about an experimental drug that my father had read. He would hand to me the literature to read so that night we could discuss it. To this day I am fascinated by new develop‑ ments in biotech, medtech, and life sciences. In fact, when I became a Wall Street invest‑ ment banker, my first IPO was for a micro‑ cap company called Nastech Pharmaceutical. Later in my career I underwrote Biotime, which began as a micro‑cap company. I am no longer an underwriter of companies. Today I am a cheerleader for entrepreneurs in these fabulous industries who devote their careers for humankind’s benefits. I knew then and I know now, “One day we will all be patients!” We have no choice but to support these biotech, medtech, life sciences, and healthcare companies. Today’s experimental biotech molecule or apparatus is tomorrow’s treatment or cure. n
Sheldon “Shelly” Kraft
Ashkan Farida microcapreview@yahoo.com GRAPHIC PRODUCTION Tony Vibhakar Tony@microcapreview.com PRINTER Vintage Filings, a division of PR Newswire 646-243-7994 WEBMASTER Kelvin Chen Kelvin.chen@3amediaonline.com Micro‑Cap Review Magazine is published Quarterly, Spring, Sum‑ mer, Fall, Winter POSTMASTER send address Changes to Micro‑ Cap Review Corporate Offices. © Copyright 2009 by Micro‑Cap Review Inc. All Rights Reserved. Reproduction without permission of the Publisher is prohibited. The publishers and editors are Not responsible for unsolicited materials. Every effort has been made to assure that all Information presented in this issue is accurate and neither Micro‑Cap Review Magazine or any of its staff or au‑ thors is responsible for omissions or information that is inaccurate or misrepresented to the magazine.
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This Publication is not to be construed, under any circumstances, by implication or otherwise, as an offer to sell or a solicitation to buy or trade in any commodities or securities herein named. Micro-Cap Review Magazine and its employees are not, nor do they claim to be registered investment advisors or broker/dealers. This magazine contains forward-looking statements within the meaning of Section 21E of the Securities and Exchange Act of 1934 relating to companies’ future operating results that are subject to certain risks that could cause results to differ materially from those projected. Readers are cautioned not to place undue reliance on these forward-looking statements. This publication undertakes no obligation to update these forward-looking statements. Micro-Cap Review Magazine, its owners, employees, their families and associates may have investments in companies featured within this publication and may elect to sell these investments or purchase additional investments in these companies at any time. However, the policy of our editorial staff is to avoid any pre-publication trading of featured stocks or sales until the release date of the magazine. In order to be in full compliance with the Securities Act of 1933, Section 17(b), where the publisher has received payment for advertisement/advertorial of a security, the amount and type of consideration will be fully disclosed. All information about the Company contained within an advertisement/advertorial has been furnished by the respective Company and the publisher has not made any independent verifications of such information and makes no implied or express warranties on the information provided. Readers should perform their own due diligence before investing in any securities mentioned. Investing in securities is speculative and carries a high degree of risk. All MicroCap Review Disclaimers apply http://www.microcapreview.com/disclaimer.php before investing view www.sec.gov/investors
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C O N T E N T S Q u a rt e r 2
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Featured Articles 6 9 15 24 42
48 64
Profiled Companies
Searching for a Micro-cap Biotech Fund by Erik S. Nelson Lights, Camera, Action for SNN VPRs by Lynda “Lulu” Kraft Can Patents Create Positive Black Swan, Super Growth Opportunities? by Dr. Gordon Chiu Oncology Drug Research Enters New Era by Bill Garland Bar Code Solutions for those Pharmaceutical and Medical Device Recalls That Never End by Barbara Duck Life Sciences Drive Global M&A Deals by Seth Yakatan Saving the World, One Orphan Drug at a Time by Dr. Frank Grossmann
Finance & Investments 10 31 51 58
67 68 70 73
U.S. Jobs Depend on Funding Micro-cap Companies by Chet Paulson Internet IPOs-The Time (and Need) Has Come! by Marshall Sterman Washington Healthcare Update by Elvis Oxley Review of Hong Kong Mines and Money Conference, Mar. 22-26 by Laura Stein Full Bore or Bust! by Charles Payne Finding the Medicinal Peace by Rabbi Stephen Robbins, PSY.D.
Legal, Tax & Accounting 81 82
The Compliance Corner by Chet Hebert Ombudsman by Jack Leslie
Health & Fitness 61
Wall Street Chicken
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Forex International Trading Global Hunter Securities Pro-Pharmaceuticals Revolutions Medical Corporation LifeTech Capital Advaxis Incorporated Stellar Biotechnologies, Inc. Wound Management Technologies, Inc. BioTech Medics, Inc.
Viewpoints
74 77
Ask Mr. Wallstreet: Micro-Cap, Not Micro-Crap Stocks by Sheldon “Shelly” Kraft Medical Tourism in Southeast Asia by Leslie Richardson On the Market: Commentary and Insights by Dr. John Faessel XBRL-What You Need to Know Now! by Vintage Filings
Comics 75
12 18 21 28 36 41 45 50 55
The Deadliest Deficiency by Dr. Lawrence May
Micro-Cap Review Magazine
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F E AT U R E D A R T I C L E
Searching for a Micro-Cap Biotechnology Fund W
hen I was asked to write an arti‑ cle on micro‑cap biotechnol‑ ogy mutual funds and exchange traded funds (ETFs) I thought, how hard can it be? While I wasn’t expecting many ETFs to exist in the micro-cap biotechnology or pharmaceutical space, I thought there would be at least one or two. It turned out that I could not find a single ETF. While I was not completely surprised by this, I was somewhat surprised that no one had attempted to open
this area of the market to the broader invest‑ ing public. After all, the biotech industry is one of the great success stories of American business. The biotech industry has been a major force in creating jobs and improving the quality of life. It is also one of the few areas of the U.S. economy where innovation and discovery are still taking place. The biotech and pharmaceutical indus‑ tries are similar industries with potentially great returns. These industries can also
n By Erik S. Nelson
6
Micro-Cap Review Magazine
www.microcapreview.com
be very difficult for the average investor to understand because of the technology and discovery processes, not to mention the real prospects for the product being developed. I will be the first to admit that I do not have the knowledge to know for certain whether biotech and pharmaceutical prod‑ ucts under development will receive Food and Drug Administration (FDA) approval. As a result, I believe diversification and pro‑ fessional management are the key to invest in the micro-cap biotech and pharmaceuti‑ cal space. In researching micro and small-cap bio‑ tech and pharmaceutical funds, I found only one mutual fund and no exchange traded funds. I wondered why that was so. What is it that makes this space unattractive to an ETF but workable for a mutual fund? I wanted to gain some insight into that question to help me better understand the performance and evaluate the mutual fund in this market. In looking at the overall characteristics of the micro and small-cap market, I discov‑ ered a couple of key items which are going to make things hard for a mutual fund but exceptionally difficult for any ETF in this space. First, there’s a lack of information about micro and small-cap companies. Few ana‑ lysts cover companies in this space, and most do not have the budgets to attend the many conferences and trade shows. This means that fund managers who want to invest in this space have to do a lot of the research themselves. And the more complex the prod‑ uct, the more difficult it is to assess the company, which makes it tougher to analyze and invest in biotech and pharmaceutical companies. Second, there’s a general lack of liquidity in the micro and small-cap space. Herein lies the single biggest reason why ETFs have not entered this space. Exchange traded funds typically post their positions and their hold‑ ing percentages on Web sites. This simply won’t work well when there is limited liquid‑ ity in the micro and small-cap market. With
the real-time creation of shares in an ETF, we can only imagine the possibilities for sophis‑ ticated traders to front run the buying and selling of the positions owned by the ETFs. It would create unbelievable havoc. Mutual funds do not have this problem. Trades in mutual fund shares are considered to occur at the end of the day. Mutual funds have much greater flexibility with their invest‑ ment decisions and cash holdings. This allows them to better navigate the rough waters of the micro and small-cap market. The only mutual fund that I found to invest in the small-cap biotechnology space is the Franklin Biotechnology Discovery A (FBDIX). It is part of the Franklin series of mutual funds from Franklin Templeton Investments (www.frankintempleton.com). The fund has been around since 1997 and has approximately $327 million under man‑ agement. The fund invests at least 80 percent of its net assets in the equity securities of biotech companies. The fund appears to have a dual class structure, one with a sales charge, and one without. I recommend the Advisor share class because it has a better rate of return. The biotechnology and pharmaceutical sectors are tough industries to invest in. Last year the funds posted a 17.28 percent return for the Advisor share class with a five‑year annualized return of 3.99 percent and a lifetime annualized return of 8.12 per‑ cent. Unfortunately over the last 10 years, the average return has been a negative 0.58 percent. When considering an investment in this fund, one of the key questions to ask is how well does the fund stack up with the overall market and the biotech/pharmaceu‑ tical sectors? The answer is somewhere in between. The Franklin Biotech Discovery A fund almost splits the difference in the performance of the two sectors. I looked at the performance of the Amex Biotechnology Index ‘BTK’ and the Amex Pharmaceuticals Index ‘DRG’ over the same period. Granted those two indices track large-cap stocks, but they are the best representatives of those
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two sectors for the period in review. The Amex Biotechnology Index ‘BTK’ was the better performer of the two indices. For the 1-year, 5-year, 10-year, and compara‑ tive lifetime (starting in 1997) periods, the index returned 37.7 percent, 17.5 percent, 8.3 percent, and 18.9 percent. Unfortunately the Amex Pharmaceuticals Index ‘DRG’ faired far worse. It returned -1.08% percent, -1.15% percent, -4.15 percent, and 1.15 per‑ cent for the same periods. How would I rate the Franklin Biotech Discovery A fund in comparison? It is not too bad. This is a very tough sector to invest in. Even the best fund managers are going to have a tough time matching the result of the best performing sector indices. It should be noted that the Franklin Biotech Discovery A fund has out-performed the Dow Jones Industrial Average, which has posted returns of 11 percent, 1.95 percent, 0.79 percent, and 3.23 percent for the same periods. Many investors with holdings in small and micro-cap companies in the biotech and pharmaceutical sectors are interested in advancing societal goals. Investors believe that they are not only helping to bring important drugs to the market, but also to create jobs. Those who are committed to invest in small and micro‑cap companies in these sectors should consider the Franklin Biotechnology Discovery A (FBDIX) mutual fund. It is a solid option. n Erik S. Nelson is the president of Sterling Investment Services, Inc. (www.sterlinginvestments.com). Sterling is a publisher of a weekly market commen‑ tary and a daily trading newsletter. Mr. Nelson is also the president of Coral Capital Partners, Inc. (www. coralcapital.com). Coral Capital provides advisory services to private and publicly traded companies. He can be reached at (404) 816-8240 or enelson@ sterlinginvestments.com.
Micro-Cap Review Magazine
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CEOs, Send Your Video Press Releases Now Sign In “Start Spreading Your Financial News” Create an Account W I R E . C O M
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SNN is using Video Press Releases, known as the VPR™ for all future announcements and press releases Los Angeles, California, 2011. The SNN Incorporated, ww.snnwire.com, www.stocknewsnow.com, Founder and CEO, Sheldon Kraft, is using the SNN Video Press Release called a VPR ™ to release his company’s press releases and announcements about his company. The VPR™ is joined to the company’s pre-approved text press release and together they can be widely distributed and disseminated by using the SNNwire.com system. The VPR™ is distributed by email to financial news websites, stock market websites, investors, investment bankers, professionals like CPAs and lawyers, IR and PR firms, money managers, private equity fund managers, private practice wealth managers, shareholders, stockbrokers and more than 45 social networks including stocknewsnow.com Sheldon Kraft, SNN Founder and CEO stated, “I know my VPR™ will be watched by the masses. Before the creation of the VPR™ I never knew who read my text press release. Today most people would rather watch a VPR™ than read a text press release.” SNN management recognizes that each and every public and private company CEO needs exposure to new investors and shareholders. The SNN VPR™ is user generated and user friendly, it is unedited, and delivered in real-time once uploaded to SNNwire.com for wide spread distribution by the CEO. “Just think that for the first time an investor can watch a CEO VPR™ conveniently. SNN technology allows for the immediate distribution of an information video, and a CEO can look his investors in the eyes every time he releases news,” added Sheldon Kraft. SNN INCORPORATED IS A GLOBAL FINANCIAL PUBLISHING, MEDIA & ENTERTAINMENT COMPANY
F E AT U r E D A r T i C l E
Lights, Camera, Action for SNN VPRs I
have been the person behind the cam‑ era of SNNLive since its beginning. My colleague, Shelly Kraft, does the video interviews. I work the camera and try to make everyone in front look as good as pos‑ sible. SNNLive has produced more than 3700 videos of CEO interviews. Most of the inter‑ views are available online at SNNwire.com. Before working for SNNLive, I was an execu‑ tive TV producer. My career in television has spanned more than 25 years. I was the pro‑ ducer of Power Profiles on Financial News Network, which was acquired by CNBC. Power Profiles featured short stories of Wall Street and business executives. SNNLive provides CEOs an outlet to tell their company’s story in an interview for‑ mat. Many do not like to be on camera and appear nervous at first, but I ease their worry by giving them calming instructions. A video interview on SNNLive can require a few takes but the majority take just one. After the session, a CEO ends up with a short video that he/she can distribute to shareholders, Wall Street firms, investment funds, and interested individuals. SNN VPR™ (video press releases) are SNN Inc. main product. These videos are user generated by a CEO or other top execu‑ tive in the company. Usually the subject company produces the video of the CEO and
n By lyNDA “lUlU” krAFT
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uploads it, along with a text press release, to SNNwire.com for distribution. Many people have written to me about how to produce a good video press release for SNN VPR™. The following guidelines will be of help. Q: I am a public company CEO. What can I do to look more natural on camera? A: You have to be comfortable, but what does that really mean? You should make a cheat sheet with bullet points. The cheat sheet can be taped to the side of the camera at eye level, so that you can refer to it without appearing like you’re reading it. You should practice from that paper a few times before doing a take. It might require a few takes, but that is okay. Each session should begin with a hello and end with a thank‑you. If you appear welcoming to viewers, they will have a favorable impression and try to follow up. Q: How should I refer to my text press release while I am doing the VPR? A: You can only say or paraphrase what is in the text press release, so refer to the subject, highlight the headline, and advise your viewers to also read the text. You should have passion about what you are saying. Be excited. Q: Do I need a professional camera or cameraman to shoot a VPR™? A: No, you just need a webcam. Technology has come a long way. User‑generated means that you can use a laptop camera or an iPod 2. Q: What should I do if I cannot remember what I want to say? A: Write it down on a cue card in beats… or bullet points and then expand off of those
points. The video should only be about one and a half to three minutes max. That can be a long time to speak, so give yourself a cue card to refer to. Practice may not make per‑ fect, but sooner than later it will be old hat. Q: At what pace should I speak? A: Speak like you would talk on the tele‑ phone or when you have a conversation with someone. You should sound conversational and not reporter‑like. Q: Where should I look? A: Look directly into the camera. Pretend the camera is your audience. Q: What should I wear? A: It only matters what you wear on the upper half of your body…business suit, sports jacket, or business casual should work. Q: What should the background behind me look like? A: The background can be of your office . . . so sit with a bookshelf behind you and photos on the wall…frame the shot and look at it and see what you like behind you . . . keep it professional. n Lynda Lou (Lulu) Kane Kraft is the president of SNN Incorporated. She has over 25 years experi‑ ence in broadcast television. In her career, she has interviewed thousands of politicians, celebrities, and personalities. She previously worked as an executive producer and TV show packager. In her role, she created programs for television networks, including Financial News Network and Lifetime Television. She also worked for various syndicated shows pro‑ duced by studios, such as KingWorld, Telepictures, and Buena Vista. Her work was honored with various Emmy and Cable Ace award nominations. Ms. Kraft graduated with a B.A. degree in political science from George Washington University. Her academic background included studying in Moscow (Moscow University), Berlin, and Paris (through London School of Economics).
Micro-Cap Review Magazine
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F I N A N C E
A S K M R . WA L L S T R E E T
Micro-Cap, Not Micro-Crap Stocks
C
all them what you will-penny stocks, un-listeds, fallen angels, pink sheeters, OTCs, and emerging growth stocks. They are back, and back with a vengeance!
n by sheldon “Shelly” Kraft
10
Micro-Cap Review Magazine
Rules say these stocks are under five bucks in price (Penny Stock Rule) and under $300 million in market capitalization (accepted by most) and fall somewhere between nano-cap and small-cap stocks. Every stock has a story. Many have gone through symbol changes, name changes, or stock splits. Some have gone in and out of corporate bankruptcies. The story of each stock is fascinating in and of itself. When I first walked onto Wall Street back in April 1984, I knew little about the stock market. I soon learned by buying & selling stocks of IPOs, micro-cap companies, all penny stocks. I said many times, “I didn’t know the difference between a penny stock and IBM.” To me every stock had a story. Doing due diligence meant knowing every‑ thing about the origin and history of each stock. A “good story” was a “good story,” regardless of what exchange the stock traded on or at what price. I fell in love with penny stocks from day one. My first penny stock was a “house” stock. It ended up being one of the biggest wins of my career. Nastech Pharmaceutical, NSTK, went from a $.01 per unit to $1.84 per unit (1 unit consisted of one common share, an A warrant and a B warrant) and
eventually traded in the teens,“became a teenager”. Needless to say I was smitten. I shied away from the more expensive $5 and $10 stocks and stuck with my penny micro-cap babies, many of which are now legendary. I made a business out of underwriting new micro-cap IPOs at my firm, Emanuel & Company. We ended up underwriting or co-underwrit‑ ing more than 300 micro-cap stocks over more than 10 years, mostly micro-cap penny stocks. Our clients were from all walks of life. They were owners of sports teams, members of the military, school teachers, psychiatrists, newlyweds, airplane pilots, money manag‑ ers, and even members of the clergy. Penny micro-cap stocks attracted money like blood attracted sharks–the hotter the issue, the bigger the buzz; the bigger the buzz, the big‑ ger the premium in the aftermarket. Some of these clients were real characters who had been smitten like me. Others had lost money on the big board. The big board investors had bought $50 stocks from wire house brokers and had paid big commis‑ sions win or lose, and in some cases had lost big money. So now, these investors came to me. They too knew little or nothing about
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micro-cap companies while other investors came because they couldn’t find anything about the micro-cap market and we had the news. Even to this day, investors cannot find much information about micro-cap stocks, because scant research is available except for “paid for research,” which is somewhat less meaningful than full coverage, but of course there are exceptions in the paid research category. At my Wall Street firm, I alone had over 5,000 active and semi-active accounts. I worked from eight o’clock to eight o’clock almost every day and had five registered assistants. I rarely left my desk for more than a week and took time off only for the births of my children. Even at the hospital, my work didn’t end. My wife’s doctors were also clients. After the doctors delivered the baby, they gave me buy orders to enter when I got back to my desk! The birth of my third child, my gorgeous daughter, was one that I will always remember for its added humor. For a simple child birth, eleven doctors and three anesthesiologists were needed in the operat‑ ing room. All of them were clients. That was a great day all around, although the baby’s mother was none too pleased... For me it was simple. Risk versus reward. I never allowed people, rich or otherwise, to place more money than what they could afford to lose. I explained that these stocks were mostly IPOs of startups and companies that had a great new idea. I told investors that they could lose their entire investment. In later years, I was first required to say it, then required to have each investor sign off that they accepted the risk. We always dis‑ cussed the downside risk. We also discussed such things as growth potential and the right time to sell micro-cap stocks. Before the Internet investors relied on me to find news about companies. Most of the information came from public announcements of cor‑ porate press releases. People’s lives, actions, and activities depended on news. After all, most micro-caps had little or no earnings or research following, as stated earlier. I had the news early when it came out publically. Back
then I had every news outlet available from Dow Jones, Reuters, Bloomberg, etc. My five registered assistants would answer phones, give updates, and feed buy and sell orders through me. Trading in penny stocks was addictive. When was the last time someone could buy a $10 stock and sell it short-term at $20? Suppose the person took $10,000 and bought 1,000,000 shares of a $.01 stock instead. What would he/she do if the stock doubled, which meant all it had to do was go to $.02? Inside I am laughing, because I have been there so many times. Suppose that same stock that someone bought at $.01 went to $.10. It would now be worth ten times the original investment or $100,000. Negatively speaking, that same $.01 stock is very close to zero. That’s the risk; lose it all. A $10 stock has risk too, doesn’t it? Once it starts going south, the selling first begins. I have seen and witnessed that ugliness too. The difference is that a $10 stock is not susceptible to the same wild gyrations of a penny stock, but it can and does happen. Most investors would be happy to have a 30 percent gain with a smallcap or a large-cap stock, but not most of my clients. I lived in entrepreneur, take-a-risk heaven. Penny stock investors would plow money into a stock with a good, “true” story. Once they had the right information, they would become not only a fan but a player. My referral business was second to none. Many of these newcos, pubcos had amazing new technologies and exciting new products and services. I used to say that even XEROX was once a penny stock! Let’s shoot forward to 2011. What’s going on now with micro-cap stocks? Micro-caps have come a long way. We have micro-cap ETFs. We have micro-cap indexes! We have micro-cap research analysts! We have nearly 10,000 stocks listed on the OTC markets, thousands of junior mining and explora‑ tion micro-cap stocks listed on the TSX Venture Exchange, and tens of thousands more worldwide. Oh, and let’s not forget an entire magazine and Web sites completely devoted to this space. As the publisher of
Micro-Cap Review magazine, SNNwire.com, and StockNewsNow.com, I rejoice in bring‑ ing to this sector the integrity and honor it deserves. There are always bad apples in all barrels of business for sure. I love the pas‑ sion, spunk, and dedication of micro-cap CEOs. Ladies and gentleman, I have interviewed more than 3,700 micro-cap CEOs on cam‑ era. Many of them have never been in front of a camera until their interview with me. We do the interview for FREE and provide it to them unconditionally for their own use in social networks etc.It starts with my well known opening line, “Welcome, ladies and gentlemen. We are coming to you live, live on SNNLive. And today we are at this financial conference and I have with me here the CEO of ABCD Company. Welcome to SNNLive.” The CEOs get their three- to five-minute interview. To many, it is the greatest thing since sliced bread! I am enthralled by them and their stories. They feel safe in the interview, because as an ex-stockbroker I know what they can and cannot say. I draw out of them more than what they knew they had in their heads. Many are nervous, I make them glib. Some are downright scared, I relax them. Who bet‑ ter than me to interview them? Heck, I am like the godfather of penny stocks. SNN Inc. provides media coverage to the micro-cap market and gives investors information on the Internet, including every social network‑ ing means out there. If someone is reading this article to the end, he/she is a penny stock devotee, a fan or player, or just curious. Let me warn you right now. If you make money on your first penny micro-cap stock buy and sell, any‑ thing can happen thereon including addic‑ tion. Be forewarned and forearmed. You can lose your entire investment, so bet what you can afford to lose and not above it! n
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The Next Generation of Online Trading:
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re you aware of the foreign exchange (FX) markets and the growing trends? You may not realize that you too can trade FX markets just like the professionals. This article may give you the insight on how to manage your currency According to Wikipedia, “The foreign exchange market (forex, FX, or currency market) is a worldwide decentralized-overthe-counter financial market for the trad‑ ing of currencies. Financial centers around the world function as anchors of trad‑ ing between a wide range of different types of buyers and sellers around the clock, with the exception of week‑ ends. The foreign exchange market determines the rela‑ tive values of different cur‑ rencies.” While the exchange of currencies is as old as money itself, trading cur‑ rencies in the modern era only began during the 1970s when the United States lift‑ ed the gold standard and allowed its currency to float and the exchange between other currencies to be deter‑ mined by the market. For three decades, this market was almost exclu‑ sively used by governments, banks, large corporations, and hedge funds. Small investors did not have the information or competitive access to these markets to effectively trade in them. In
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Micro-Cap Review Magazine
If you are a trader, you should pay close attention to this: since 2001, retail FX daily trading volume has increased over 5,000 percent going from approximately $6 bil‑ lion in daily volume to over $300 billion in daily trading volume. That makes daily retail FX trading volume larger than daily trad‑ ing in all U.S. equity markets combined. If you have ever been stuck in a trade with no bid or not enough size on the bid or ask to get out of your position, you will understand why trading volume is critical for active traders. The ulti‑ mate risk in any trade is not being able to get out of your position. Hard to believe? Just ask the guys at Long-Term Capital, Bear Sterns, and Lehman Brothers. Unlike trading the equi‑ ty markets with maybe a 10:1 leverage, and that’s if you’re lucky to be catego‑ rized as a “prop” trader, FX traders in the United States can typically lever‑ age trades up to 50:1 and offshore 100:1, with some firms allowing as much as 400:1, which should give even a river boat gambler some pause. So even if you’re an experienced equity and option trader, you should seek training and initiate a demo account until you are comfortable with the fast-paced nature of the
the late 1990s, this began to change with the proliferation of home computers and the Internet. Since 2001, the daily volume in the for‑ eign exchange market has grown from $1.2 trillion to almost $4 trillion. YES, you read that right, almost $4 TRILLION according to the Bank for International Settlements. This is the most active and liquid market in the world.
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market. In 24 hours of trading what will your comfort level be? For those of you who are investors, this is potentially a profitable market for you as well. The FX market has experienced explo‑ sive growth over the last decade. In fact, the retail side has seen over 150 percent annual growth in the last three years alone. The Aite Group, which is a research firm in the finan‑ cial services industry, has estimated that in 2010 there were approximately 8.3 million retail FX traders. Aite also has estimated that there are 110 million retail online investors worldwide. So why is this important? Well for those of you who are avid readers of books about investing, you may remember Harry Dent Jr.’s books The Great Boom Ahead, The Roaring 2000’s, and most recently The Great Depression Ahead. In his “The Great Boom Ahead” he discusses his S-Curve Theory of Market Penetration. “The S-Curve maps the market penetration of a new product or technology, from marginal beginnings to mainstream popularity.” - Harry S. Dent, Jr. In layman’s term, the time it takes to go from 0.1 percent market penetra‑ tion to 10 percent market penetration is the same time it will take to go from 10 percent market penetration to 90 percent market penetration. So why is this important? If you recall, the Aite Group estimates that retail FX traders are now approximately 8 percent of the online investment community and retail volume is almost 8 percent of FX trading volume, which has all happened in the last decade. If Harry’s Theory is right, the num‑ ber of FX traders is expected to grow to over 90 million traders. So who stands to benefit from 90 million FX traders? Forex trading platforms and forex education/training companies The FX trading platform has proven over the last decade to be profitable. Several U.S.
forex companies are represented on Inc. 500 Fastest Growing Companies List in 2010. Training and education for investment plat‑ forms have begun to prove their value over the past few years as well with the likes of Think or Swim being acquired in 2009 by TD Ameritrade for an estimated value of over $600 million and more recently Schwab announced acquisition of Options Xpress for an estimated $1 billion. If both Schwab and TD saw this much value ($600 million to$1 billion) in acquiring educated high vol‑
time traders. The company’s offshore plat‑ form for non U.S. residents, www.ufxbank. com, does well compared to its publically traded peers with a worldwide Alexa rank‑ ing of 29,546. The other three companies; FXCM, whose website is www.fxcm.com, ranks 24,227 worldwide and has been around since 1999; Gain Capital, whose website has the best worldwide ranking of the group with their site www.forex.com with a ranking of 7,837 has also been around since 1999; and finally Finotec, www.finotec.com which has been around since 1997, has a ranking of 269,822. These ranking are important because as you may have already guessed, forex trad‑ ing lives on the Internet. As a result Forex International Trading feels it has an edge since its’ offshore platform is completely Web-based. If the explosive growth comes, the company is well posi‑ tioned to capture market share as the market evolves.
ume option traders (a much smaller market opportunity), how much do you think they would pay for educated FX traders? So who are the publically-traded com‑ panies in this market? Surprisingly, there are only a few. Of the nine companies pro‑ filed below only four are pure plays in the forex market; FXCM, Gain Capital, Forex International Trading, and Finotec. When you do your due diligence, you will find that only three of these companies are profitable, FXCM, GCAP, and FXIT. While all of these companies are positioned to capitalize on the explosion in the FX marketplace, Forex International Trading could see the great‑ est percentage growth. Forex International Trading (OTC: FXIT) has been around since 2009, although only trading publically since December 2010. The company has been reporting triple digit, year-over-year growth in the reporting of its monthly matrices. The company is focused on novice or first-
Profiles of Publically Traded Companies that operate retail Forex platforms
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Profile source is provided by www. Bloomberg.com, and market cap and trad‑ ing volume information are provided by
www.Yahoo.com/finance as of April 22, 2011. CitiGroup (NYSE: C) Market cap – $132 billion 3 month avg. trading volume – 434 million shares Citigroup Inc. is a diversified financial ser‑ vices holding company that provides a broad range of financial services to consumer and corporate customers around the world. The company’s services include investment bank‑ ing, retail brokerage, corporate banking, and cash management products, and services.
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UBS (NYSE: UBS) Market cap - $70.8 billion 3 month avg. trading volume – 3.8 million UBS AG is a wealth management, invest‑ ment banking, and asset management firm. The company provides a variety of financial services to individuals, institutions, corpora‑ tions, governments, and financial intermedi‑ aries around the world. Barclays (NYSE: BCS) Market cap - $58.8 billion 3 month avg. trading volume – 2.8 million Barclays PLC offers commercial and investment banking, insurance, financial, asset management, and related services. The company’s banking subsidiaries oper‑ ates branches in the United Kingdom and overseas. IG Group (LSE: IGG) Market cap - £1.66 Billion 3 month avg. trading volume – 5.8 million shares IG Group Holdings PLC runs a spread betting market, trades as principal and mar‑ ket maker for foreign exchange, contracts for difference, and acts as a fixed odds book‑ maker. The company hedges unmatched bets and trades, and offers investment products worldwide to a retail and professional client base.
Interactive Brokers Group, Inc. is an auto‑ mated global electronic market maker and broker specializing in routing orders and executing and processing trades in securities, futures, and foreign exchange instruments. Gain Capital (NYSE: GCAP) Market cap - $225 Million 3 month avg. trading volume – 104 thousand shares Gain Capital Holdings, Inc. is an online provider of retail foreign exchange trading and related services. The company provides customers with access to the global over-thecounter foreign exchange markets through a trading platform with information and analytical tools. Forex International Trading (OTCBB: FXIT) Market cap - $25 Million 3 month avg. trading volume – 90 thousand shares Forex International Trading Corp. operates an online trading platform for forex markets to non-U.S. residents. The company focus‑ es on providing individual and institutional investors with a platform for buying and sell‑ ing currencies, precious metals, and commod‑ ity futures. Forex also offers on-site training and education through a subsidiary company.
Interactive Brokers Group (NASDAQ: IBKR) Market cap - $696 Million 3 month avg. trading volume – 407 thousand shares
Finotec (OTC: FTGI) Market cap - $847 thousand 3 month avg. trading volume – 928 shares Finotec Group, Inc. develops applications which enable Internet trading in financial markets. The company provides brokers, dealers, banks, and other customers with online foreign exchange trading systems. So Traders…. here ‘s a challenge for you: Find a platform and company that is inter‑ ested in training you to make money in the FX markets. Manage your risk. Remember liquidity is a trader’s best friend. Have fun and try to get some sleep; 24-hour, 5-days-a-week markets can be addicting.
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FXCM (NYSE: FXCM) Market cap - $1.1 billion 3 month avg. trading volume – 366 thousand shares FXCM, Inc. offers foreign exchange trad‑ ing services over the Internet. The company allows customers to trade currency pairs on the over-the-counter foreign exchange mar‑ kets. FXCM earns fees by adding a markup to the price of each trade.
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Investors…. here’s a challenge for you: Find a company that has a platform that is easy for first-time traders. Remember, if Harry is right, there will be 80 million firsttime traders. Look for a company with global expo‑ sure – FYI, 75 percent of online traders are offshore. Platforms with education and trading have received pretty good premiums in the past. Scale into your positions to make sure the company is performing and….. HANG ON. n Disclaimer: This corporate profile is based upon information provided by the issuer or company rep‑ resentative. The information is not intended to be, and shall not constitute, an offer to sell or solicitation of any offer to buy any securities. It is intended for information purposes only, and to increase awareness of the company profiled. Safe Harbor Statement: The statements in this advertorial or profile relating to future products, partnerships, technology, and positive direction are forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Some or all of the aspects anticipated by these forward looking statements may not, in fact, occur. Factors that could cause or contribute to such dif‑ ferences include but are not limited to contractual difficulties, demand for the Issuer’s common stock, and the company’s ability to obtain future financing. Micro-cap Review Magazine may have received pay‑ ment to publish and print this advertorial or corpo‑ rate profile. Micro-cap Review Magazine disclaimers apply and may be reviewed at www.microcapreview. com/disclaimer.php. Before investing in any security, you are strongly advised to review all public filings of the issuer of such security, which can be found at www.sec.gov, as well as warnings published by the SEC at www.sec.gov/investors and to consult with your professionals.
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F E AT U r E D A r T i C l E
Can Patents Create Positive Black Swan, Super Growth Opportunities? A Key Requirement in Healthcare & Technology
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mart investors need to be in an invest‑ ment early to capture returns close to or greater than 10 times. Often investors can’t manage the risks of picking the right opportunity. Finding positive black swan “super growth” opportunities is both a science and an art. Doing so requires looking at the classic five M’s: 1. Management: What kind of leadership team is at the helm? 2. Market: What is the market size, potential market share (domestic/ international)? 3. Materials Research and Discoveries (MRDs): Does the company own copyrights, patents, or trademarks? 4. Model: Does the business model make sense (roadblocks, scalability, use of proceeds, etc.)? 5. Money: What kind of structure and support exists (investments, grants, loans, private or public structure)? The chart below shows the powerful effects that proper materials research and discoveries (MRDs) can have on a company’s growth. It is electrifying. Proper MRDs can create forces that help companies attract top management talent, achieve optimal market
size, strengthen the business model, and sup‑ port funding.
cOmParIsON OF INTellecTual PrOPerTy versus PhysIcal PrOPerTy Some countries and individuals feel that ideas are like air. Ideas are available in infi‑ nite quantities and should not be classified as intellectual property. This is wrong. Brilliant ideas are not infinite. In fact, brilliant ideas are scarcer than physical property, such as cars, food, land or homes. Often a great deal of thinking, time, and effort has gone into such ideas. Therefore, people should under‑ stand that property theft and information piracy are the same. Illegally downloading an album, a movie, a book, or materials created by someone else is equivalent to stealing. Companies that understand intellectual property laws can better protect their own patents and develop intellectual properties. Here are some case studies of companies that have generated value from intellectual property.
CIBA Vision, a division of Novartis (NYSE:NVS), is a global leader in research, development, and manufacturing of opti‑ cal products and services, including contact lenses and lens care products. These patents were the subject of a pro‑ tracted global litigation with Bausch & Lomb. The case resulted in a 2004 license granted to Bausch & Lomb in exchange for a royalty payable to CIBA through 2014 in the United States and on net sales outside the United States until 2016. Note: annual sales estimates ranged from $1.95 billion to $3.5 billion. Black Swan Case Study #2: The “Cancer Vaccine” Patents; Immunostimulatory Composition, U.S. Patent 6,210,662 Disclosure: Dr. Gordon Chiu does not hold any interest in the following companies. The opportunity and magnitude of returns from “cancer vaccine” patents will continue to spawn numerous rewards in this field.
FOur case sTudIes Black Swan Case Study #1: The “Oxygen Transmissible” Contact Lens; Patents in Silicone Hydrogel Technology
n By Dr. gorDoN ChiU www.microcapreview.com
Disclosure: Dr. Gordon Chiu does not hold any interest in the following companies.
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“The World’s Most Demanding Industry Requires the World’s Most Knowledgeable Experts”
Join us at our Quarterly Conference June 15-17, 2011 at the St. Regis Hotel in Atlanta, Georgia www.nibanet.org
National Investment Banking Association (NIBA) is a not-for-profit 501(c)(6) national trade association of regional and independent brokerages, investment banking firms, and related capital market service providers.
Example #1: Dendreon Corporation (NASDAQ:DNDN), an initial investment of $4/share in 2009 increased to $31.85/share at market close on 7 March 2011 (696 percent increase). Example #2: ImmunoCellular Therapeutics Ltd (OTC: IMUC), an initial investment of $0.15/share in 2009 increased to $2.37/share at market close on 7 March 2011 (14,800 percent increase). Black Swan Case Study #3: The “MIMVI” (OTC BB: MIMV); Patent Strategies in Progress Disclosure: Dr. Gordon Chiu has been hired as the Chief Advisor for Mimvi, Inc. Apple and Google are at war with each other. The two are not providing indexed results for each other’s applications. By decid‑ edly offering their own operating systems and the smartphone itself, neither Apple nor Google will take a future search position for each other’s mobile applications. Mimvi, Inc. is slowly building a patent portfolio for agnostically searching mobile computer applications on all mobile platforms (i.e. iPhone, iPad, Android, Blackberry etc). Mimvi, Inc. Announces Patent Filing for “Intelligent” Mobile App Search and Recommendation Technology. http://www. g lobenewsw ire.com/newsroom/news. html?d=204204 Mobile App Co., Mimvi Launches the World’s First Discovery Engine for Health Apps http://www.globenewswire.com/news‑ room/news.html?d=208168
Black Swan Case Study #4: Focus Metals (TSXV: FMS); Patent Strategies in Progress Disclosure: Dr. Gordon Chiu has been hired as the Chief Scientist for Focus Metals, Inc. Comments from February 23, 2011: http:// finance.yahoo.com/news/Focus-MetalsForms-Graphene-iw-2128088253.html?x=0 Graphene is a form of carbon. It is a novel material that is not only the thinnest material known in science, but also the strongest. As a conductor of heat, graphene outperforms all other known materials. Graphene is nearly transparent. It is so dense that not even heli‑ um, the smallest gas atom, can pass through it. Like diamonds, graphene is an allotrope of carbon, but with game-changing charac‑ teristics. Graphene has been mentioned in recent accolades, including the 2010 Nobel Prize in physics. As a combination, graphene is potentially more useful than copper. When graphene is mixed with plastics, the resultant material turns into a conductor of electricity with robust mechanical and heat resistant properties. Graphene could revolutionize the Band-AidTM adhesives industry. Graphene has unique properties to prevent bacterial growth (i.e. E. coli) while allowing human cells to regenerate. The European Union has cited graphite to be a critical and strategic resource. Few people would have thought graphene to be as important. In fact, it is significantly more valuable than graphite, and yet is derived from graphite. Investors should have a very solid plan of action in industries that have high valuation and growth prospects resulting from patent development and acquisition.
Conclusion Remember that the definition of a black swan is a game changing situation that presents itself when least expected. How a black swan, positively or negatively affects you, depends on which side of the event you are on. When we look back at 2011, the www.microcapreview.com
disaster in the Middle East or the earthquake in Japan will be two negative black swans that affected investors, globally. Yet as a direct result, rebuilding and alternative safer methods for energy will receive significant positive interest from investors and govern‑ ments worldwide. Nassim Taleb is the author of the book, The Black Swan. He provides an interesting read on how some industries and people benefit from a black swan event while others’ suffer. By understanding how to pre‑ pare early, an investor can de-risk a project while also yielding positive results. n Dr. Gordon Chiu is an execution-driven business‑ man with more than 15 years of combined domestic and international experience in biomedical, chemi‑ cal, cosmetic, medical, and technology industries. He has been invited to serve on the board of public and private companies and to provide vital advice to the board while increasing overall shareholder value. His solid background and broad experience has allowed him to accomplish and advise in areas of Alzheimer research, breast cancer research, derma‑ tology, drug addictions research, green technology, and antimicrobial research. He started his career as a research scientist at Pfizer Inc. and Merck & Co., Inc. and has healthcare and marketing experience with strong links to Wall Street and Asia. His educational background began with a B.S. degree in chemistry from Rensselaer Polytechnic Institute, graduating summa cum laude. He gradu‑ ated with an M.S. degree in chemistry from Seton Hall University with high honors. Additionally, Dr. Chiu was accepted as an M.D./Ph.D. candidate under the National Institutes of Health’s Medical Scientist Training Program for four years at the Mount Sinai School of Medicine where he also researched, devel‑ oped, consulted, and advised Dr. Huachen Wei in the department of dermatology in skin cancer research. Seeing the opportunity to impact foreign policies in healthcare, he transferred his credentials to the fully accredited University of Bridgeport School of Naturopathic Medicine to receive his doctorate in naturopathic medicine. With this unique background, he has investigated the validity of foreign treatments and their success level for public health. He has also been chosen to serve as an advisory role in the identification of low cost solutions (i.e. non-invasive diagnostic equip‑ ment) for emerging countries that cannot afford to maintain armies of physicians across numerous subspecialties. His years of experience and continuous involvement have created deep relationships within the scientific, business, and medical communities. Dr. Chiu has developed and owns methodologies called directed combinatorial algorithmic librar‑ ies (D.C.A.L.) that are used in various commercial applications, composition development and research. Disclosure: Dr. Chiu has been appointed as an independent adviser to SNN.
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PROFILED COMPANIES
BIOTECHNOLOGY: Global Hunter Securities Investing In Improving The Human Condition
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t was not that long ago that the Biotechnology industry commercialized its first drug Lilly/Genetech’s Insulin in 1982. Today, Global Hunter Securities (GHS) sees the industry as being still early in its product life cycle. GHS has made long-term commitments to both research and investment banking in this fast-growing and U.S.-dominated sec‑ tor. Our analysts are committed to covering sub-sectors including oncology, metabolic disorders (diabetes and obesity), central nervous system disorders (Alzheimer’s dis‑ ease, depression, pain, insomnia), regenera‑ tive medicine (stem cells and vaccines) and orphan diseases. They see countless exciting investment opportunities in the small cap segment of this sector. Additionally, we have a group within our sales and marketing team dedicated to getting these companies in front of fundamental buyers that manage $50-$1B in assets. This focus and expertise gives us a unique understanding of the dynamics of the space, from an investor’s perspective. In this article, we give a brief overview of the biotechnology sector and discuss growth opportunities and challenges that are on the minds of investors. According to PhRMA, The Pharmaceutical Research and Manufacturers of America, 2009 revenues in the U.S. biotechnology and pharmaceutical industries were $57 billion and $286 billion
n By John P. Calcagnini Managing Director and Head of Healthcare Investment Banking, Global Hunter Securities
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versus $27 billion and $161 billion in 2000, representing compound annual growth of 8.7% and 6.6%, respectively. This represents growth of about double that of the broader economy. There is no shortage of investment oppor‑ tunities in the space and most investors should have some representation in biotech in the context of a balanced portfolio. We estimate that there are 400 public and 1400 private biotechs in the U.S. today, a number that continues to grow. Their stories tend to be catalyst-driven and we would suggest simply buying mutual funds or ETFs unless you have the understanding of the sector and the time to monitor news like partner‑ ing announcements, clinical trial results and drug approval PDUFA (Prescription Drug User Fee Act) dates. As a case in point, biotechs often trade up going into PDUFA dates, which are statutory dates that the FDA must respond on NDA (New Drug Application) or Biologics License Application (BLA) filings. The most com‑ mon responses are Approval Letter, mean‑ ing the drug has been granted marketing approval, and Complete Response Letter, which typically requests further informa‑ tion. Biotech stocks can have tremendous and sudden volatility – both up and down -- based on these announcements, which is why monitoring the names and being on top of the stories is critically important. One area where we expect significant breakthroughs is in cancer therapies that target a specific biomarker associated with a disease or subset of that disease. Companion diagnostics that help identify subgroups of
patients that benefit from these drugs will be important from the standpoint of the patient avoiding therapies that have nasty side effects and limited efficacy. For exam‑ ple, Herceptin for the treatment of early stage breast cancer is a drug with a compan‑ ion diagnostic for patients that are human epidermal growth factor receptor 2-positive (HER2+). Since only approximately 25% of breast cancer patients have tumors charac‑ terized as HER2-positive, the proper iden‑ tification of these patients can help ensure they receive an optimal treatment regimen, presumably with Herceptin. In general, therapies that are more selective for cancer cells, as opposed to cytotoxic agents, are expected to lead to significant improvements in survival. Breakthroughs such as Herceptin are one reason 5-year survival rates in breast cancer have improved from approximately 75% in the mid-1970s to approximately 90% in 2005 (American Society of Oncology, Clinical Cancer Advances, 2010). Stem cell therapies for indications such as critical limb ischemia, improving heart function, and repairing spinal cord injury are other opportunities that are exciting from scientific, patient care and investment standpoint. Obesity is another condition that has an enormous societal cost and this represents a multi-billion opportunity for the biotech industry. Though there have been a number of regulatory setbacks in this space recent‑ ly, including Vivus, Orexigen and Arena Pharmaceuticals, this simply means the door is open for newcomers. Smaller play‑ ers, like Arrowhead Research, have internal
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Stem cell therapies for indications such as critical limb ischemia, improving heart function, and repairing spinal cord injury are other opportunities that are exciting from scientific, patient care and investment standpoint. programs in obesity that are worth explor‑ ing. The expected increase in covered lives that is associated with healthcare reform and demographic trends all bode well for the biotech industry. The global population is aging and living longer. Some of this expected growth will, of course, be offset by price and reimbursement cuts, competition, patent expirations and potentially regulatory delays, but on balance we see the biotechnology sector remaining one of the fastest growing segments of the U.S. and global economy. This opportunity is not without risks and challenges. Large Pharma is confronted with patent expirations in 2011/2012 on blockbuster drugs like Lipitor and Plavix, which, in our view, will ultimately compel large pharma‑ ceutical players to partner earlier than they have been accustomed to or acquire small cap biotechs. Biotech Access to Capital. A topic of keen interest among biotech investors today is handicapping the FDA’s drug approvals, given that the agency has, by some accounts, been “moving the proverbial goal posts” with respect to the safety and efficacy data hurdles that must be met before drugs can be approved. Others would simply describe the agency as increasingly unpredictable. Our conversations with venture capitalists make it clear that they have grown increas‑ ingly leery of early-stage biotech invest‑ ments as a result of an inability to accurately predict the clinical timeline and investment horizon for a drug. This unpredictability does serve to make the US an increasingly uncertain development environment for an industry that is currently dominated by U.S. companies which may, in turn, negatively impact the breadth and magnitude of new
product developments domestically while foreign competitors step up their develop‑ ment investment. A recent study released by BIO and BioMedTracker claims that the success rate in bringing new medicines to market in the past six years is only about half of what it had been previously. The study finds that drugs moving from early stage Phase I clinical tri‑ als to FDA approval is roughly ten percent, down from around 20 percent in reports covering earlier years. According to the Center for Drug Evaluation and Research, there were 26 drugs approved in the U.S. in 2010 versus 34 in 2009. According to the Tufts Center for the Study of Drug Development, it costs approx‑ imately $1.2B to develop a new biotechnol‑ ogy drug. While this specific figure has been debated due to questions about the funding of basic research, pharmaceutical company tax breaks, and related issues the cost and risk of developing new drugs is clearly indis‑ putably high. A perusal of a representative group of biotech company balance sheets reflects retained losses in the hundreds of millions. This unequivocally represents the costs of drug development. Tufts estimates that the average time from first clinical trial to FDA approval of a drug is approximately 8.5 yrs. Arguably the most important aspect of the process involves successful navigation of the regulatory steps leading to approval. The FDA’s mandate is to protect the public and weigh the cost-benefit to society of drug approvals. This puts them in a challenging position – it’s tough to make everybody happy -- and some recent FDA decisions have created turmoil in the venture commu‑ nity, which historically invested in biotech companies with an expectation that the clinical pathway and timeline was defined.
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Visibility on the clinical pathway and time‑ line appears to have changed in recent years. One area where some investors feel the FDA has changed the rules of engagement is Obesity drugs. Orexigen’s Contrave is an obesity drug that had an FDA panel recom‑ mendation for approval with a post-approval study on cardiovascular outcomes. However, the FDA countered its own panel’s recom‑ mendation by issuing Complete Response Letters that contained unexpected, new, requirements prior to granting approval and required the company to complete another trial pre-approval. This was an enormous setback for the company. In another case, the FDA surprised ana‑ lysts with a requirement for a QT prolon‑ gation study before they would approve Amylin’s diabetes drug, Bydureon, sending the company’s shares plummeting. Yet, despite these risks, biotechnology rep‑ resents a very exciting industry for invest‑ ment in firms that are improving the human condition. GHS welcomes opportunities to guide companies and executives in the sector to successful achievement of their financial objectives. The Global Hunter Securities (GHS) Life Sciences Investment Banking and Capital Markets teams are dedicated to providing a full range of financial services to biotechnol‑ ogy companies whose stock market capital‑ izations are sub-$750 MM. We specialize in equity financing & M&A advisory work for small cap biotechnology companies and are increasingly being recognized in the mar‑ ketplace for our close relationships with the fundamental buyers that manage $50-$1B+ that can be instrumental in getting our clients better terms when doing an equity financing. We work with our clients actively to help them achieve their long-term objec‑ tives in financing, business development, sales and trading and other areas. In gen‑ eral, our team has bulge and major bracket experience in executing a wide range of life science transactions – a breadth of transac‑ tion experience not seen among our direct competitors. n
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PROFILED COMPANIES
Small Biotech Company Fights Cancer with a Big Drug
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ucienne has been a survivor for much of her life. During World War II she almost starved to death at the hands of Nazis in occupied Holland and was orphaned. She endured a divorce and ended up raising four children alone. Later in life she found that she had lupus and underwent two spinal fusions. Yet, Lucienne pressed on over the decades, always positive, ever energetic, equal to anything that might come her way. She was in her 80s and living in the San Francisco Bay area when she was confronted with a grim reality. She had late stage cancer. The symptoms were bad. Even worse, she suffered from the intolerable side effects of cancer treatment. The chemotherapy created so many toxic side effects that Lucienne told her doctor and her family that she would rather die than have to take more of it. But luckily for Lucienne, she wasn’t out of options. Her son-in-law and her doc‑ tor convinced the U.S. Food and Drug Administration to grant her compassionate use of a pre-Phase III drug called Davanat®. It is a companion drug used during chemo‑ therapy to help kill cancer cells and prevent damage to normal cells. Davanat® is made by Pro-Pharmaceuticals, a drug company based in Newton, Mass. Under her oncologist’s supervision, Lucienne agreed to try chemo one more time, as long as it was adminis‑ tered with Davanat® and would not cause the horrible side effects. Much to her and her family’s relief, Lucienne experienced fewer adverse side effects with the new drug. Moreover, she gained the tumor-fighting benefits of the full dose of the chemo treatment. Davanat® www.microcapreview.com
has enabled participants, such as Lucienne, in Phase II trials to experience the benefits of chemotherapy with substantial reduc‑ tions in nausea, diarrhea, and lesions in the G.I. tract (mucositis). The drug also helps to reduce the loss of white blood cells during chemotherapy. Davanat®has helped study participants sidestep the dark side of chemo, an obstacle to treatment and a detriment to quality of life. Perhaps the most striking result of the Phase II trial was patient sur‑ vival. The median longevity for end-stage cancer patients increased by 46 percent.
The Big Idea from a Small Team Big pharmaceutical companies tend to focus on more complex cancer treatments. ProPharmaceuticals, however, has focused on simpler, large molecule solutions with huge implications. The company discovered a rel‑ atively inexpensive solution based on poly‑ saccharides (sugar molecules). “Our simple carbohydrate (sugar) mol‑ ecules are easily producible at a fraction of the cost of the in-fashion cancer ther‑ apy approaches that are being employed by many biotech and large pharmaceutical companies,” says Peter Traber, M.D., who is the CEO of Pro-Pharmaceuticals. Further, the proprietary molecule that makes up Davanat® has a long shelf life. This is of particular value in an American economy where healthcare costs are skyrocketing and in other countries where climate and storage conditions may be a problem.
Doing Battle at the Cellular Level Davanat® fights cancer by interacting with galectins. These are protein molecules that are produced in abundance by cancer cells. Galectins hide the cancer cells from the body’s immune system. Davanat® binds to galectins to help the body’s immune system better detect and kill cancer cells. In essence, Davanat® removes the cloak that allows cancer cells to evade the body’s immune response to foreign cells. In addition to revealing the cancer cells, Davanat® limits damage to normal cells dur‑ ing chemotherapy. Chemo’s indiscriminate attacks on normal cells explains why muco‑ sitis is such a common side effect. GI tract cells replicate quickly. Without an agent like Davanat®, chemotherapy is unable to distin‑ guish between the fast reproducing cancer cells and fast reproducing normal, healthy cells. When Davanat® is approved, patients will have a better quality of life during and after chemotherapy.
Potential for Sweeping Impact on Cancer Treatment The use of Davanat® in chemotherapy has key benefits: increased survival, fewer nega‑ tive side effects, and reduced cost. ProPharmaceuticals is working to gain FDA approval for Davanat®. The FDA requires a company to start with a specific indication when seeking approval for a new drug. ProPharmaceuticals decided to use Davanat® to
Micro-Cap Review Magazine
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treat metastatic colorectal cancer for Phase III trial. The Phase I trial (all solid tumors) and the mechanism of action indicate that Davanat® will work with multiple types of chemotherapy and on all solid tumors. The American Cancer Society estimates that there are about 150,000 new patients diagnosed with colorectal cancer each year. Patients typically live over two years. About 300,000 patients are treated each year, half new and half being treated for the second or third time. Once Davanat® gains approval for colorec‑ tal cancer, Pro-Pharmaceuticals will target other types of solid tumor cancer. The use of Davanat® will grow through two paths: treat‑ ment for colorectal cancer and treatment for other types of cancer. Demand for Davanat® is expected to grow for many years.
Looking Forward, Looking Southward Pro-Pharmaceuticals plans to introduce Davanat® first in Colombia, South America. The Colombian market has about 24,000 new cases of colon cancer annually. Standard treatment procedures mainly use the most popular chemotherapy drug ever developed, 5-FU. This is the very chemo drug that Davanat® was tested with in Phase I and Phase II trials with such success. The company believes the country’s regu‑ latory body will quickly approve the drug by as early as the second half of 2011. To help market the drug, Pro-Pharmaceuticals is working with ProCaps, a leading Latin American distribution company located in Barranquilla, Colombia. Colombia has a reciprocal agreement with 12 other Latin American countries, which should allow additional approvals relatively quickly.
for prostate cancer produced by Dendreon. Cancer researchers are looking at the use of Davanat® to improve the effectiveness of cancer vaccines in immunotherapy. The Ludwig Institute for Cancer Research (LICR) in Brussels is doing just that. Scientists at the cancer research institute are looking at the potential benefits of using Davanat® with its cancer vaccine for metastatic melanoma. Studies have shown that galectins inhibit tumor-specific T-cells, which are important to a healthy immune system. Researchers at LICR found that the effectiveness of their vac‑ cine was limited by galectins secreted by the melanoma. Because Davanat® binds to the galectins, the researchers believe that adding Davanat® to the vaccine therapy will enhance the activity of the tumor-killing T-cells, which will improve the effectiveness of the vaccine. Our experimental observations on cul‑ tured cells suggest that treatment of can‑ cer patients with Davanat® could correct T cell function and that combining Davanat® with an anti-cancer vaccine could induce a more efficient and long-lasting anti-tumoral immune response, says Dr. Pierre van der Bruggen of the Ludwig Institute. Researchers at LICR have defined a Phase I/II trial using their vaccine and Davanat®. They expect approval to initiate the trial this year.
school’s Director of the Division of Liver Disease. Researchers at Mount Sinai and Pro-Pharmaceuticals hope to find a better alternative to the current treatment for latestage fibrosis/cirrhosis – liver transplants. According to the American Liver Foundation, more than 25 million Americans have been afflicted at some time with liver and biliary diseases. The number continues to grow due in part to an increase in younger patients suffering the consequences of child‑ hood obesity. Liver and biliary diseases are even more of a problem outside the United States as a result of Hepatitis C, which leads to liver fibrosis/cirrhosis in most patients. According to Dr. Friedman, “The need for an effective therapeutic solution for liver fibrosis is acute, and this innovative project could significantly advance treatment in this critical area. The efficacy and safety of ProPharmaceuticals’ approach appears to be unique, and thus, these studies should be of the highest priority.” Dr. Friedman’s team has begun testing several of the company’s galectin blockers as anti-fibrotic liver therapies.
Rocking Success Rates, Not the Boat
More doctors today are fighting cancer using immunotherapy (i.e., with vaccines). In fact, many new cancer drugs are vaccines, such as Provenge, the recently approved vaccine
Pro-Pharmaceuticals is working on another game-changing application for their galec‑ tin-targeting compounds, but this one is unrelated to cancer. Company scientists have found that other polysaccharides may be used to treat liver fibrosis. In experiments, Pro-Pharmaceuticals has shown that its polysaccharide compounds can reverse the formation of fibrotic tissue in diseased livers of rats. This discovery resulted from a collaboration with Mount Sinai School of Medicine in New York City, a world leader in fibrosis and liver dis‑ ease research, and Dr. Scott Friedman, the
Perhaps one of the worst human traits is the unwillingness to change. In innovation cir‑ cles, habits of yesterday are one of the great‑ est inhibitors to advance new approaches and solutions. And in the health field espe‑ cially, resistance to change is almost iconic. Pro-Pharmaceuticals’ products do not dis‑ place other science or solutions. The com‑ pany’s galectin-targeting compounds only complement existing treatments or offer a treatment where none existed before. Resistance from competition should not slow Pro-Pharmaceuticals’ entry into the market. The advantages of Davanat® are clear: increased survival, significant reduc‑ tion of harmful side effects, and potential cost savings. Adding Davanat® to current cancer therapies should be an easy choice for physicians. n
22
Applied to Cancer Vaccines
Micro-Cap Review Magazine
Beyond Cancer, Healing Liver Fibrosis
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F E AT U R E D A R T I C L E
Oncology Drug Research Enters New Era
Discovery/Development
n By Bill Garland
24
Micro-Cap Review Magazine
Introduction
Old Environment
In 2009 oncology became the leading reve‑ nue producer for pharmaceutical companies, surpassing cardiovascular therapeutics. This event reflected an increased investment in oncology research and development (R&D) in the last decade or so. The emphasis on oncology research occurred despite many substantial risks, e.g., uncertain trial end‑ points, a scarcity of clinical trial enrollees,1 and an explosion of new and barely digested knowledge about cancer biology. Currently the sales for oncology drugs are $52 billion annually, $17 billion more than the next therapeutic category, lipid regulators like Lipitor©.2 Sales growth for oncology prod‑ ucts is also high, averaging 16 percent from 2005 to 2009. Oncology is now the leading revenue contributor for Roche with sales predicted to grow from $17.2 billion in 2008 to $25.9 billion in 2013.3 By 2013 oncology will also be the leading revenue producer for Novartis.3 Despite these impressive results, the oncology therapeutic area is currently undergoing its first major transformation in many decades. This transformation has significant implications for investors. This article explores the principal features of this transformation and changes that would likely result from it.
The previous environment for oncology therapeutics was very attractive. Few nega‑ tive issues existed for the major compa‑ nies (“Big Pharmas”). The barrier to entry for new companies was high. The experi‑ ence and competency curve for oncologyspecific R&D, regulatory, and worldwide sales activities was steep. The emerging bio‑ technology and biopharmaceutical firms (“Mini Pharmas”) modeled themselves after the established pharmaceutical compa‑ nies. Regulatory requirements were largely unwritten and were promulgated by the U.S. Food and Drug Administration (FDA) in closed meetings with the 15 or so Big Pharmas. Scientific information about the causes of cancer was limited, leading to a common approach of treating cancer with agents that impartially kill all cells (cytotox‑ ics). This approach assumed that the faster growing cancer cells would be eliminated faster than the slower growing, healthy cells. Typically, the FDA required only a modest success rate to approve a new drug, usually only a 20 percent positive response in the patients administered. Capital requirements for local marketing and drug manufacturing were high, because the bargaining power of service suppliers for out-of-house work
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The attractiveness of buy decisions is increased because of the emergence of new CROs in low-cost environments in China, India, and Eastern Europe. (contract research organizations, i.e., CROs) was strong. In contrast, the bargaining power of the individual scientists who invented the product was weak, as was the bargaining power of the patient who needed the drug. The traditional purchasing pattern was not price sensitive: the consumer (patient) did not buy, and the buyer (the physician) did not pay. Payers—insurance companies, gov‑ ernment institutions, hospital suppliers, mail order pharmacies—had limited influence on the use of a particular drug. Because many of the mainstays in anti-cancer treatment were relatively old cytotoxic agents, generic substi‑ tution of newer drugs with older drugs was a potential threat, and this threat was magni‑ fied because only a relatively few oncology agents were routinely used to treat patients. Companies, however, successfully reduced this threat by marketing newer agents for use with older drugs. Finally, the relatively small number of Big Pharma companies (i.e., those with significant R&D and sales/mar‑ keting, not just research) could easily limit competition with unwritten arrangements that influenced companies to differentiate products based on narrow product charac‑ teristics, such as convenience of dosing and not on price or innovation/effectiveness. As a result, these firms mostly sold “me-too” drugs. In this environment, there was little reason to establish strategic alliances with competitor companies, support vendors, or academic investigators.
In recent years, powerful forces have dra‑ matically altered the old environment. These forces mostly affected Big Pharmas negative‑ ly. The barrier to entry for new companies is now significantly lower. Layoffs and consoli‑
dations have resulted in thousands of skilled workers moving to smaller biotechnology and biopharmaceutical firms. Regulatory requirements worldwide have been slowly but systematically codified under a nego‑ tiating process labeled “The International Conference of Harmonization (ICH).” New biotechnology and biopharmaceutical firms (“Micro Pharmas”) now model themselves not on Big Pharmas. Instead, Micro Pharmas rely on a more streamlined model that is based on highly focused project teams. This model leads to faster “make-buy” decisions and significantly lowers the cost of product discovery and development. The attractive‑ ness of buy decisions is increased because of the emergence of new CROs in low-cost environments in China, India, and Eastern Europe. The near universal adoption of the ICH regulatory guidances increased confi‑ dence in work performed in these low-cost countries. In addition, increased competi‑ tion among the now more numerous CROs have resulted in lower prices. The explosion of scientific knowledge about cancer has resulted in redefining the disease in terms of multiple molecular targets (within the tumor and in the tumor environment), mul‑ tiple stages of disease progression (initiation, growth within an organ, metastasis to distant organs, widespread disease), and specific treatments tailored to an individual’s genetic makeup. Also, regulators are now more will‑ ing to approve drugs based on increased time of disease-free post treatment rather than just survival, an easier to achieve clini‑ cal goal. From an organizational perspective, these changes are more easily realized by multiple small organizations, each studying one target rather than a large organization studying multiple targets. Such small organi‑ zations, however, amplify the role and lever‑ age of the individual scientists. In fact, many
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Forces/Disrupters Promoting Change
universities and similar organizations like MD Anderson in Houston and Memorial Sloan-Kettering in New York are now start‑ ing the equivalent of Micro Pharmas within their institutions to more effectively link the inventor/scientist to the R&D process. The National Institute of Health (NIH) is fully supporting these efforts with funding and specific “translational” programs like NIH‑RAID4 and is even itself considering developing drugs in-house.5 Further, large Pharmacy Benefit Management (PBM) orga‑ nizations like Medco have taken over most of the tedious activities and responsibilities from Big Pharmas. The Internet has allowed Micro Pharmas to directly market agents to patients and oncologist. Finally, the payers are now exerting greater control over what drugs to administer and at what price. Payers are now asking, “Does the effectiveness of the drug justifying the cost? What is the evidence that a particular patient would benefit from a particular drug?” Payers are particularly emboldened in the oncology area because of growing public frustration that the “war on cancer” has resulted in very limited gains, despite expenditures of billions of dollars of private and public funds6 compared to other major diseases.7 For example, highly touted anti-cancer agents, like Roche’s Avastin,© provide only marginal benefits. These drugs often are not effective in treating cancer and can cost $75,000 to $100,000 per year. Some have criticized this focus on overall low ben‑ efit/cost ratio achieved with many of the new drugs as ignoring the needs of the limited number of patients who benefit from treat‑ ment with drugs like Avastin.8
Emerging Environment The emerging environment for oncology drug R&D favors Micro Pharmas organized around one or a few molecular targets. Because Micro Pharmas are small and have limited capitalization, they perform only in-house activities that are not available at a CRO or other service provider. The remain‑ ing activities are all “farmed out.” Besides
Micro-Cap Review Magazine
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establishing efficacy with its novel agent, the Micro Pharma must also identify which cancer patients would most likely respond to its products, as well as how the predicted response compares to the response from alternative therapies. This is true especially for older anti-cancer therapies that are no longer covered by patent protection. Because of the polypharmacy aspect of the new treat‑ ment environment, understanding interac‑ tions of Micro Pharma’s agent with other administered drugs becomes more critical to market acceptance of a new agent. Ideally, no drug-drug interactions with the new agent are acceptable. In clinical trials, the develop‑ ment of the business case for the new agent becomes equally as important as developing the scientific medical case.
Keys to Micro Pharma’s Future Success Success in the new environment will require companies to strengthen old skills and acquire new ones. Companies will need to harness new competencies: • Have an established worldwide network of service providers that can produce data acceptable to the regulatory and medical communities while minimizing cost. Service providers can be CROs, university laborato‑ ries, or even competitor companies. • Be recognized as technically the best or almost the best in their drug niche. To achieve this goal, the Micro Pharma needs to establish an effective method for rapidly channeling information into the company
from academic collaborators, including sci‑ entists responsible for inventing the product. • Have “best in class” competency in the following areas: • Cancer therapeutic research, particu‑ larly with methods to establish what type of tumor, and at what stage of a specific tumor’s development, the new drug should optimally be used. u Cancer therapeutics development, par‑ ticularly designing clinical trials against molecular targets which are present in both common and uncommon tumor types. Should clinical trials be designed to address a specific molecular target not necessarily a specific tumor type, or to automatically increase the enrollment of patients with the disease types who appear to benefit (adap‑ tive design9)? u Knowledge and avoidance of significant drug-drug interactions. u R&D of cancer diagnostic/prognostic assays to support both the clinical develop‑ ment of the treatment and the test(s) needed to establish whether a patient would benefit from the treatment. Any resurgence of the “blockbuster mentality” so common and addictive for Big Pharma must be resisted, as well as trivializing the difficulties involved in achieving approval for diagnostic/prognostic tests for cancer (no new major cancer bio‑ marker have been approved for clinical use in the last 25 years10). • Assembling a compelling story to both oncologist and the patients to permit rapid enrollment of patients in clinical trials, despite the many competing test products
and the resistance of most cancer patients to receiving an unproven treatment. • Have a comprehensive knowledge of reg‑ ulatory requirements worldwide. In the past, Mini Pharma personnel typically received their training at Big Pharmas. However, this will be less likely given the ongoing massive cutbacks in Big Pharmas. A possible source of new personnel will be academicians who possess only minimal regulatory knowledge. • Be realistic about how far along the devel‑ opment path to take the new agent(s) before turning responsibility over to Big Pharma (partner at a time that optimizes benefit to shareholders). In this respect, the big payoff for investors in these Micro Pharmas will most likely be a sale of the company to a Big Pharma as opposed to growth to achieve Mini Pharma or Big Pharma status. n William Garland is the CEO of AngioGenex, a New York-based biopharmaceutical start-up company focused on advancing cancer care by targeting the Id (inhibitor of differentiation) pathway for effective cancer treatments and useful diagnostics/prognostics tests. Garland is a pharmaceutical R&D veteran with a combined 34 years of experience at Hoffmann La Roche (20 years), Centaur Pharmaceuticals (6 years), Atairgin Technologies (1 year), and virtually concur‑ rent positions at Lpath Inc. and Tosk, Inc. (6 and 7 years, respectively). He has managed R&D groups with as many as 100 scientific and administrative personnel, and considers himself competent in all aspects of drug discovery and development. Garland received a BS degree in chemistry from the University of San Francisco and a PhD degree in medicinal chemistry from the University of Washington. He has authored or co-authored over 100 scientific publications.
(Endnotes) 1 Kolata G. Lack of study volunteers hobbles cancer fight, New York Times, 3 August 2009. 2 IMS 2010: Fastest-growing therapeutic classes by sales. 3 Goodman M. Sales trends by therapeutic area:2008-2013E, Nature Reviews Drug Discovery, September 2009. 4 NIH-RAID, NIH Rapid Access to Interventional Development, http://nihroadmap.nih.gov/raid/ 5 Harris G. Federal research center will help develop medicines, New York Times, 22 January 2011. 6 Kolata G. Advances elusive in the drive to cure cancer, New York Times, 23 April 2009. 7 From Reference 6: For the period 1950 to 2005, the death rate from cancer in the US fell only 5% while the death rate for heart disease and stroke decline 64 and 74%, respectively. 8 Review and Outlook: The Avastin Mugging, Wall Street Journal, 18 August 2010. 9 Berry D. Bayesian clinical trials, Nature Reviews Drug Discovery, January 2006. 10 Diamandis EP. Cancer biomarkers: Can we turn recent failures into success? Journal of the National Cancer Institute, 12 August 2010.
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Micro-Cap Review Magazine
27
PROFILED COMPANIES
Revolutions TM Medical’s RevVac Safety Syringe
R
evolutions Medical Corporation’s auto-retractable, vacuum safety syringe is finally here. With cutting edge technology, the RevVacTM Safety Syringe addresses the #1 concern of health care workers by virtually eliminating needle stick injuries and reducing the spread of bloodborne diseases. Necessity is the Mother of became a statistic overnight. About 800,000 Invention
28
Micro-Cap Review Magazine
Nurses and doctors give millions of inocu‑ lations each year. Frequent handling of syringes subjects healthcare workers and patients to potential health risks. Syringes can transmit bloodborne diseases. Needle accidents sometimes occur and can be dead‑ ly. A few years ago, Ron Wheet saw this danger and wanted to do something about it. He recognized that healthcare profes‑ sionals needed a better syringe. Like most entrepreneurs, he recognized an unmet need and then set out to fulfill it. Rebecca Johnson was working as a nurse at the Medical University of South Carolina. She had graduated from nursing school at the top of her class 10 years ago. One day in 2008 while she was throwing away a used syringe, she accidentally pricked her‑ self. She had always prided herself on hav‑ ing good hand-to-eye delivery of medicine with a syringe. But this time was different. The night before, she had gone without sleep while caring for a sick child. Johnson
people in the United States had been afflicted each year by syringe accidents. Rebecca Johnson immediately contacted her husband at a nearby hospital. Her hus‑ band, a doctor himself, told her to start the series of tests. The standard tests would take months to complete and would cost thou‑ sands of dollars. Johnson filled out the acci‑ dent report, dreading what might happen. She knew accidental needle pricks can be dangerous. A syringe can transmit 20 differ‑ ent bloodborne pathogens. These pathogens can cause a variety of diseases, including Hepatitis B and C and HIV. One needle prick can ruin someone’s life and career. Fortunately, healthcare workers will have access to a safer syringe soon. Starting in May 2011, Revolutions Medical Corporation (OTCQB: RMCP) will begin marketing a state-of-the-art safety syringe. The RevVacTM is a revolutionary product. It features an auto-retractable, vacuum design to help eliminate accidental needle sticks.. The U.S. Food and Drug Administration (FDA) has cleared it for commercial use. When used,
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Revolutions Medical Corporation designed the RevVacTM Safety Syringe with the healthcare professional in mind. It is arguably the safest syringe in the world. the needle is retracted from the patient into the barrel of the syringe after the medicine has been administered. The RevVacTM Safety Syringe does this instantly and passively without user intervention. This vacuum safety feature cannot be deactivated and remains protected until final disposal. The RevVacTM Safety Syringe will virtually elim‑ inate the possibility of accidental needle sticks. Its small design means that there is less hazardous waste to dispose. Hospitals can save not only on disposal costs, but also on syringe costs. The RevVacTM Safety Syringe is priced less than other syringes. Revolutions Medical Corporation designed the RevVacTM Safety Syringe with the health care professional in mind. It is arguably the safest syringe in the world. It is priced below other “spring” loaded, auto-retractable syringes. And it has the lowest disposable cost. The RevVacTM Safety Syringe has many features and benefits: • 100 percent auto-retractable; needle retracts directly from the patient; • Passive safety feature that requires no intervention; • Locked safety feature that cannot be deactivated; • Simple and intuitive to use; • One-hand operation; • Hands and fingers kept behind the nee‑ dle; • No reuse of syringe
product shipments from its factory by the end of the second quarter of 2011. With this launch, Revolutions Medical will provide healthcare professionals with a better and safer syringe.
Rondald Wheet, CEO and Chairman of the Board
Revolutions Medical has introduced an innovative product to the healthcare indus‑ try. The RevVacTM auto-retractable, vacuum safety syringe is a major breakthrough in syringe technology. The company spent mil‑ lions of dollars and several years on research and development. Revolutions Medical will begin marketing the RevVacTM Safety Syringe in May 2011 and expects to receive the first
Rondald (“Ron”) Wheet is the CEO and Chairman of the Board of Revolutions Medical Corporation. Since joining Revolutions Medical in 2005, he has helped the company achieve major milestones. He orchestrated the company’s acquisition of Clear Image, upgraded the company’s stock trading from the Pink Sheets to the Overthe-Counter Bulletin Board (OTCBB), and helped the company secure several U.S. and international patents. Under his leadership, Revolutions Medical received FDA approval for its RevVacTM Safety Syringe. Prior to joining Revolutions Medical, Mr. Wheet had over 15 years of experience in the investment banking industry. He worked for several registered broker dealers and helped small-cap companies, particularly those in the medical industry, raise capital. In 2002,
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he started a consulting business to advise micro- and small-cap companies on capi‑ tal financing, strategic partnerships, public relations, professional recruiting, and the mechanics of public offerings. Mr. Wheet graduated from the University of Towson with a Bachelor of Science degree in finance and international business. He was the president of the Metropolitan Exchange Club of Charleston, S.C. He received the South Carolina Palmetto Patriot Award in 2009.
Thomas O’Brien, President Thomas O’Brien has more than 25 years of general management experience in the medical device industry. He has a strong background in marketing and sales of medi‑ cal products in both domestic and interna‑ tional markets. He previously held execu‑ tive positions with medical industry lead‑ ers, such as Pfizer; Toshiba; and Technicare Corporation, a company owned by Johnson & Johnson. Mr. O’Brien played a key role in the worldwide launch of Magnetic Resonance Imaging. He served as president or CEO of several corporations, including Cosmetic Technology International, a sub‑ sidiary of Palomar Medical; Energist USA, a United Kingdom company; Med-Aesthetic Solutions International, an Australia com‑ pany; and Biotrack, Inc. Mr. O’Brien graduated from the University of Maryland with a Bachelor of Arts degree in foreign languages. He served in the U.S. Air Force Security Service and also worked at the National Security Agency. At the NSA, he was a Chinese linguist with top secret crypto clearance. n Contact: Thomas O’Brien, President 670 Marina Dr, 3rd Floor, Charleston, SC 29492 Phone: (843) 971-4848 Fax: (843) 971-6971 E-mail: tobrien@revolutionsmedical.com www.RevolutionsMedical.com US Stock Symbol: RMCP
Micro-Cap Review Magazine
29
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FiNANCE
Medical Tourism in Southeast Asia A Growth Industry for the 21st Century
A
ccess to advanced modern health care is no longer limited by a country’s boundaries. Today, more consumers than ever are traveling to destinations around the world to obtain first‑class, cost‑effective, medical care. Additionally, as more investment, medical personnel, and patients are crossing borders—developing economies and busi‑ nesses are reaping the economic benefits that accompany the expanding global health care market. Medical tourism is the term used when individuals travel to another country primarily for medical care. Medical tourism is still in its infancy, but is well on its way to become a major growth industry for the 21st century. Today’s medical tourists are typically mid‑ dle class consumers with purchasing power. They are “pulled” to foreign markets by lower treatment costs, high‑quality standards, high patient mobility, and the possibility of com‑ bining medical care with a vacation. They are “pushed” from their home country by high treatment cost, inadequate insurance, and long waiting lists or unavailability of service. Modern technology is also an important con‑ tributor in facilitating the industry’s growth. Potential medical tourists can find and arrange for healthcare service anywhere in the world from the convenience of a home computer. Many countries in Southeast Asia under‑ stand this unique opportunity. Thailand, India, and Singapore are considered the front runners in targeting international patients
n By lESliE riChArDSoN
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Major medical procedures w/average total medical/hospital cost in a western-level hospital Procedure
Countries U.S.
Cost as a % to U.S. India
Thailand Singapore Malaysia India
Thailand Singapore Malaysia
Heart Bypass
130,000
10,000 11,000
18,500
9,000
8%
8%
14%
7%
Heart Valve Replacement
160,000
9,000
10,000
12,500
9,000
6%
6%
8%
6%
Angioplasty
57,000
11,000 13,000
13,000
11,000
19%
23%
23%
19%
Hip Replacement
43,000
9,000
12,000
12,000
10,000
21%
28%
28%
23%
Hysterectomy
20,000
3,000
4,500
6,000
3,000
15%
23%
30%
15%
Knee Replacement 40,000
8,500
10,000
13,000
8,000
21%
25%
33%
20%
Spinal Fusion
5,500
7,000
9,000
6,000
9%
11%
15%
10%
62,000
Deloitte Medical Tourism, Consumers in Search of Value, 2008
for medical service. Taking the lead from these countries, the Philippines, South Korea, and Malaysia have moved to strengthen their domestic health care and wellness sectors to become more competitive in attracting foreign visitors. The result is that Southeast Asia has become a top destination for medi‑ cal tourism in the world. According to the Medical Tourism Association, the region cur‑ rently represents 12.7 percent of the global market. Furthermore, the Indian market research company, RNCOS, predicts that the Asian medical tourism market will grow to $9.1 billion by 2012 with over 5.6 mil‑ lion health tourists visiting the region. Major competitive advantages include the availabil‑ ity of state‑of‑the‑art hospitals with world‑ class medical equipment, five‑star accom‑ modations, highly‑skilled and caring medical staff, and a wide range of low‑cost medical procedures, such as hip and knee replace‑ ment, cosmetic procedures, orthopedic and cardiac surgery, and cancer treatment. In addition, to reduce the stress of international travel, many health providers include services such as travel planning and airport pickup. According to some health care experts, the rapid growth in medical tourism poses a real threat to the U.S. healthcare system. The United States is at risk of losing billions of dollars to foreign competition. With increasing out‑of‑
pocket health care expenses, U.S. consumers are becoming more price sensitive. As a result, more U.S. consumers are likely to go overseas to get better medical care or a better value on sur‑ gical procedures. Today, U.S. health care expen‑ ditures make up 16 percent of the country’s GDP, 50 percent higher than any other country. Costs continue to increase at eight percent per year, or twice the rate of the Consumer Price Index. Given this rate, total U.S. health care costs will consume about 20 percent of the economy within the next six to seven years. Additionally, employer’s medical costs have increased 80 percent since 2001, causing many organizations to lower plan benefits, eliminate coverage, or propose more affordable solutions, such as offering voluntary global medical travel.
ImPacT OF medIcal TOurIsm ON The u.s. Estimated U.S. Medical Tourist Spending Abroad (In billions U.S. dollars)
Source: Deloitte Medical Tourism, Consumers in Search of Value, 2008
Micro-Cap Review Magazine
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Furthermore, since employees have been asked to share in the rising health care costs, their out-of-pocket expenses have quadrupled over the last five years.
INTERNATIONAL ACCREDITATION
to $338 million and EBITDA increased 64 percent to $94 million over the same period in fiscal 2010. During the third quarter of fis‑ cal 2011, revenue from cardiac, orthopedics, neuro sciences, renal sciences, pulmonology, gastroenterology, and other multi-specialties grew significantly from the prior year: Category
In 1999, the Joint Commission International (JCI) was launched to evaluate the quality and safety of international health care provid‑ ers. Since then JCI has accredited more than 300 public and private health care organiza‑ tions in 39 countries. Several other organiza‑ tions, such as the International Society for Quality in Health Care (ISQUA), the National Committee for Quality Assurance (NCQA), the International Organization for Standardization (ISO), and the European Society for Quality in Health care (ESQH), have taken steps to ensure that medical tourism facilities provide the highest-quality clinical care. In addition, numerous organizations have been formed to disseminate current informa‑ tion and trends in the medical tourism indus‑ try. The Medical Tourism Association,™ also referred to as Medical Travel Association, is the first membership-based international organization for the medical tourism and global health care industry. The non-profit trade association launched a “pilot program” to certify medical facilitators who are involved in the coordination of patient care for patients traveling from one country to another.
Q3 Revenue Growth (Fiscal 2011 vs. 2010)
Cardiac
41%
Orthopedics
105%
Neuro sciences
104%
Renal sciences
84%
Pulmonology
22%
Gastroenterology
45%
Other multi-specialties
88%
Currently there are only a handful of medical service providers that target foreign consum‑ ers that are publicly traded as the majority of investment capital is still primarily from private and venture funds. Listed below are a few of these publicly-traded companies. Fortis Health care (BOM:532843) is one of the leading health care providers in India. Fortis has a network of 55 hospitals with a total of 8,000 beds in India and Mauritius. In the first nine months of fiscal 2011, the com‑ pany’s operating revenue increased 75 percent
Bangkok Dusit Medical Services (BAK: BGH) is the largest private hospital opera‑ tor in Thailand based on patient service revenue. The company operates four major hospital groups with 19 medical facilities. The company’s 2010 revenue grew 9 percent to $798 million and net profit grew 33 per‑ cent to $78 million from the prior year. In 2010, the top five international patient reve‑ nues came from Japan, the United Kingdom, United Arab Emirates, the United States, and Germany. The fastest growing regions were from Qatar, Australia, and Myanmar. Raffles Medical Group (SIN: R01) oper‑ ates in three segments: health care services, hospital services, and investment holdings. Raffles Medical has a network of 65 clinics in Singapore and three clinics in Hong Kong. The company runs Raffles Hospital located
32
INVESTMENT OPPORTUNITIES
Micro-Cap Review Magazine
in the heart of Singapore. The company also offers health financing under its subsid‑ iary International Medical Insurers (IMI). In 2010, the company’s revenue and net profit increased 9.4 percent to $293 million and 19.6 percent to $36 million from 2009. The company has plans to expand Raffles Hospital by 102,408 square feet, starting in the second half of 2011. Apollo Hospital (BOM: 508869) is a pio‑ neer in corporate health care in India and is India’s largest private health care provider. The company operates 53 hospitals with over 8,500 beds. Apollo Hospital has a signif‑ icant presence at every point in the medical value chain. It holds the leadership position in cardiology and oncology. Revenues and pretax profit for the first nine months of fiscal 2011 increased 27.1 percent to $427 million and 14.9 percent to $31 million over the same period in fiscal 2010. Parkway Holdings (SIN: P27) is a leading health care group in Singapore. It operates 16 hospitals with more than 3,000 beds in Asia. The company has a team of more than 1,200 special‑ ists covering 40 different specialties. In 2010, rev‑ enues and net profit increased 15 percent to $882 million and 6 percent to $93 million from 2009. The majority of patients are from Malaysia, Bangladesh, Vietnam, and the Philippines. In addition to hospitals and clinics, numer‑ ous companies in supporting industries bene‑ fit from the growth of medical tourism. These companies include medical travel agents, international health insurance providers, and medical equipment providers. n Ms. Leslie Richardson has over 15 years of investment management and equity research experience. She currently works for Elite IR as a senior partner and account executive. At Elite IR, she manages the inves‑ tor relations programs for Asian-based, U.S. listed clients. Previously, she worked for CCG Elite where she assisted Asian-based, U.S. listed clients formu‑ late key communication strategies. Ms. Richardson began her investment career at U.S. Trust Company. She later joined Odyssey Advisors as a portfolio manager and director of research. As an analyst, she focused on high-growth industries, such as biotech‑ nology, alternative energy, information technology, and telecommunications. She earned her M.B.A. degree from the University of Southern California. Ms. Richardson is based in Hong Kong.
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F E AT U r E D A r T i C l E
Bar Code Solutions for those Pharmaceutical and Medical Device Recalls That Never End
M
ary Jo, a twenty‑something mother of two, lay dying in a New York hospital. Her kidneys were failing. She needed a transplant in a hurry. After weeks of waiting, her husband Barry proposed a solution. He offered to donate one of his own kidneys. He did not realize what was to happen. During surgery, something went wrong. Doctors removed Barry’s kidney and were tying off his renal artery with a Hem‑o‑lok surgical clip. Little did doctors know that the clip was defective. The Hem‑o‑lok dislodged after surgery. At 29 years old, Barry’s luck ran out. He lay in a hospital bed and bled to death. Had doctors been able to check the Hem‑o‑lok clip before surgery, they would have known that it was a recalled prod‑ uct. Today we do not have a good way to track and remove recalled medical products. The problem of defective merchandise is becoming rampant. New products are intro‑ duced into the market each year. Some are legitimate, such as generic drugs. Others are cheap counterfeits that may do harm. Consumers may end up buying devices and drugs without knowing their authenticity. Today we have no universal system for track‑ ing drugs and medical devices in the United States other than what the Food and Drug Administration (FDA) publishes on its Web site. The FDA’s Web site is incomplete and
n By BArBArA DUCk
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requires a great deal of time and research. Users may spend hours researching lot num‑ bers and later realize that it does not cover the product categories in question. End users need a better solution. Drugs and medical devices are not fail‑ safe and suffer from breakdowns and quality control issues like everything else. Luckily we have the technology today to better monitor such problems. The use of bar coding could be the solution. Bar coding can now be used with Internet mobile devices, such as smart phones and wireless devices. Technologies such as Microsoft Tags allow users to check the recall status and authenticity of a prod‑ uct with a swipe of a mobile phone. Current methods to track and return recalled products are ineffective. The FDA Web site, for example, tracks only certain product categories. In the case of medical devices, the FDA currently tracks about 14 types of medical devices, well short of the number of device types actually used in the market. Finding information on the site requires time‑consuming research. Users may review hundreds of serial numbers and/or lot numbers published by the FDA and compa‑ nies. Users then have to manually compare the information with the lot number on the product label. If someone at a clinic or hospi‑ tal were to check a large batch of products, he or she would likely make an error. Many hospitals use radio‑frequency iden‑ tification (RFID) systems to track and locate devices and drugs. The problem with this method is that items can be missed if they were not assigned an RFID code. Several years ago, a major hospital with a good system for identifying recalled devices found that doc‑ tors at more than 40 hospitals implanted recalled devices in over 50 patients. In the case of the Hem‑o‑lok clip, the manufacturer
stated that it had complied and had notified the hospital. Someone at the hospital dropped the ball, and a patient lost his life. Some healthcare companies have set up their own registries to track products. These private registries have shortcomings. Registries may cover a small category, and the information may not be available to all doctors and hospitals. Kaiser Permanente, for example, has a system to track implanted joints. The company has a list of patients and doctors who have implants. The registry data, however, is not available to all hospitals outside their system. Other registries exist to track specific products, such as orthopedic joints and replacement parts. Even within these narrow registry databases, recalled products can be missed. Another problem arises when a consumer tries to return an over‑the‑counter recalled product. Often the customer is turned away because the recalled product is not on the store’s recall list. The customer is then stuck with a potentially defective product until the store can update its records. It’s bad enough that customers ended up with a recalled product that may be potentially dangerous. It’s even worse when they can’t return it. There must be a better way. The FDA has offered ideas to improve the current process. The agency has suggested the use of a unique ID for each device and a database of all recalled products. These ideas alone, however, will not solve the problem. How does this ensure that information is available to consumers, pharmacists, doc‑ tors, hospitals, and so on? It doesn’t. Before a device is used in surgery, wouldn’t it be better if doctors could use a cell phone connected to the Internet and scan a bar code on the packaging? That would cer‑ tainly do it and doesn’t take long at all. Many
Micro-Cap Review Magazine
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facilities don’t have a system and rely on the FDA Web site. They have to research the information, print out a long list, and then find and pull the product from inventory. After reading stories on recalled devices and publishing posts on FDA drug recalls, it occurred to me that Microsoft Tags could be the answer. Micro Tags are bar codes that are designed to work with mobile devices. Once software is downloaded on a smart phone, it can be used as a scanner to get “valued” information from bar codes. The process is as easy as making a phone call. Microsoft Tags are identifiers that con‑ tain rich information linked to the Internet. Changes associated with Microsoft Tags can be relayed to a wireless device immediately. Information associated with a tag or bar code could be updated at any time. Users can get real-time warnings and notices with a swipe of a cell phone. Other bar codes exist, such as the commonly-used Quick Response (QR) codes. The QR codes are used primarily for marketing purposes. Microsoft Tags have security features that are better suited for identification of medical products. Microsoft Tags can work through designated Internet gateways. The gateways are encrypted and cannot be hacked or tampered with. The added security gives medical device and drug companies assurance that their information is correct and displayed as they have listed. In addition, the Microsoft Tags can be reduced to a much smaller size than QR codes. The smaller bar code footprint and designated gateway deter the use of copy-cat bar codes on counterfeit products. The FDA could use bar code technology to better monitor recalled products. The FDA
currently relies on announcements and press releases to alert individuals. The procedure is cumbersome when a recalled product has a large range of identification numbers. The Triad wipes and Tylenol bottles, for example, have extensive identification lot numbers. They are big and long. With bar codes, product updates and alerts can be synchronized with an FDA’s database almost instantaneously. The new technology would also allow the FDA to expand coverage of pharmaceutical products, including expand‑ ing the current 14 medical device categories. Microsoft Tags can be used to address another problem plaguing the pharmaceuti‑ cal industry–fake and stolen drugs. Drug piracy is rampant in the United States and other parts of the world. Sometimes even legitimate drugs are stolen and get sold back to legitimate pharmacies. Eli Lilly had this problem in 2010 with the big “Thomas Affair” heist. To this day we don’t know where those drugs went. They could have been resold domestically or shipped out of the coun‑ try. Sometimes pharmacies can receive fake drugs into inventory. Moreover, individuals may buy such drugs over the Internet. Last year counterfeit Alli products plagued the market. The counterfeit product contained sibutramin, which could cause bad reactions when taken with other drugs. The counter‑ feit product was mainly sold on the Internet. With Microsoft Tags, users can scan the overthe-counter and a pharmacy could scan pre‑ scription drug bottle to check for authenticity. Microsoft Tags also work with digital heat maps to track the location of an item. A scanned tag can be programmed to show an IP address and the physical location with a city and state. The tag can be set up for each lot number. In the case of the stolen Eli Lilly drugs, someone can identify the stolen product simply by scanning it. He or she would know immediately and could contact the authorities. Further, Eli Lilly authorities would know the exact location of the scanned item. With this technology, users get immedi‑ ate information. Doctors can scan a package before using a medical device in a surgery. In
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the case of the Hem-o-lok, an unfortunate death could have been avoided. Had bar scan‑ ning technology been used, such as Microsoft Tags, surgeons would have known within 60 seconds that the clip was defective. Small surgical centers, in particular, can benefit from this as they have no way of checking devices and products. Consumers also would have the ability to check recall status of products at retail stores. With a smart phone, consumers can scan the label of a drug bottle before buying it. Microsoft Tags have a number of other uses. Tags work with personal health records (PHR), such as HealthVault. Tags can be used with e-prescriptions to authenticate doctors by pharmacists. Tags have a variety of uses outside of health care. They are used by pub‑ lishing, retail, and consumer package compa‑ nies to obtain valued-added information. Microsoft received a U.S. patent for inventing counterfeit- and tamper-resistant labels. The company continues to improve on the already good security features of Microsoft Tags. With some design work and encrypted gateways set up for security, we can have an improved recall system for medical products. The new method would be a vast improvement over the existing system which relies on warnings and notices sent through e-mails, Web sites, and other areas of communication. Readers who would like to learn more about these ideas should visit the Medical Quack. Or better yet, if they have downloaded Microsoft Tags, they can take their cell phone, aim, and shoot. n Barbara Duck is a heath care technology expert. She spent 20 years in the high technology logistics industry before becoming a writer and consultant in the health care field. She is the founder of Medical Quack, a blog devoted to improving health care services using technology. She has worked with health care and technology leaders, including Dr. Oz, Microsoft, Kaiser Permanente, Helicos, and Quest Diagnostics. She can be reached at barbaraduck@ducknet.net.
Micro-Cap Review Magazine
35
PROFILED COMPANIES
LifeTech Capital
Unlocking the Value of Science for Companies & Investors
W
hen I first met the LifeTech Capital team at their biotech‑ nology conference in Boca Raton, Fla. 18 months ago, I knew right away that there was something special about its approach to biotech research and investment banking. As luck would have it, I recently ran into them after seeing the LifeTech Capital logo everywhere dur‑ ing the JP Morgan healthcare conference in San Francisco. And boy, was I right! After finding a new home and growing the team, they had recently closed eight investment banking and two M&A transac‑ tions in just six months, including Bionovo (NASDAQ:BNVI), NeoStem (AMEX:NBS), Echo Therapeutics (OTCBB:ECTE), Marina Biotech (NASDAQ:MRNA), Stem Cells Inc. (NASDAQ:STEM) and IsoRay (AMEX:ISR). I asked Stephen Dunn, president and senior managing director of research at LifeTech Capital about what made them unique. “From a research perspective, we love the small- and micro-cap biotech and medtech companies, and we publish our research not only through the traditional institutional channels such as ThomsonReuters First Call, but also on our Web site where it’s downloaded by a variety of inves‑ tors, scientists, business development execu‑ tives, and even competitors. I believe the smaller companies have a better risk-reward profile for percentage gains to the investor. The hard part is that it requires excep‑ tional scientific, medical, regulatory, reim‑ bursement, and competitive due diligence. Fortunately, our expertise in these areas gives LifeTech Capital an edge for investors and gives confidence to company management
n By Shelly Kraft
36
Micro-Cap Review Magazine
teams and boards that we have an in-depth understanding of their complex science and business.” Seeing Dunn appear on stage and speaking on three different expert panels covering molecular diagnostics, infectious diseases, and oncology during the JP Morgan conference, I can personally attest that his expertise and opinions are in demand by both the industry and investors. He is one of the few Wall Street analysts that appear in both the financial and the scientific media. I also spoke with Bob Keyser, CEO and senior managing director of investment bank‑ ing and asked him what it was like working at LifeTech Capital and the secret to its success. “It’s exciting to be a part of a focused life sci‑ ences investment banking team and bringing a level of expertise to the company’s executive management team and board that isn’t found at many of the larger banks covering multiple industry sectors. As part of a smaller executive team we develop relationships with our clients on both the corporate side as well as the capi‑ tal markets side and provide the personal ser‑ vice that used to be a part of Wall Street. It is very rewarding when you are able to match the financial needs of a company with investors who understand a financing strategy designed to create growth and capital appreciation.” On the secret to their success, he added, “When we meet with a corporate client we spend time working with the CEO and CFO to make sure that the financial needs match up with the business plan to create the financ‑ ing strategy. What we see many times is that in the past, the company was involved in ‘reactive’ financings based on market condi‑ tions rather than being based on the capital needs of the business plan. We try to educate the executive management team, as well as the board, on the various financing options available to them to meet the needs of their
Stephen Dunn (third from left), president and senior managing director of research at LifeTech Capital, speaks to a panel of experts at the 2011 JP Morgan Biotech Showcase Conference, which was held in San Francisco on January 11-12.
business plan. With our strong capital mar‑ ket relationships we are able to match the investors with the corporate client to create not just one, but multiple structures that are designed to meet the needs of the company.” Doug Armstrong, who holds a Ph.D. in pharmacology from the Medical College of Virginia and a BA degree in chemistry from the University of Richmond, is the senior managing director of corporate finance at LifeTech Capital. His unique background as a seasoned life science executive brings a fresh perspective to Wall Street’s capital markets. He served as CEO of Aastrom Biosciences (NASDAQ:ASTM) and TyraTech (AIM:TYR) and led them both through their initial public offerings. Armstrong has personally run capital raising programs for over $300 million, through a variety of public, PIPE, and other structured deals, including a specialty in strategic partner‑ ing transactions with capital investment. Armstrong described his experience and outlook, “I’ve spent over 20 years as CEO or chairman of emerging growth life science companies, and went through the roller coast‑ er ride of success and failure that develop‑
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ment stage companies must endure. During this period, I raised quite a bit of funding for my companies, with financings that went from large IPOs to small strategic placements just to ‘keep the doors open’. Having an effec‑ tive ongoing relationship with a knowledge‑ able investment banker was always beneficial in my strategic planning; however, during the past 15 years, I’ve seen the role of investment banking in the small- and micro-cap space decline from being a strategic partner to the company, to one of simply ‘flipping term sheets’ with no or limited understanding of the company or its real needs.” So what attracted him to LifeTech Capital? Armstrong answered, “I joined LifeTech Capital to be a part of a team that returned to the roots of investment banking. Our approach is to be an effective and ongoing strategic partner with the management team and developing effective capital strategies aligned with their operational strategy. I’ve found that my experience as a former CEO and chairman meshes well with the strong capital markets skills of my partners, and appears to elicit stronger communication with the companies and the institutional funds to better achieve this goal.” He went on, “LifeTech Capital’s objective is to for‑ mulate the most effective communication of the company’s value proposition to the appropriate institutions. Effectively meet‑ ing this objective enables a better structured investment that’s good for the company and the investors. The institutional funds are quite responsive to our approach which differentiates LifeTech Capital from other investment banks. Furthermore, we find that investors are more inclined to move outside of their normal box of investment structure when they understand the real opportunity.” A year ago, the LifeTech Capital team found a new home as a division of New York-based Aurora Capital, which also has roots in microcap biotechnology companies. I spoke with Jeff Margolis, CEO of Aurora Capital, about LifeTech’s synergies. Margolis said, “LifeTech Capital is a direct complement to the preexisting strengths and activities of Aurora www.microcapreview.com
Stephen Dunn, president and senior managing director of research at LifeTech Capital, reviews documents at his desk.
Capital. Clearly, the institutional research has been a major plus. The synergies were clear, demonstrable, and actionable since LifeTech also fills a large gap in the investment bank‑ ing services we would otherwise be offering to life science companies and their investors. The pre-existing Aurora efforts were in mer‑ chant banking, while the LifeTech services were more in traditional investment banking; melding the two brings more to the table for our clients. By providing a variety of the historical Aurora Capital services, as those clients mature, we continue to provide them with the services that LifeTech Capital deliv‑ ers so well.” But the bottom line for Margolis was simple, “In any organization, the people are everything. It was an opportunity to work directly and intimately with professionals that we have known, respected, and liked for many years. The LifeTech team’s ability to think and act creatively is very impressive. The results can only be great when you are working with great people.” Some more of those great people on the LifeTech Capital team include William Dawson, senior vice president of research. Dawson holds degrees in biochemistry and business management. Craig Pierson, managing director of investment banking, is a product of the Rochester Institute of Technology for chemical engineering and MIT for the executive pharmacology pro‑ gram. Sachin Kelkar, senior vice president of investment banking, worked at Abbott and Genentech and has an MBA from the University of Chicago.
Stephen Dunn summed up LifeTech Capital, “Our motto is ‘Unlocking the Value of Science,’ and we strive to achieve this throughout our entire organization. From our published insti‑ tutional research reports to our investment bankers and capital markets team, we put in tremendous hours doing our homework in the complex world where the life sciences and Wall Street intersect. The goal of all this effort is to make everybody a winner by providing investment ideas and opportunities to Wall Street and retail investors, raising capital for companies to develop and commercialize their medical discoveries, and helping the ultimate winner, the millions of patients worldwide who will benefit from these efforts.” I have to say that the combined smarts, energy, and enthusiasm of the LifeTech Capital team is something I haven’t seen in a long time and I strongly recommend that investors interested in biotech put these guys on their radar screen immediately. The company’s Web site is at www.LifeTechCapital.com and the management team can be reached at the following e-mail addresses: Stephen Dunn, sdunn@lifetechcapital.com; Bob Keyser, bob@ lifetechcapital.com; and Doug Armstrong, darmstrong@lifetechcapital.com. n Disclaimer: This corporate profile is based upon information provided by the issuer or company rep‑ resentative. The information is not intended to be, and shall not constitute, an offer to sell or solicitation of any offer to buy any securities. It is intended for information purposes only, and to increase awareness of the company profiled. Safe Harbor Statement: The statements in this advertorial or profile relating to future products, partnerships, technology, and positive direction are forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Some or all of the aspects anticipated by these forward looking statements may not, in fact, occur. Factors that could cause or contribute to such differences include but are not limited to contractual difficul‑ ties, demand for the Issuer’s common stock, and the company’s ability to obtain future financing. Microcap Review Magazine may have received payment to publish and print this advertorial or corporate pro‑ file. Micro-cap Review Magazine disclaimers apply and may be reviewed at www.microcapreview.com/ disclaimer.php. Before investing in any security, you are strongly advised to review all public filings of the issuer of such security, which can be found at www. sec.gov, as well as warnings published by the SEC at www.sec.gov/investors and to consult with your professionals.
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A SNN INCORPORATED AND MICRO-CAP REVIEW MAGAZINE SURVEY On behalf of you, our subscribers and readers, additional information about companies in this issue will be forwarded to you by checking the box and submitting your request. Information will be forwarded to you by mail or email. q Advaxis q Bar Code Solutions for those Pharmeceutical and and Medical Device Recalls that Never End q Biotech Medics q BIOTECHNOLOGY: Investing in Improving The Human Condition q Cambridge House Conferences q Cambridge House NY Conference q CheckAlt Payment Solutions q Corprominence IR q DealFlow Conference q The Deadliest Deficiency q EDG Group q FSX Conference q Full Bore or Bust! q Global Hunter Securities q Global Outlook for M&A Activity q ILSI Bio Med q Internet IPO's q Investor Consultants q Japan Memorial q Landmark Print q LifeTech Capital - Unlocking the Value of Science for Companies & Investors q Lights, Camera, Action for SNN VPRs q Medical Alternatives for the 21st Century! q Medical Tourism in South East Asia q Medicine Masters of the Future q Micro-Cap not Micro-Crap by Ask Mr. Wallstreet
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PROFILED COMPANIES
Advaxis Incorporated A
dvaxis (OTC: ADXS) is an immunotherapy company focused on the research, develop‑ ment and commercialization of therapeutic Listeria-based cancer vaccines. fastest growing markets in the pharmaceuti‑ cal industry. The market will continue to grow in the future. Total oncology sales are estimated to be $65.2 billion in 2014.
Advaxis vaccines, developed under license from the University of Pennsylvania, secrete a protein sequence containing a tumorspecific antigen that elicit a robust, compre‑ hensive immune response. This proprietary and patented vaccine technology is capable of stimulating the body’s immune system to process and recognize the selected antigen as if it were foreign; generating an immune response to attack the cancer tumor. This is a broadly enabling platform technology that can be applied to the treatment of many types of cancers, infectious diseases and auto-immune disorders.
Listeria Vaccine Technology Advaxis vaccines fight cancer by stimulating the production of cytotoxic T cells. These vaccines can increase the synthesis of antigen presenting cells (APCs), as well as the num‑ ber of available activated immune cells that underlie a cancer- killing response. Advaxisbioengineered Listeria’s payload includes an antigen fused to an Advaxis patented pro‑ tein (LLO), the immunotherapeutic con‑ struct can stimulate the synthesis, release and expression of various chemicals which stimulate a therapeutic immune response. They can also reduce the number and func‑ tion of immunosuppressive cells that tumors
Market Opportunities for Advaxis Advaxis is targeting the multi-billion dollar cancer market with its unique therapeutic cancer vaccines. With a total market size of $47.7 billion, cancer is one of the largest and
recruit to protect them from therapeutic immune attack. Previous immunologic cancer treatments were able to strongly activate the immune system but were rendered ineffective by endogenous sources of immune inhibition within the tumors themselves. Advaxis has demonstrated that its Listeria vaccines can reduce the number of regulatory T cells and Myeloid Derived Suppressor Cells (MDSC). This renders tumors susceptible to immune attack. The ability to reduce the effect of immunosuppressive cells within tumors is currently under clinical investigation by other companies and is believed to be a significant mechanism of achieving a thera‑ peutic response. Unlike other vaccines, Listeria vaccines stimulate every immune pathway simul‑ taneously and in an integrated manner. It has long been recognized that cytotoxic T lymphocytes (CTL) are the elements of the
Figure 1: Advaxis’ Development Pipeline Product
Indication
Stage
ADXS11-001
Cervical Intraepithelial Neoplasia (CIN)
Phase II Dosing commenced in May 2010 for the company sponsored, blinded, placebo-controlled, randomized, 120 patients, U.S. study. Phase II Company sponsored study initiated in November 2010 in India. Study involved 110 patients with advanced cervical cancer.
Cervical Cancer
Cervical Cancer
Phase II The Gynecologic Oncology Group of the National Cancer Institute has agreed to conduct a study which is expected to begin in the second quarter of 2011.
Phase II The Cancer Research UK (CRUK) is funding a study of up to 45 patients at three UK facilities that is expected to commence in the second quarter of 2011.
Head and Neck Cancer ADXS31-142
ADXS31-164 ADXS31-164
Prostate Cancer
Phase I Company sponsored (timing to be determined).
Phase I Company sponsored (timing to be determined).
Breast and Brain Cancer
Canine Osteosarcoma
Phase 1 Company sponsored (timing to be determined).
Source: Advaxis filings/Web site and Zacks Investment Research
www.microcapreview.com
Micro-Cap Review Magazine
41
immune system that kill and clear cancer cells. The amplified CTL response to Listeria vaccines is one of the strongest stimulators of CTL yet developed, but just as important is the ability Advaxis construct have to cre‑ ate a local tumor environment in which these cells can be effective. This efficacy likely results in part from the fusion of LLO to the secreted tumor antigen. Many stud‑ ies have shown that LLO is a very strong source of immune stimulation independent of Listeria. By fusing a molecule with strong adjuvant properties to a tumor antigen, and then having it synthesized and secreted by live bacteria directly, an unusually powerful and complete immune response is generated. Advaxis has focused its efforts on devel‑ oping cancer immunotherapeutics target‑ ing cervical cancer, its predecessor condi‑ tion, cervical intraepithelial neoplasia (CIN) commonly known as cervical dysplasia, head and neck cancer, breast cancer and prostate cancer, among others. Figure 1 provides a list of lead products that the company is cur‑ rently developing. Recently, Advaxis has shown that ListeriaLLO (Lm-LLO) vaccines can cause epitope spreading. This means that these vaccines can stimulate the immune system to respond to more antigens than the one they are designed to attack and broadens the immune attack and results in a more therapeutic response. Similarly, Listeria induces strong immune memory that occurs very rapidly. This memory provides long-term immune protection against disease. Advaxis’ live, attenuated Listeria vaccines do not stimulate antibody formation. Other types of cancer vaccines, such as those that use viruses, develop antibody responses which inacti‑
Figure 2: Increasing the “Kill Ratio” Inside the Tumor Vaccine Listeria E7
Killer T Cells (%)
Regulatory T Cells (%)
Killer Ratio
9.4
11.8
1.0 : 1.3
36.8
1.7
22.7 : 1.0
(-LLO) ADXS11001 (+LLO) Source: Advaxis company presentation
vate them and prevent them from being used repetitively in a vaccine regimen. These types of vaccines are inactivated by antibody responses before they can effectively deliver their immune payload which prevents them from stimulating a therapeutic response. Advaxis’ vaccines can be used effectively in a multidose vaccine regimen, given they are not inactivated by antibody responses. Perhaps the most distinctive feature of Listeria-based vaccines is their ability to alter the tumor microenvironment. It is now known that stimulating the immune system is not sufficient by itself to treat cancer. Tumors have the ability to turn off activated immune cells once they get into the tumor tissue. Tumors create within themselves this immune privileged space, which Listeria vac‑ cines can reverse. Listeria vaccines achieve this by increasing the amount of cytotox‑ ic T cells and simultaneously decreasing the amount of regulatory T cells, myeloidderived suppressor cells within the tumor cells (see Figure 2). This enables the strongly activated immune system that Listeria stim‑ ulates to be effective within tumors, some‑ thing other technologies cannot do. n
Disclaimer: This corporate profile is based upon information provided by the issuer or company representative. The information is not intended to be, and shall not constitute, an offer to sell or solicitation of any offer to buy any securities. It is intended for information purposes only, and to increase awareness of the company profiled. Safe Harbor Statement: The statements in this advertorial or profile relating to future products, partnerships, technology, and positive direction are forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Some or all of the aspects anticipated by these forward looking statements may not, in fact, occur. Factors that could cause or contribute to such dif‑ ferences include but are not limited to contractual difficulties, demand for the Issuer’s common stock, and the company’s ability to obtain future financing. Micro-cap Review Magazine may have received pay‑ ment to publish and print this advertorial or corpo‑ rate profile. Micro-cap Review Magazine disclaimers apply and may be reviewed at www.microcapreview. com/disclaimer.php. Before investing in any security, you are strongly advised to review all public filings of the issuer of such security, which can be found at www.sec.gov, as well as warnings published by the SEC at www.sec.gov/investors and to consult with your professionals.
Advaxis has focused its efforts on developing cancer immunotherapeutics targeting cervical cancer, its predecessor condition, cervical intraepithelial neoplasia (CIN) commonly known as cervical dysplasia, head and neck cancer, breast cancer and prostate cancer, among others. www.microcapreview.com
Micro-Cap Review Magazine
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PROFILED COMPANIES
Stellar Biotechnologies, Inc.
S
helly Kraft recently sat down with Darrell Brookstein, the executive vicepresident of corporate development and finance of Stellar Biotechnologies. They talked about Stellar’s innovative work in cancer and therapeutic vaccines. Excerpts of the interview follow. 1. It’s clear from the corporate profile on the company’s Web page, Stellar Biotechnologies (www.StellarBiotech.com/ investors/presentation) is in both the pharmaceutical and biotechnology industries. Can you tell us more about those markets and how do you make money? Thanks for having us, Shelly. You’re cor‑ rect. Stellar has feet in both the biotech and pharma worlds. We work with an important immune stimulant and carrier protein that’s currently used in cancer and other therapeu‑ tic vaccines. The vaccines are in the regulatory approval process or being used in research for lupus, Alzheimer’s, rheumatoid arthritis, and other diseases. It’s important to realize that these are not vaccines that prevent disease. They are disease treatments or therapeutics that slow progression or prevent recurrence. We’ve been selling to large pharmaceutical companies and small biotechnology com‑ panies that develop vaccines. We also have a standardized preclinical immunotoxicity diagnostic test that we’ve developed ourselves. The product does not require FDA approval, and we expect to begin selling the product this year. We project over time that this could generate over $50 million a year in revenue for us. We “discovered” that product oppor‑ tunity on our way to developing a diagnostic test for clinical (human) immune status. 2. I know “KLH” is your product name but it’s also your stock symbol on the TSX Venture Exchange (or SBOTF in the U.S. market). What is KLH? KLH is shorthand for keyhole limpet hemocyanin. The biological product has been
used for decades and is well understood. It comes from the blue blood (or hemocyanin) of a rare mollusk called the California giant keyhole limpet. The mollusk can only be found in the coastal waters from Monterrey, California to northern Baja, Mexico. The population of this rare species is shrink‑ ing. The hemocyanin is blue because it’s copper-based; our blood is red because it’s iron-based. KLH is a huge, powerful immu‑ nogenic molecule that can be processed from the hemocyanin. The Wikipedia page for “keyhole limpet hemocyanin” has most of the important details. Our Web site, www. StellarBiotech.com, tells more. We believe that we are the only company with a sustain‑ able and renewable supply of KLH and can commit to long-term contracts. That’s largely because we received over $6 million of nondilutive research funding from the National Institute for Health and National Science Foundation from 2000 to 2009. GMP grade (“good manufacturing prac‑ tice”) KLH is the pharmaceutical grade for human use. Stellar develops products in that grade, where the KLH sells for from $5,000 to $200,000 per gram, depending on the purity, quantity, format, and formulation. One could say it’s akin to diamonds, but we’re dealing with a much more valuable product.
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3. Why does it affect the human immune system like it does, and what are the current uses of KLH ? Our scientists can make these points clearer, and our corporate profile on the company’s Web page explains it better. But here goes: essentially KLH is a huge, nonhuman molecule with important sugar-like “decoration” on its surface. It acts like a big red flag to our immune systems, shouting “I don’t belong here! Attack me and anything is attached to me!” The real key is that KLH then passes out of the body with no harmful side-effects; there is little to no known toxic‑ ity in the quantities used. Currently KLH is used as a vaccine car‑ rier protein that directs the immune system to attack specific targets like cancer cells. KLH is also used to challenge the immune system to test the immune response. Based on research to date, our scientists believe that another potential $1 billion/year market exists for KLH for which it is not currently used. Moreover, in the future we believe another multi-billion dollar market may exist for KLH as an enabler of a novel devel‑ opment platform for medical treatments. 4. Will Stellar market a diagnostic test kit? Yes, we’ve issued a press-release about how our preclinical immunotoxicity test kit will be market-ready this year. We are hard at work on bringing a human primary immune response diagnostic forward. That is a product that we believe does not currently exist in any other form, nor is it produced by any other company. 5. Stellar has a tiny market capitalization. In light of that, can you discuss the company’s financial profile–its capital structure, revenues, margins, and profitability? Stellar has raised $8.5 million to date and has 40 million common shares outstand‑ ing. The company has outstanding war‑ rants from previous financings that can add another $11 million in potential funding.
Micro-Cap Review Magazine
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We are well-capitalized to meet our current goals until the latter half of 2012 without having to use those additional funds. We have set the stage to grow aggressively after 2012. Unlike many “early-stage” biotechnol‑ ogy companies, our California subsidiary has been in business for a decade and has had revenues for about four or five years already. I expect the subsidiary to generate earnings, as opposed to revenues, sometime in 2013/2014 on a run-rate basis. 6. Does Stellar’s KLH need FDA approval? Our preclinical diagnostic kit does not require FDA approval. Our Stellar KLH/ Subunit product already has an FDA filing to support use as a key ingredient for thera‑ peutic vaccines. We are rapidly moving our Stellar KLH/IMG product through the work necessary to gain key FDA approvals. 7. What is the current size of the KLH market, present and future growth? We estimate current total KLH use at around 2 kilograms/year, a small percentage of which is GMP-grade. Obviously, since a single, approved cancer vaccine could use 5 kilograms/year of GMP-grade KLH or more, we believe the market could be explosively higher over the next 2-5 years. In light of the shrinking natural resource, Stellar expects that our aquaculture capabilities will posi‑ tion the company as the only reliable source of sustainable KLH supplies. 8. How do you differentiate yourself from your competitors? We know of only two competitors in GMPgrade KLH. One is a Fortune 2000 company that uses our Stellar KLH/ASP product as its starting material. The other is a small European nutraceutical company that has a freeze-dried subunit KLH. We have not seen that either of these companies has the intellectual property or the licenses to do aquaculture or non-lethal extraction of the hemolymph, both absolute necessities to have a dependable supply of KLH, much less to grow supplies to meet increases in demand. 9. Please tell me about the management team. We have all the required elements of a
strong management team: executives and leaders in protein chemistry, aquaculture, marine biology, marketing and business development in vaccines, medical diagnos‑ tics and novel therapeutics, immunology, and molecular biology. I believe that we also do a very good job in investor relations. Details of our management team and the company’s Scientific Advisory Board mem‑ bers can be found at http://www.stellarbio‑ technologies.com/corporate/management/. 10. I read on your Web site that Stellar actively seeks innovations in other companies and academic research centers that will enhance the company’s capabilities and augment its therapeutic and diagnostic offerings. Can you expand? Yes. When we see promising intellectual property (IP) held at a university or within a company that will help us grow the KLH market, we may pursue an “in-licensing” agreement. Under this arrangement, we have use of their patent for a specific research or application. This is the reverse of “outlicensing” where Stellar would allow other companies to use part of our KLH-based technologies for a specific purpose, such as a drug to treat a specific disease. We have recent examples of both. We’re examining two situations to in-license IP or co-venture with companies to develop a clinical pathway for FDA approval. Both approaches may help Stellar to become a leader in designing research and develop‑ ment platforms for vaccines or drugs. We also have ongoing discussions with major companies that want to use our KLH exper‑ tise to help them solve problems. Our scien‑ tists could help save such companies billions of dollars in drug development costs, some‑ thing very timely in this era of soaring costs. 11. How involved in product development are noted scientists on your Board and Scientific Advisory team, such as Scientific American Top 50 researcher, Daniel Morse, Ph.D. from UCSB; Professor Emeritus Malcolm Gefter from MIT; and Andrew Saxon, M.D., the discover of AIDS from UCLA?
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They are quite involved. Sometimes it’s an interesting direction based on long experi‑ ence. For example, Dr. Saxon is very involved with the immune response community worldwide. He is helping our team develop the immune response diagnostics to meet requirements of key opinion leaders in the field. Sometimes an inspired re-examination of recent research may show the potential use of KLH in a novel way. For example, Dr. Gefter from MIT recently proposed that we take a closer look at a small private company with an interesting drug platform that he believes will be enhanced with KLH. 12. What important alliances and partnerships does the company have? We disclosed previously the compa‑ ny’s important involvement with Bayer Innovation and Neovacs. We only recently began looking at joint relationships and long-term supply and co-development agreements with vaccine and novel thera‑ peutic developers, pharmaceutical compa‑ nies, and diagnostic companies. We recently hired our first vice-president of business development and marketing. This execu‑ tive has generated over $250 million in past deals, and we expect him to lead immedi‑ ately with our strongest areas of growth. In closing, Darrell, how can readers con‑ tinue following your progress? I would welcome them to sign up to receive updates and press releases by e-mail at the company’s Web site at www.StellarBiotech. com. Thank you, Shelly. n Darrell Brookstein is the executive vice-president of corporate development and finance and a director of Stellar Biotechnologies. He started working with Stellar in 2008. From 2001 to 2009, Mr. Brookstein was the managing director of the Nanotech Company, LLC. Prior to Nanotech, he founded sev‑ eral financial firms that invested in securities, futures, natural resources, and technology companies. He has worked closely with many leaders in these fields, including Forbes 400 and National Academy of Sciences members. Mr. Brookstein has written about corporate development and investment in mining and technology companies. He has authored books and published newsletters, including The Prospector and Nanotech Fortunes. He received his B.A. degree from Duke University.
Micro-Cap Review Magazine
47
F E AT U R E D A RT I C L E
Life Sciences Drive Global M&A Deals C
ompanies in the life science industry seem to be in the thick of most mergers and acquisitions. The deal sheets of magazines and newspapers are filled with multi-million dollar transactions involving some biotechnology, health care, or pharmaceutical companies.
The reason for this is simple. Global phar‑ maceutical companies are driving much of this activity. Big pharmaceutical companies have a voracious appetite for new products. They have no choice. Management is under constant pressure to keep a stock valuation that is based on high earnings growth. Many companies can’t sustain this earnings growth because they simply do not have enough new products in the pipeline. This issue is even more evident when dealing with a company that has a therapeutic drug.
n By Seth Yakatan, Partner, Katan Associates
48
Micro-Cap Review Magazine
Therapeutics offers the greatest upside to life science companies. Companies that sell effective therapeutic compounds to treat a disease, for example, stand to make billions of dollars. The issue for most companies is the time required to develop and bring a drug to market. The development timeline of a therapeutic compound, from discovery to commercialization, may take up to ten years. Often the compounds do not make it through the FDA’s clinical trial process. When this happens, a company is forced to bypass the lucrative U.S. market and forfeit potentially huge profits. Public companies in particular need to justify valuations based upon current and future earnings expecta‑ tions. To illustrate the need to consolidate, let’s look at an example. As of the writing of this article, a certain global pharmaceutical company, which we will refer to as Lifeco, had a market capitalization of approximately $110 billion. Lifeco has a five-year earnings per share growth estimate of 14 percent. Earnings must grow at that rate for the next five years to justify the current market value, not to mention growth beyond the five-year period. Assuming earnings will grow only at U.S. GDP levels after the fifth year, Lifeco must grow earnings at this reduced level for
15 more years to justify its current market value. To meet a nominal 10 percent earnings growth expectation, a company must intro‑ duce three to four new products that will produce a minimum of $500 million in sales every year. Given that the 10 largest glob‑ al pharmaceutical companies collectively launch only 23 such products a year, a signif‑ icant gap exists between the actual earnings potential and the imbedded market value of these companies. To meet these growth expectations, global pharmaceutical compa‑ nies must replenish their pipeline with new products and compounds so that their stock prices do not take a beating. As a result, the outlook for global M&A in the life sciences remains strong. n Seth Yakatan is a co-founder and partner of Katan Associates. Katan Associates provides corporate strat‑ egy and finance advisory services to companies in the life science industry. Mr. Yakatan has over 20 years of experience in corporate finance. Before founding Katan, he worked at several venture capital firms. He is a recognized expert in the valuation of life science companies and is a regular speaker at many industry events. Mr. Yakatan holds a MBA degree in finance from the University of California, Irvine and a B.A. degree from the University of Denver. He can be reached at seth@katanassociates.com.
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PROFILED COMPANIES
Wound Management Technologies, Inc.
W
ound Management Technologies, Inc. (PINK: WNDM) is an emerging com‑ mercial stage company with primary products in the $5 billion worldwide advanced wound care market. Wound Management’s primary focus is the distribution of its unique, pat‑ ented collagen product, CellerateRX®, which is FDA cleared and reimbursable under Medicare Part B. It has proved to be both clinically and cost effective with broad uses over a wide spectrum of wounds. Since April 2010, the sales team has been implementing Wound Management’s go-tomarket strategy for CellerateRX in both the U.S. and international markets. This strategy includes distribution agreements with major health care distributors, channel partners, health care facilities, retail product special‑ ists, and international distributors. Wound Management has other advanced biotech products in development, including a pat‑ ented resorbable bone wax line that is in late stages of development, as well as a subsidiary focused on technology for secure healthcare data collaboration and storage. The company’s 2010 revenues increased by over three times from the previous year’s revenues. Wound Management is positioned to become cash flow positive and profitable in the next 12-18 months with 2011 revenues projected at $6 million, a direct result of the 50+ opportunities in the sales pipeline. CellerateRX targets a multi-billion dollar domestic and international wound care mar‑ ket with over 60 percent profit margins. A large part of the growth in the wound care markets is from diabetic ulcers. The advanced wound care market is over $5 billion world‑ wide now. Forecasts show that by 2025 just the global diabetic market alone could have in excess of 48 million patients that could be a candidate for CellerateRX. It is estimated that aging populations and the increase of the number of patients diagnosed with diabetes will fuel rapid growth of this market as up to
25 percent of patients with diabetes will devel‑ op a wound at some point in their lifetime.1 CellerateRX®’s patented, activated collagen (approximately 1/100th the size of native collagen) delivers the essential benefits of col‑ lagen to a wound immediately, where other forms of native, intact collagen in commer‑ cially available products require time for the body to prepare the collagen for use in the wound healing process. In people with com‑ promised health or circulation, the difference in wound healing can be significant. More information about numerous evidence-based studies can be found at www.celleraterx.com. Next in the biotech pipeline are products from the Resorbable Orthopedic Products subsidiary. The resorbable bone wax and bone void fillers are being developed from a pat‑ ent that Wound Management Technologies acquired in 2009. The products are in the $1.4 billion worldwide bio-materials market. The company plans to file 510k’s with the FDA and ready the product for marketing in 2011. Also in the product pipeline are secure healthcare messaging and communications products from the Secure eHealth subsid‑ iary. The CifraHC, a secure messaging and encrypted transport mechanism, was includ‑ ed in the Interoperability Showcase at the 2011 HIMSS (Health Information Management and Systems Society) Conference. The show‑ case is the nation’s premier forum to highlight the Integrating the Healthcare Enterprise’s (IHE) common framework for interoperabil‑ ity across local, regional and national IHE’s.
The Company’s 18 Month Value Growth Milestones – announced in January 2011 • Targeted to be cash flow positive and profitable. • U.S. market rollout will include direct to consumer sales (TV and Internet), at least three major U.S. healthcare systems, and sub‑ stantial sales to U.S. government agencies.
1 HME Business Management Solutions, October 1, 2010
50
Micro-Cap Review Magazine
• At least two major international distribu‑ tors will be actively selling products. • New resorbable bone wax products will be approved and in the market. • Move to NASDAQ or AMEX exchange. Wound Management invites investors to discover more about the company and its products at www.wmgtech.com and www. celleraterx.com. The information is updated daily via a Web site mailing list, as well as though social media channels on Twitter, LinkedIn, Facebook, and YouTube. Wound Management has entered a new chapter in its history as the company moves towards profitability and growing market share. More and more people know about Wound Management and about CellerateRX. The distribution and marketing channels in the United States and internationally contin‑ ue to expand because the products uniquely fill a need in the growing advanced wound care market. At the same time, the company is also working on new product pipeline ini‑ tiatives to add enhanced value in the future. Investors can expect to hear more news about the company’s remarkable products in the near future. n Disclaimer: This corporate profile is based upon information provided by the issuer or company representative. The information is not intended to be, and shall not constitute, an offer to sell or solicitation of any offer to buy any securities. It is intended for information purposes only, and to increase awareness of the company profiled. Safe Harbor Statement: The statements in the press release that relate to the company’s expectations with regard to the future impact on the company’s results from new products in development and any other statements not constituting historical facts are “forward-looking statements,” within the meaning of and subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995. Since this information may contain statements that involve risk and uncertainties and are subject to change at any time, the company’s actual results may differ materially from expected results. This document may contain forward-looking statements concerning the Company’s operations, current and future performance and financial condition. These items involve risks, contingencies and uncertainties such as product demand, market and customer acceptance, the effect of economic conditions, competition, pricing, the ability to consummate and integrate acquisitions, and other risks, contingencies and uncertainties detailed in the Company’s SEC filings, which could cause the company’s actual operating results, performance or business plans or prospects to differ materially from those expressed in, or implied by these statements. The Company undertakes no obligation to revise any of these statements to reflect the future circumstances or the occurrence of unanticipated events. WN DM.QB | WNDM.PK
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FiNANCE
On the Market Commentary and Insights sTar scIeNTIFIc INc. (NasdaQ: cIGx) “The single phenomenon that holds the key to sickness and health – The holy grail of medicine”* Today the study of inflammation is ascen‑ dant in medical research. Thousands of arti‑ cles now reference this “first” response of the immune system, and the multitude of pathologies and human woes it can cause. Interrupting the negative cascade of the body’s response to first insult has become a busy frontier of research, with countless multitudes of lives and dollars at stake. I recall Professor Dardin in one of my early pathology classes at Georgetown University many years ago. He lectured to medical and dental students on the topic of inflammation, the biological response to harmful stimuli. “Calor, dolor, rubor, and tumor,” he quoted in Latin—heat, pain, redness, and swelling being the four classic signs of inflammation originally recorded by the Roman encyclopedist Celsus in the 1st century A.D. Little did Dr. Dardin know that today the study of low‑grade, chronic, unre‑ solved, and untreated inflammation spurred by an immune system overload is now con‑ sidered a key cause in almost all chronic degenerative and lifestyle diseases. ENTER: Star Scientific Inc.
Dr. JohN FAESSEl
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A proprietary Star Scientific compound is now being tested on humans at the Roskamp Institute, Johns Hopkins University School of Medicine, and in a new research just underway referred to as the “Flint” study, where Star and the Roskamp Institute have obtained institutional review board approval for a multi‑site human clinical trial. This testing involves the treatment of neurologi‑ cal conditions as well as conditions associ‑ ated with elevated blood levels of C‑reactive protein (CRP). Star’s compound, anatabine, is found in tobacco and in peppers, eggplant, and green tomatoes. Could it be that from tobacco, of all things, a new method of deal‑ ing with and treating low‑grade inflamma‑ tion might be realized, possibly eliminating a whole world of woe? On October 7, 2010, the eminent research institution Roskamp Institute announced that it will soon begin human clinical tri‑ als of anatabine for the treatment of Alzheimer’s disease. Star Scientific has said, “Extensive pre‑clinical research has been conducted.” The compound was developed, patented, and provided to Roskamp by a 100 percent‑owned subsidiary of Star Scientific. Because of the astonishing success of the Star Scientific compound in encourag‑ ing new neuronal cell growth and reduc‑ ing B‑amyloid at the cellular level, Johns Hopkins University—a major research institution—is phasing in new uses of the compound in several other disease venues: cancers, thyroid, arthritis, and other diseases. Research at the Johns Hopkins suggests that a low grade inflammation in preg‑ nant women can pass through the placenta and blood‑brain‑barrier and cause aberrant
neuronal growth within the fetal brain that could lead to autism and other disorders of presumed neurodevelopment origin, like schizophrenia and cerebral palsy.* (http:// www.ncbi.nlm.nih.gov/pubmed/15546155) More recent research from January‑ February 2011 at the Department of Neurochemistry, New York State Institute for Basic Research in Developmental Disabilities, reported similarly, “Our find‑ ings suggest that inflammation and apopto‑ sis may play a significant role in the patho‑ genesis of autism...” ( h t t p : / / w w w. n c b i . n l m . n i h . g ov / pubmed/20399529) It has long been known that rubella/ measles is the principal non‑genetic cause of autism, so the conclusions above do make “connect the dots” sense. Star has recently trademarked a product called Anatabloc™ and the picture of the container that I’ve viewed on the Internet indicates that its “Anti‑Inflammatory Support Lowers C‑Reactive Protein Dietary Supplement.” (Again CRP is the critical marker.) Medical research is now unwavering in its assessment that low‑grade inflamma‑ tions, once they becomes chronic, do sig‑ nificant harm to the body. Today, clinicians treat many diseases like asthma, arthritis, periodontal disease, lupas, cancer, ulcers, heart disease, and many others with anti‑ inflammatory drugs to neutralize, diminish, or block the process of inflammation. The recently published graph below from the Roskamp Web site shows the astonishing effects of the naturally occurring compound anatabine (RCP006) on the molecule that typically causes inflammation during bacte‑
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rial infection. The chart demonstrates the dramatic effect of anatabine versus Lipitor, well known to have advanced anti-inflam‑ matory properties (about double the thera‑ peutic effect of aspirin). The graph demonstrates vividly how anatabine is over three (3) times more effec‑ tive than Lipitor in reducing inflammation. Anatabine, a naturally occurring com‑ pound (RCP006), is here shown to affect the release of interleukin 1-beta (IL-1ß), an inflammatory molecule produced from human blood cells after stimulation by a bacterial molecule (LPS). The graph shows the expected increase in IL-1ß release after this stimulation. However, in the presence of anatabine there is a dose dependent decrease in the release of IL-1ß. Such results hold out promise for the control of inflammation in many human conditions. Research is ongo‑ ing at the Roskamp Institute to bring this molecule into clinical studies to test its abil‑
ity to regulate inflammation. On Februrary 9, 2011, Star Scientific announced that the subject of its provisional patent application, a pure form of a single isomer of anatabine, could be administered to treat numerous disorders, including those with inflammatory components, aberrant immune response, and/or inappropriate cell proliferation. The application indicates that the disorders which may be treated with this discovery include inflammation occurring in brain swelling or neurodegenerative disease, such as Alzheimer’s disease, multiple sclero‑ sis, and Parkinson’s disease. Star said, “This isomer can be administered in a composi‑ tion containing a therapeutically effective dose of anatabine to treat chronic low-level inflammation.” Star understands the impact of this information on the scientific and medi‑ cal community and has revealed in the press announcement that it is working with
McColl Partners LLC on “structuring a controlled auction for bidding by pharmaceutical companies for licensing and/or co-venturing relationships.” McColl Partners is an independent invest‑ ment bank co-founded by Hugh McColl, former chairman of Bank of America (BAC). See link: http://www.starscientific.com/ news/rock-creek-pharmaceuticals-disclosesfiling-of-provisional-patent-application-forisolated-anatabine-isomer/ So, the sum of these studies of inflamma‑ tion adds several more powerful high-pow‑ er arrows to the quiver of Star Scientific’s armamentarium and its company-making strategy, now suddenly morphing Star into a new category or sector, that of a dynamic biotech with legions of possibilities. One can only wonder who else is looking at these developments, which offer such tantaliz‑ ing opportunities on mega-issues of our time: aging, Social Security, Medicare and Medicaid, senior citizen housing, hospitals as we’ve known them throughout the 20th and early 21st centuries, and the costs of drugs on almost the entire spectrum of dis‑ ease as we define disease. Big Pharma, I’m certain, understands the totality of this data and is marshaling its forces to participate in the market play out of these inflamma‑ tion discoveries in some form; it is always in search of significant new revenue sources. Obviously licensing, co-venturing, and buy‑ out possibilities abound here... Let’s recall that the ancients found the bark of the willow tree to have anti-inflam‑ matory properties. We now know that medicinal substance as aspirin. It may well be that from tobacco, a source of anatabine, a new treatment for all these afflictions could be realized. Now, if that’s not enough to get the hair up on you back, add this anecdotal story: it goes that a while back, Richard L. Sharp, founder and a board member of Crocs Inc. (NYSE, and former chairman of Circuit City and Carmax) was part of a study at Roskamp Institute. He had taken a leave of absence from his post due to what was
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Graph above: increase in IL-1ß release after LPS stimulation in whole human blood. A dose-dependent decrease in the IL-1ß response is shown with increasing levels of anatabine. Lipitor, which is thought to have some anti-inflammatory properties, is shown by comparison, but has no effect on IL-1ß levels at the doses in this assay. (RCP006 source: Rock Creek Pharmaceuticals)
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thought to be Alzheimer’s. (http://biz.yahoo. com/e/101203/crox8-k.html) Rumors were out that Sharp was the ben‑ eficiary of some kind of miraculous healing from this devastating illness after his visit to Roskamp. I repeat that this account about Mr. Sharp and his experience at Roskamp is 100 percent unsubstantiated, but the story got around. It is certainly interesting in light of what we know about the goings on at the Roskamp Institute regarding its human Alzheimer studies. Now we hear that Mr. Sharp is a new board member of Star Scientific (March 17, 2011). (http://www.starscientific.com/news/c-or-r-e-c-t-i-o-n-star-scientific-inc/) Let it be said again: Star Scientific makes the product the Roskamp Institute uses for its Alzheimer studies. And oh, I almost forgot: Mr. Sharp is a member of the Johns Hopkins Medicine Board of Advisors, so he must have been aware of the Johns Hopkins involvement with the testing of Star’s anatabine/RCP006 compound. Orders of magnitude more than interest‑ ing, right? I like to say about Star that the “connect the dots” tendency of its narrative could make (CIGX) a stock for the ages. Here is a quick look at some of this matrix of dots. Star’s mega lawsuit against tobacco giant RJ Reynolds is supposedly the “largest pat‑ ent infringement lawsuit ever,” and is being orchestrated by the powerful law firm Sidley and Austin LLP—a major patent law impre‑ sario that has lost just a few of patent suits over its long history. This story alone drove the share price of Star Scientific to just below $6 last year. Star is now marketing CigRx™, an over-the-counter (no doctor prescription required) Tic-Tac style, non-nicotine nutra‑ ceutical made from natural ingredients that temporarily reduces the urge to smoke. Just picture the market. And you can purchase it very simply online at www.cigrx.com. Gross cigarette sales are $325 billion a year.
Tobacco use will kill 6.5 million people in 2010 from cancer, heart disease, emphysema, and other diseases. Moreover, 40 percent of those who smoke try to quit each year. With smoking issues so enormous worldwide, wouldn’t some enterprising Big Tobacco company become involved with either a type of licensing agreement or even a buy‑ out? Rumors are “out there” about this. There’s even more home run potential: Star has applied to the FDA for approv‑ al to advertise its proprietary BDL (Below Detectable Levels) technology that can lower the nitrosamine (the harmful part of tobacco complex) content to the zero level. Importantly, Star Scientific is the one and only company that can do this. Imagine if it gets FDA clearance on that one? “Big Tobacco” will have to license the BDL technology ASAP, I believe. It should be noted that on March 11, 2011, Star’s patents were validated by the United States Patent & Trademark Office with no possibility of appeal. The entire tobacco industry is now beholden to Star Scientific. How beholden? Perhaps to the tune of billions of dollars—but any way you look at it, after the 10-year lawsuit, it is going to cost them a bunch. Another big positive hit last month: Star Scientific received official word from the U.S. Food & Drug Administration (FDA) the net effect being that “it” will allow Star’s modified risk tobacco products to be advertised, mar‑ keted, and distributed. The ruling stated that Star’s modified risk products are not “sub‑ ject to regulation under FDC Act Chapter IX,” effectively approving Star’s request to market and advertise its Ariva-BDL™ and Stonewall-BDL™ “BDL” (Below Detectable Levels) products. ( h t t p : / / p h x . c o r p o r a t e - i r. n e t / phoenix.zhtml?c=105863&p=irolnewsArticle&ID=1542053&highlight=) Boiled down to basics: Star can market its tobacco products that have the cancercausing, potentially lethal tobacco agent removed. (http://www.starscientific.com/ news/star-scientific-receives-notices-fromfda-ariva-bdltm-and-stonewall-bdltm-not-
subject-to-regulation-under-fdc-act-chap‑ ter-ix/) Institutional ownership continues to grow. I believe that currently about 81 financial institutions hold about 30 percent of Star shares. Last November, insiders and fivepercent holders bought an “additional” $14 million worth of shares plus warrants, in addition, I believe, to a six-month lock-up. On March 19, 2011, Jonnie Williams, the CEO of Star Scientific, bought up 500,000 shares of the company’s stock for $1.97 per share according to securities filings. Hedge fund Tradewinds Investment Management, a more that 16 percent shareholder of Star, also picked up another 1,000,000 shares at $1.84 per share on the same day, to now total 20.3 million shares. * Noted author Dr. William Joel Meggs, an inflammation specialist at the Brody School of Medicine at East Carolina University, makes the point that inflammation “may well turn out to be the elusive holy grail of medi‑ cine, the single phenomenon that holds the key to sickness and health.” Inflammation, Dr. Meggs writes, is a common thread that links heart disease, some forms of can‑ cer, diabetes, migraine headaches, irritable bowel, and even periodontal disease. I have purchased shares of Star Scientific in the open market. To watch the CigRx™ infomercial: www. cigrx.com. To view the new Star Scientific website: http://www.starscientific.com, If you missed any of my previous (CIGX) reports or for the complete list of my Best Ideas for 2011, send an e-mail request to: Dr.Faessel@onthemar.com. n
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PROFILED COMPANIES
Medical Alternatives for the 21st Century! “When we’re talking about small, unprofitable, biotech companies, I rarely care about quarterly or even annual earnings. What I care about is that the R&D programs stay on track and that the…” products ”…will make the company worth a whole lot more in the future than it is today”. —Quote by Charly Travers, The Motley Fool “Biotechnology is one of the most promising industries of the 21st century” —Joseph Nicholson, eHow “As the 21st century begins, the pharmaceutical and biotechnology industry has entered an era of explosive growth in innovation, invest‑ ment and competition.” —Robert B. Handfield, B of A U Distinguished Professor)
H
ave you ever wanted to invest in a biotech company right when it was about to explode into the public arena? If so, then you should read this article! BioTech Medics, Inc. (PINK: BMCS) is a 14-year-old Nevada public company that will gain investors’ attention. The company has completed over $10 million in research and development, owns four U.S. patents1, and is prepared to enter the market with a clinically tested and thoroughly researched antimicrobial product. The product was developed by Dr. Edward J. Cragoe, Jr., after his retirement from Merck & Company’s (NYSE: MRK ). Dr. Cragoe had been the top scientist for over 19 years with Merck. The product is SHBAN™ Alcohol Free Hand Sanitizer. SHBAN is superior to most other hand sanitizers for the following rea‑ sons. 1) SHBAN is long lasting – it provides up to four hours of protection when used as directed; 2) SHBAN has been clinically proven to kill most germs, plus viruses like H1N1 (Swine),
Influenza A, H1N5 (Avian) Influenza A, and HIV; 3) SHBAN is non-flammable; 4) SHBAN is a green, environmentallysafe product made in the USA; 5) SHBAN is gentle on hands and will not cause cracking or dryness; 6) SHBAN is colorless and will not stain most clothing, flooring, and jewelry. SHBAN’s active ingredient is FDA-cleared and is safe when used as directed. Unlike some hand sanitizers, SHBAN does not con‑ tain ingredients which can cause cancer in humans and animals. Would you only wear deodorant for only 30 seconds? Of course not! But few people know that alcohol gels last just 30 seconds and the protection is gone! A 2010 study conducted by the University of Virginia for DIAL Alcohol Hand Sanitizer showed that the alcohol hand sanitizer was “ineffective” against cold and flu viruses.2 SHBAN is effective against most influenza viruses. Demand for hand sanitizers in the U.S. health care and life science markets is pro‑
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jected to grow 4.1 percent annually to $575 million in 2013. Growth will reflect the increasing applications in waterless prepara‑ tions.3 The global hand sanitizer market is valued at $4 billion. BioTech Medics is launching a major mar‑ keting campaign in 2011. The company is developing three Web sites to sell and market SHBAN. BioTech Medics is negotiating a $15 mil‑ lion equity commitment from a major New York hedge fund. The money will be used to market SHBAN in the United States. The marketing program will target television, radio, the Internet, magazines, and select retail outlets. The company has also set up a Web site at www.projectprotectthekids.com to inform parents of the dangers of alcohol gel use around small children. The Poison Control Center has reported over 22,000 alcohol poi‑ soning inquiries over the past three years. A four-year old child ingesting a small quantity of alcohol gel is equivalent to a child having a shot of vodka. The gel can cause severe alcohol poisoning. If left untreated, severe alcohol poisoning in children can be lethal.
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Medical Alternatives for the 21st Century! Pain Management Centers High Powered Deep Penetrating Laser Pain Therapy Newport Beach, CA; Santa Fe & Albuquerque, NM; Dallas, TX ________________________________________________
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BioTech’s proprietary protocols have a 90 percent success rate in reducing or eliminating pain. Over 94 ailments can be treated with the BioTech lasers. Such ailments include carpal tunnel syndrome, backaches, whip lash, golfer’s and tennis elbows, sciatica, migraines, hip pain, knee pain, fibromyalgia, diabetic neuropathy, shingles, and jaw pain. The company’s patents include 22 addi‑ tional antimicrobial products that can be made from the SHBAN formula. Those products include an eye drop to kill conjunc‑ tivitis. SHBAN can be made into a feminine douche which can heal candida and kill the HIV virus topically. SHBAN can be used in a hemorrhoid crème to stop itching and infection, and to heal the surrounding tissue. The product can be made into a liquid anti‑ microbial spray for wounds and skin burns. It can be used as a toenail and foot spray to kill toenail fungus and athlete’s foot, as well as a jock itch spray, just to mention a few product uses. BioTech Medics also operates pain treat‑ ment centers using medical lasers. The com‑ pany’s medical lasers are high‑powered, deep penetrating devices that are used to reduce or alleviate pain. BioTech Medics has four laser pain centers in three states to treat muscle, bone, nerve, and arthritic pain. The centers use two types of medical lasers that have been cleared by the U.S. Food and Drug Administration. BioTech’s proprietary protocols have a 90 percent success rate in reducing or elimi‑ nating pain. Over 94 ailments can be treat‑ ed with the BioTech lasers. Such ailments include carpal tunnel syndrome, backaches, whip lash, golfer’s and tennis elbows, sci‑ atica, migraines, hip pain, knee pain, fibro‑ myalgia, diabetic neuropathy, shingles, and jaw pain.
BioTech Medics knows that residual income is essential to building a sound com‑ pany. The company wants to emulate LCA‑ Vison Centers (NASDAQ: LCAV). LCA‑ Vision offers LASIK eye surgery to improve vision. They have 89 centers throughout the United States. BioTech Medics plans on having 100 laser pain centers nationwide to generate monthly residual income. Pain management is reces‑ sion tolerant. Patients who are employed need a quick, safe, and non‑drug means of reducing or eliminating pain. Those who are unemployed want to get well so that they can continue with their job search. It is a win‑ win situation for the company and patients. The company’s president Charles R. Crane, M.D. has practiced medicine for over 35 years. He is a board‑certified physiatrist (physical medicine) and a specialist in pain management. The company’s chairman and CEO, Keith Houser, has over 32 years of corporate man‑ agement experience. He has an extensive radio and television marketing background. Houser pioneered niche television market‑ ing. He was one of the founding advisory board members to Financial News Network (FNN), now owned by CNBC. BioTech Medics has a six‑minute video on YouTube. The video features interviews of Dr. Crane and several satisfied patients who have been treated at the BioTech laser
pain centers. The link to the video can be found at http://www.youtube.com/ watch?v=Zkr_0XxliQ8. BioTech Medics possesses unique strengths: cutting edge biotech products, a globally expanding business, a business model with residual income, a healthy bal‑ ance sheet with low debt, and plans for a major marketing program. This company is ready to explode and investors can be a part of it today at bargain basement prices. For more information about BioTech Medics, please contact Keith Houser at 972‑ 274‑5533 or visit the Web at www.biotech‑ medics.com. n Disclaimer: This corporate profile is based upon information provided by the issuer or company rep‑ resentative. The information is not intended to be, and shall not constitute, an offer to sell or solicitation of any offer to buy any securities. It is intended for information purposes only, and to increase awareness of the company profiled. Safe Harbor Statement: The statements in this advertorial or profile relating to future products, partnerships, technology, and positive direction are forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Some or all of the aspects anticipated by these forward looking statements may not, in fact, occur. Factors that could cause or contribute to such dif‑ ferences include but are not limited to contractual difficulties, demand for the Issuer’s common stock, and the company’s ability to obtain future financing. Micro‑cap Review Magazine may have received pay‑ ment to publish and print this advertorial or corpo‑ rate profile. Micro‑cap Review Magazine disclaimers apply and may be reviewed at www.microcapreview. com/disclaimer.php. Before investing in any security, you are strongly advised to review all public filings of the issuer of such security, which can be found at www.sec.gov, as well as warnings published by the SEC at www.sec.gov/investors and to consult with your professionals.
1. US Patents No: #5,514,808, #5,574,050, #5,679,711. #5,585,391 2. http://www.virologyj.com/content/6/1/124 3. Source: © Freedonia Independent study 2009 # 2526
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FINANCE
XBRL – What You Need to Know NOW!
T
he deadline to implement eXten‑ sible Business Reporting Language (or XBRL) is fast approaching. By the second quarter of 2011, public companies will have to file their financial reports with the Securities and Exchange Commission (SEC) using XBRL. In fact, the SEC requires virtually all public companies to use XBRL with the first periodic report ending after June 15, 2011. The SEC has good reasons for pushing XBRL adoption. The agency believes that the new technology will make company financial information more accessible and useful to a wider audience. With XBRL, ana‑ lysts and shareholders can compare, retrieve, backtrack, and bookmark all desired data. Small-cap companies have misconcep‑ tions about XBRL reporting requirements. Several small-cap CEOs and CFOs have said, “XBRL does not pertain to me because we are a recent reverse merger or because we trade under $1.00 or because we are on the OTCCB.” This is, in fact, not true! Once again, almost all public companies will need to file XBRL, beginning with their first peri‑ odic report that includes data for a period ending after June 15, 2011. Companies that implement XBRL should recognize its many benefits. Simply put, XBRL is a way of exchanging business and financial information in a simplified manner. XBRL is built on the idea that information should not be laid out flatly on a document. Each indi‑ vidual line item reported should be tagged using specific taxonomies and definitions. When XBRL is used with software applica‑ tions, it makes extracting and exchanging financial data faster and more efficient. Despite XBRL’s advantages, many public company executives remain unclear about
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what is needed to prepare a document in XBRL. The aim of this article is to provide company executives, particularly those in the small-cap space, with key information about XBRL implementation. With June 15, 2011 fast approaching, companies should begin the process now to ensure a successful transition. Vintage Filings can help show companies the way.
Getting Started: Best Practices for XBRL Vintage Filings has completed numerous test and live XBRL filings for large-cap compa‑ nies and can guide first-time, small-cap fil‑ ers. Vintage Filings has established individual plans-of-action. These plans take into account the challenges with not only an initial filing, but also consider how a company’s XBRL processes will be organized over the long haul. Furthermore, Vintage Filings offers small-cap companies a cost-efficient solution that does not compromise on quality of results. The following are best practices used by companies for successful filings.
Plan Ahead: The first recommendation may appear fairly benign. In actuality, it has the greatest impact on the success – and stress level – of an XBRL filing. Start early! Companies should prepare by taking the time to understand XBRL filing require‑ ments. It’s important to avoid rushing at the end. Taking precautions will help keep costs in line and make sure that the quality of the XBRL filing is sound. Sudden and last min‑ ute changes create additional expense and
risk. These problems can be avoided with good planning and processes.
5 Tricks of the Trade In addition to avoiding the late-quarter “XBRL cram session,” Vintage Filings works with companies to manage the following processes: 1. Prepare primary financial statement and block tagged notes: The ideal, textbook process for creating a first SEC XBRL filing is to prepare early. One quarter early is good, but two quarters early is better. This helps to define processes, roles and responsibilities, and timelines for suc‑ cessful concurrent filings. Here is why: a. On-boarding: The on-boarding process is the first step to implement taxonomy and business rules around financial statements. This can take weeks, depending on the com‑ plexity of a company’s financials. Companies will need time to establish an initial template via tag/concept approval. It is possible to use a previously filed Form 10-Q, if it does not change significantly from period to period, or a Pro Forma, if it can be prepared early. b. Dry Run Test: It is important to test an XBRL filing to make sure that it has all the proper tags/concepts and characteristics for communicating one’s financials, passes EDGAR Filer Manual (EFM) validation, ren‑ ders properly, and represents exactly what is in the HTML filing. 2. Detailed examination: Vintage Filings examines the structure and presentation of the company’s financial dis‑ closures to get an accurate estimate of the number of concepts that will need to be
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expressed in both Forms 10-K and 10-Q. Currently Forms 10-K and 10-Q are the only documents that need to be converted into the XBRL format. 3. Focus on XBRL data creation: Although rendering of the information is important, according to the SEC, there is no rendering requirement in the mandate – just the filing. What is important is to get financial information properly modeled. Vintage Filings works with companies step-by-step to insure the most accurate and direct XBRL model. 4. Review and research extensions: Vintage Filings can help companies save con‑ siderable time in researching, reviewing, and creating concepts from the US GAAP tax‑ onomy. This process is perhaps the most dif‑ ficult part of XBRL implementation. Vintage Filings can facilitate the process, but compa‑ nies should be familiar with certain guidelines published by the SEC staff in May 2009: a. When choosing between two US-GAAP standard tags/concepts (narrow vs. broad), narrow is preferred. b. When choosing between an existing standard and custom/extension tag/concept, every effort should be made to use exist‑ ing US GAAP tags/concepts found in the taxonomy. c. Tags/concepts may cross industry clas‑ sifications.
7. Special project team (if needed, usually in-house) 8. Consultants A company should build core XBRL filing skills early on, while it is still in the limited liability stage. Being proactive has its ben‑ efits. Once the legal liability requirement is enforced, a company should manage the process and risk with its own team.
Working with PR Newswire and Vintage Filings XBRL truly is a paradigm shift in financial reporting. PR Newswire and Vintage Filings make certain that each XBRL filing is correct, complete, consistent, and accurate.
Validation:
5. Assembling the team: Participants involved in the XBRL filing pro‑ cess will have different responsibilities. The same parties that participate in the HTML filing should also participate in the XBRL filing. 1. External team (third party): an external or third party team, such as Vintage Filings, will alleviate a lot of the burdens associated with XBRL. 2. Legal counsel: internal or external 3. Audit committee 4. Auditors: internal or external 5. Investor relations 6. Information technology (for in-house only)
XBRL financial filings have a lot of infor‑ mation. Vintage Filings makes sure that the information is the same and correct in both the HTML and XBRL formats. Vintage Filings validates the following information: • We check the overall quality of the EDGAR document (correctness, completeness, consis‑ tency with prior filings, and accuracy). • We guarantee compliance with the latest XBRL standard and the SEC EDGAR Filer Manual. • We ensure the consistency of tags / concepts and other characteristics period-toperiod and filing-to-filing. • We help companies make the best use of extension or US GAAP taxonomy concepts relative to peers. • We synchronize the XBRL filing ren‑ dering with the HTML EDGAR document using the proprietary XBRL viewer and the SEC viewer. • We capture all comments and changes a company makes to create an audit trail of the entire process. • We verify the calculations in HTML statements and will notify companies of any errors. • We cross-check to ensure the categories and sub-categories foot properly.
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• We confirm the same tags are used to represent the same concepts across the bal‑ ance sheet, income statement, cash flow statement, and shareholder’s equity state‑ ment to assure the “financial integrity” of the XBRL filing in relation to the HTML filing.
Time-Savings: Vintage Filings provides companies with hands-on experts. These experienced profes‑ sionals manage each step in the process to expedite the XBRL filing. • Company specific XBRL taxonomy and business rules are created and saved as the basis for future filings. • XBRL proofs are available within three to seven days. • Ongoing edits: 24 - 36 hours (8 hour average turnaround). • Taxonomy experts complete the ini‑ tial tagging/concept model creation and can help companies save up to 80-100 hours of staff time on research and understanding of taxonomies. • XBRL specialists transfer knowledge through Reviewer’s Guide documentation to the company’s staff to ensure understanding of the taxonomies, mapping process, and SEC requirements. • Companies do not have to purchase, install, or learn special software.
Concluding Thoughts: To those who don’t understand XBRL, it can seem complex and confusing. At first the XBRL process appears very different from the current EDGAR filing process. It’s true that companies may take more time initially to file financial reports in XBRL. It will, however, become easier over time. Companies should embrace XBRL now. Although it is a SEC requirement, XBRL will make the filing and reporting pro‑ cess easier and more efficient in the long term. XBRL is a very good thing. For more information about XBRL reporting, please contact Vintage Filings at 212-730-4302 or info@vfilings.com. n
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h E A lT h & F i T N E S S
The Deadliest Deficiency
T
he Harvard School of Public Health estimates that 72,000 to 96,000 avoidable deaths every year are attributable to a deficiency of omega‑3 fatty acids in people’s diet. Barry Sears, the creator of The Zone Diet, called fish oil a medical miracle. These assertions may sound like hyperbole, but facts support them. Omega‑3 fatty acids from fish oil have been shown to reduce the incidence of sudden death and slow the progression of coronary artery disease. Fish oil accom‑ plishes this by decreasing arrhythmias, low‑ ering blood pressure, reducing triglycerides, improving the function of cells lining the arteries, and suppressing inflammation. The anti‑inflammatory benefits may reduce the incidence of several forms of cancer and ameliorate inflammatory bowel disease and rheumatoid arthritis. Fish oil may preserve cognitive functions and help improve mood. These benefits are achieved with no risk and at a modest cost. Fish oil may not be the greatest miracle of the 21st century as Sears claimed, but it may offer the best value. Fish oil offers some of the greatest health benefits at the lowest cost.
n By lAWrENCE MAy,
M.D., F.A.C.P.
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Omega‑3 fatty acids cannot be manufac‑ tured by the human body. They must be ingested. The three forms are eicosapen‑ taenoic acid (EPA), docosahexaenoic acid (DHA), and alpha‑linolenic acid (ALA). Eicosapentaenoic and docosahexaenoic are both found in fish oil. Alpha‑linolenic acid is derived from flax seed, nuts, and green vegetables. The body can convert ALA into the more potent EPAs and DHAs, but it does so inefficiently and in only modest amounts. Flax seed oil does not confer the same ben‑ efits of fish oil. Insight into the benefits of fish oil origi‑ nally came from observations of people who consumed large quantities of fish in their diet. Eskimos and the native popula‑ tions of Greenland rarely develop coronary artery disease. The statistical relationship between fish consumption and depression has been demonstrated in many countries. The Scandinavian countries have lower prev‑ alence of depression. Evolutionary biologists have reasoned that the seafood consumption by peoples in the Great Rift Valley along Southwest Asia and East Africa contributed to the evolutionary development of the brain of Homo sapiens, our direct ancestors. These tantalizing observations of the ben‑ efits of omega‑3 fatty acids are supported by modern scientific studies. Omega‑3s are converted in fat cells to a variety of messen‑ ger molecules that control the inflammatory response, platelet function, and the struc‑ ture and function of cell membranes. The human body is a tightly engineered balanc‑ ing act between stimulation and inhibition. Omega‑3 competes with omega‑6, another essential fatty acid, for the production of molecules that control physiologic func‑ tions. Traditionally there was a one‑to‑one
ratio between omega‑6 and omega‑3 fatty acids (which are derived primarily from seed oils, such as corn, safflower, and other veg‑ etable oils). The proliferation of vegetable oil changed the ratio of omega‑6 to omega‑ 3 from the one‑to‑one ratio to a 20 to 1 ratio, contributing to inappropriate inflam‑ mation, degeneration, and deterioration. Plentiful omega‑6 fatty acids are consumed out of proportion to the beneficial omega‑3s found in fish oil. Fish oil supplementation can restore the proper balance; enhance the health of the heart, brain, eye, and skin; and reduce inflammation. The Federal Drug Administration stated that fish oil is beneficial for maintaining a healthy heart. This is achieved through mul‑ tiple mechanisms. Fish oil is anti‑platelet. Like aspirin, fish oil reduces the stickiness that leads to heart attacks and strokes. The effects of fish oil on platelets are less com‑ plete and shorter in duration than aspirin, contributing to the greater safety of fish oils. Aspirin is no longer routinely recommended for people without known coronary artery disease. Fish oil also works to prevent heart attacks by reducing inflammation, known to be a significant mediator of coronary disease. Lastly, fish oil works in the heart to relax the blood vessels. Fish oil’s ability to lower elevated triglyc‑ erides led Glaxo Smith Kline to market the prescription fish oil, known as Lovaza, for triglyceride reduction. Fish oil does not lower cholesterol, and in fact, may modestly increase low density lipoprotein (LDL). Fish oil alone is not a treatment for elevated cholesterol. The JELIS study demonstrated fish oil is additive to the protective effects of statin drugs. In addition to its contribution to heart health, fish oil also contributes to brain
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health. Andrew Stoll, a psychiatrist at McClean Hospital and Harvard Medical School, treated bipolar depression with high dose fish oil. It is likely that fish oil supports a positive outlook and reduces depressive tendencies. It may improve cognitive func‑ tion. Inadequate levels of omega-3s in the brain can lead to irritability, hostility, and even violence. A recent study using only the DHA components failed to demonstrate expected desirable effects. Eicosapentaenoic acid is the necessary component of fish oil that is synergistic with DHA to sup‑ port mood, memory, behavior, and cogni‑ tion. Some investigators have also reported benefits to those patients with attention deficit disorder (ADD), although this claim remains controversial. The omega-3 fatty acids are the precursors to anti-inflammatory prostaglandins. These have demonstrated benefits in the treatment of inflammatory bowel disease, rheumatoid arthritis, and systemic lupus erythematosusall autoimmune triggered diseases of inflam‑ mation. Fish oil reduces inflammation that con‑ tributes to pain and discomfort. The antiinflammatory benefits ameliorate neurode‑ generative diseases, such as Parkinson’s dis‑ ease and multiple sclerosis, though random‑ ized prospective clinical studies have not yet confirmed a benefit. Docosahexaenoic acid is essential for development of the brain and eye in the fetus and infant. Supplementation with toxic-free processed fish oil is often recommended for pregnant and breast feeding mothers. Fish consumption is not encouraged because tox‑ ins in many species may harm the fetus and developing child. Epidemiologic evidence suggests a higher intake of omega-3 free essential acids reduc‑ es the risk of age-related macular degenera‑ tion. It is also helpful in relieving dry eyes, particularly after LASIK eye surgeries. Fish oil supports beauty and is the ingre‑ dient in several costly internal beauty sup‑ plements such as Imedeen from Asia and Phytophanere from France. Supplemental
fish oil can be used as an inexpensive beauty treatment to improve the appearance of dry skin, the luster of hair, and the health of the nail beds. The EPA component helps protect the skin from UVA sun damage. Preliminary studies suggest that fish oil is effective in also treating acne, eczema, and psoriasis. There are few side effects associated with the consumption of fish oil. There is the potential to cause bleeding because of the anti-platelet effects, but there are no pub‑ lished studies of clinical bleeding. Studies have not confirmed the same impairment to coagulation that is seen in people consuming aspirin or warfarin (Coumadin). Patients should not take fish oil supplements while taking anti-coagulant or anti-platelet agents unless recommended by a physician. The only common adverse effects of fish oil are unpleasant fishy odor, aftertaste, and gastrointestinal discomfort. These side effects usually occur with fish oil that is not highly purified. The dietary supplement industry is not regulated with the same stan‑ dards as the pharmaceutical industry, so the consumer must carefully choose products to avoid these side effects. Fish oil should be judged by the level of essential fatty acids. Most commodity products contain only 30 percent essential fatty acids, 18 percent EPA, and 12 per‑ cent DHA. Better preparations contain at least 33 percent EPA and 22 percent DHA. Pharmaceutical-grade formulations can approach the concentrations of EPA and DHA found in the prescription product, Lovaza. It is important to look at the total EPA and DHA content of a product, because all fish oil capsules are not the same. Processors use winterization to remove saturated fat, and deodorization and molecular distilla‑ tion to produce a superior supplement. An example is omega P-3, named for its potency, purity, and palatability. Natural antioxidants are added to preserve the oil’s freshness. It has the potency to approach the efficacy of the prescription product. The higher purity helps to reduce annoying gastrointestinal
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side effects and allows more people to ben‑ efit from fish oil supplements. Fish oil is the fourth most consumed dietary supplement, after multivitamins, calcium, and vitamin C. It deserves to be “number one” because of its compelling health benefits. The popular vitamin E supplements are likely harmful and should not be routinely consumed. Eating fish is wise and the American Heart Association recommends having two serv‑ ings per week. Fish with high mercury con‑ tent, such as halibut, king mackerel, shark, swordfish, tile fish, barramundi, and some white meat tuna, should be severely limited. The safest fish are sardines, herring, and anchovies. They are rich in omega P-3. It is impossible to consume enough fish to gain the benefits attainable from a pure and potent supplement. Fish oil is the perfect complement to a healthy diet for everybody. Supplementation is strongly advised for people with high tri‑ glycerides, elevated blood pressure, or coro‑ nary artery disease. Fish oil is recommended to reduce depression and improve mood, and to improve cognitive functions. It is an excellent complement to alleviate musculo‑ skeletal discomfort and may be helpful for a variety of inflammatory and degenerative processes. It can be a natural treatment for dry eyes and skin and should be considered along with vitamins for the prevention of macular degeneration. The benefits of fish oil are myriad with minimal side effects. Pure, potent fish oil is the best investment that anyone can make to promote a healthy and long life. n Dr. Lawrence May graduated Phi Beta Kappa from Harvard University and received his M.D. degree from Harvard Medical School. He is the medical director of Targeted Medical Pharma and is the former chairman of the medical advisory board of Herbalife. Dr. May is on the faculty of the UCLA School of Medicine and currently practices medicine near Los Angeles. He has been consistently recog‑ nized by peers as being among the best doctors in the country, including being honored in the publication, Best Doctors in America.
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To Our Friends in Japan,
We want to extend our deepest condolences to the many who have suffered so much as a result of the recent tragedy. We are confident that Japan will rebuild and recover as it has in the past. You have been a wonderful example to the world of decency and civility in the face of great misfortune. Our prayers are with you.
From your friends at the Micro-Cap Review and Taiyo Pacific Partners
F E AT U R E A R T I C L E
Saving the World, One Orphan Drug at a Time W e live in the 21st century and globalization has left its mark with a banking crisis. While this one has not yet been entirely overcome, there are signs that a new crisis is emerging–the crisis of the pharmaceutical industry. Is it through a lack of innovation that thousands of employees in the pharmaceutical industry are now without jobs? Or is the problem the result of a flawed business model?
An Industry in Transition Pharmaceutical companies have traditionally focused on widespread diseases that affect mil‑ lions of people to generate billions of dollars in sales. The stock market has virtually dictat‑ ed what is now being stored in our medicine cabinets. There are many civilization-diseases, but the battle for the golden egg is no longer profitable enough. Almost every drug that is no longer under a patent has been exposed to generification. The profit margins are fall‑ ing and dozens of patents have expired or are set to expire. New drugs take a long time to be approved and development costs con‑ tinue to rise. Is this a new crisis in the making? The problem is getting worse, but the model still remains the same. Personalized medicine appears to be a solution, but how should this be financed if we calculate an annual cost
increase of more than six percent for health‑ care and HMOs and payers that are subject to therapy and cost restrictions? Now place research for rare diseases under the same model and one can only hope to say who will pay for people suffering under this status. Will one in ten people be wait‑ ing in vain for urgently needed drugs and therapies? But the question arises whether this challenge for the traditional pharma industry is to be created at all. Is there not a need for alternative business models? Fill Gaps and Occupy Niches
Worldwide there are few institutions and even fewer big pharmaceutical companies involved in research to find diagnostics, drugs, and therapies for rare diseases. For the biggest players, this research has previously been of no interest. With only 30 million people affected by rare diseases in the European Union and 25 million people in the United States, often very few patients are afflicted with 1 of the over 7,000 recognized rare diseases. The field of rare diseases has opened up an opportunity for spe‑ cialized, smaller companies to enter this attrac‑ tive niche. Smaller companies tend to be very innovative, lean, and flexible. They also require less money and fewer resources to develop new drugs. This leaves hope that those affected by rare diseases are able to use these innovations and new therapies in the future. The problem, however, is that they are so expensive that healthcare payers can no longer afford the costs, thus proving these innovations to be futile for those in need. A model that draws dif‑ ferent partners to the table and helps to reduce costs sounds like a more logical solution.
n By Dr. Frank Grossmann
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Innovation in the Fast Lane A company based in Zurich, Switzerland could have the right business model. Orphanbiotec uses an innovative approach to develop drugs for rare diseases. The company recently won the 2011 Social Entrepreneuship Initiative Award. Its model vies to create sustainability and maintain a social impact. The goal is not only adding to the bottom line, but also creat‑ ing a proven partnership of several stakehold‑ ers and ensuring that the profit and social benefits are realized (*SROI). This goal keeps the model riveting and viable in the long term. “The fact is that this drug will be formulated to remain affordable.” “Each partner is rewarded for his coopera‑ tion, and for those people with a rare disease, the greatest gift is therapy and improving their quality of life.” Orphanbiotec is a think-tank and pioneer. The company understands more than just the development of new therapies and their devel‑ opment program differs from that of a typical pharmaceutical company. Orphanbiotec is a hybrid and hybrid models have been around for a long time. Think of today’s innovative automobiles. When you think about it, a sailboat is also an old hybrid model. The boat has the helm to set the course and the sail to convert energy to forward motion. And so is Orphanbiotec and its innovation. The Common Goal A closer look reveals how Orphanbiotec’s novel business model (fig. 1.1) will pay off. The com‑ pany relies on separate entities, the Foundation, to set the mark and invite professional partners to tackle a project together. Orphanbiotec
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AG was founded as the Foundation’s initial development partner. When all the other part‑ ners are on board, the Foundation funds the project start-up costs, thereby minimizing the risks for phase 1 development and proof of concept research. The Foundation‘s funding is obtained from various sources, including patrons, sponsors, and donors. “The boat has been launched and is pre‑ pared for its maiden voyage. The winds are up and so continues further development– clinical development. We are ready to drive and finance.” Each partner has specific tasks. The Foundation acts as the kick-off partner. The company serves as the source of innovation, development, and production. Once the boat arrives in port again with “the cargo,” every‑ one will benefit. Orphanbiotec AG shares its profits with its partners and the Foundation receives a guaranteed annual social benefit (*SROI) or donation. This social share of the profit in turn initiates new development projects and patient support. This is sustain‑ ability and Orphanbiotec invites innovative partners to participate in the project. These partners are considered essential members. Orphanbiotec AG will now target venture philanthropy to streamline and maintain low development costs. Orphanbiotec’s investors are innovators and visionary thinkers. They recognize that long-term, shared success is more important than short-term, unsustain‑
ably high returns. Short-term profit has no place here because this would result in expen‑ sive, out-of-reach medications.
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Involving Society and Knowledge Exchange The Foundation has other functions. To derive new solutions, it serves as a think tank to network knowledge about rare dis‑ eases. Orphanbiotec calls this bridging, an art borrowed from ancient civilizations used to pass wisdom and knowledge from genera‑ tion to generation. The approach is to deliver this knowledge on to future partners. This ensures the success of the Foundation and increases intellectual property development. This knowledge is sourced for further proj‑ ects, which again leads to the development of a new orphan drug. The Foundation’s in-house competence center is considered the brain of the organi‑ zation. There sit the scientists and research project participants, such as research institutions and pharmaceutical partners. Integration is the key. The Foundation relies on and encourages patients and organiza‑ tions to share ideas and knowledge. As stake‑ holders they have a much better understand‑ ing of what works. The Foundation serves as a platform to engage and motivate. An active and informed patient is highly motivated to improve his or her situation and reduce
costs. This later onset of social return on investment has been far underestimated by many and should not be overlooked. This is the result of a visionary think‑ er, working to uplift the disadvantaged in the medical community. The Foundation brings superior minds, knowledge, and treat‑ ments together. It also answers the questions as to what modern patient involvement and engagement should look like. This creates a platform to raise awareness of issues by bring‑ ing together those affected with rare diseases with researchers, institutions, and associations. Orphanbiotec brings together what belongs together. The innovative model is one of profit and sustainability and will pio‑ neer change in the new century. “The drive is on for funding, so we can start.“n After studies in veterinarian medicine in Hanover, Germany, he worked and conducted research at the ETH (Swiss Federal Institute of Technology) in Zurich and received the title of Doctor of Veterinarian Medicine. After partnering in a young start-up prac‑ tice, he worked in the pharmaceutical industry in various capacities, including regulatory affairs, busi‑ ness development, project management, science, and new drug development. In addition to dermatology, infections disease, nutrition and orphan drugs, he is a recognized expert in developing sustainable busines‑ ses that deliver social impact. He is the founder of a successful consulting company in pharmaceutical science. He has taught pharmaceutical science as an guest lecturer at the ETH in Zurich for more than five years. His unique skills and experience have enabled him to interact with patients and experts in science, business, and the medical community. Three years ago he founded Orphanbiotec. This unique and internationally operating Social Hybrid Entity and Competence Center for Orphan Disease is supported by the Swiss CTI (Center of Innovation and Technology) Program, mem‑ bers of the Swiss Government, the Swiss Biotech Association, Venturelab, Swissnex and the Swiss General Consulate in California. In January 2011 Orphanbiotec was awarded First Place at the Swiss Social Entrepreneurship Startup Awards for its innovative, sustainable, and social business model. Orphanbiotec will soon open its North American Research Foundation in San Francisco. The nonprofit Charitable Foundation will work with sponors and donors to support patient engagement and research programs for rare diseases.
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PLANET MICRO-CAP INC. “LEARN TO EARN”
Campus Conferences for Financial Education Investment Opportunities & Money For information: info@PlanetMicroCap.com
V i E W P o i N T S
M I C RO - CAP
F O R M AT I O N
U.S. Jobs Depend on Funding Micro-cap Companies
B
ack in 1993, Paulson Investment Company raised a little over $11 million in an initial public offering for a small company, Cree Research. The market capitalization for Cree after the offering was about $40 million. Today, the company boasts a market cap of $5.25 bil‑ lion and still trades on NASDAQ (“CREE”). Why should investors care about micro‑ cap companies? There are two reasons: jobs and capital gains. It has been shown over time that smaller companies are the ones that contribute to the country’s economy and provide jobs for citizens (i.e., Americans), present and future. Second, micro‑cap com‑ panies have the potential to become the next Microsoft and IBM. Investors who own promising young companies stand to prof‑ it immensely should the companies grow and prosper. While no one can predict the next Cree Research, an investment portfolio should not discount U.S. micro‑cap compa‑ nies altogether. Their potential returns are too great to ignore. Micro‑cap companies can be found in all industries today. Because of the ever‑ changing technologies that have taken place over the past decades, the number of young companies seeking capital is growing. Their
n By ChET PAUlSoN
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broad reach means that they are less likely to be affected by the types of financial “bub‑ bles” seen in recent years. Something is out of whack when Wall Street seems less interested in raising funds for U.S. companies. Micro‑cap companies have had a hard time getting Wall Street’s attention, yet continue to provide jobs for Americans. Congress should make tax provi‑ sions to allow smaller companies to deduct losses to offset the cost of doing business. Doing so will help these companies to grow. Investors ought to look seriously at funding these early stage ventures. Many companies like Cree Research are waiting to be discov‑ ered. n Chester “Chet” L. F. Paulson is the founder, president, and chairman of Paulson Capital Corp., a holding company for Paulson Investment Company, Inc. located in Portland, Oregon. Mr. Paulson has been actively involved in investment banking, financial consulting, and project funding for over 40 years. He is a current member of the Securities Traders Association and Southern California Investment Association. He previously served as a board mem‑ ber for the National Investment Bankers Association.
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Internet IPOs– The Time (and Need) Has Come!
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hat’s all the fuss about companies that offer unregistered securities to “sophisticated” investors? If someone can buy a scratch ticket, wager at a track, pay the excise tax for liquor or cigarettes, or buy medical marijuana, why can’t a person’s money be as acceptable as the lucre of Goldman Sach’s clients? Most “unwashed” people pay a larger per‑ centage of their income in taxes than those who get invites to the glitzy Wall Street casinos. I guess one might say that there’s move‑ ment but no real action. Actually it’s an excuse or illusion that’s being foisted on those who are concerned about the good ‘ol U.S of A. The biggest problem facing the country today is a shortage of jobs. Our lead‑ ers (the people we anointed) are a half step
n By MArShAll STErMAN
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away from getting part of the answer cor‑ rect. And they don’t even have to change the regulations, including Sarbanes‑Oxley. For the life of me, I don’t understand how the accounting world keeps holding us hostage to its green‑mail surcharge. Giving the likes of Facebook a free pass is beyond my ken, but who really cares? With gasoline at $4 a gallon, most people have other worries. We should use the current regulations and just update them for the 21st century. Attitudes at FINRA and the SEC, however, need to change. The regulators need to have a more democratic and edu‑ cated appreciation of capitalism and the rule of law. To be more genteel, these agencies (the people who do the daily chores) need to be enablers, not obstructionists. With respect to this observation, we can ask practicing SEC attorneys (especially those who start‑ ed their careers at our gate‑keepers) about their aggravation. The mind‑boggling hoops attorneys have to jump lead to outsized and often wasted costs and time. But more to the point. The answer is elementary. We ought to bring back “best‑ efforts” underwriting for early stage, tech companies and use the Web to reach poten‑ tial investors. We should talk about full dis‑ closure, access for everyone to management, etc. Unfortunately, over the past 20 years or so, the small broker‑dealers that once pro‑
vided this service are virtually gone or sub‑ stantially emasculated (a story for another day). The economics of the business that once allowed the $2 million to $20 million offerings no longer exists. What has changed, however, is that technology has become the great enabler. Companies can now assuage regulator’s concerns for disclosure. Issuers (the companies that are seeking the financ‑ ing) can reduce the costs associated with a journey that can come up short. With new technology, these offerings can easily take place, if today’s distribution channels could be used. There is no need for brick and mor‑ tar facilities. There is no need for expensive road shows, endless breakfasts, lunches and dinners, super‑sized letter of intent fees. And as important, underwriting capital, front office costs, etc., etc. What sayest thou, Ms. Mary Schapiro? n
Marshall S. Sterman has worked in corporate finance for over 50 years. He held executive positions at Sterman & Gowell (investment banking and securi‑ ties brokerage), Croesus Capital (work out consult‑ ing for institutional investors), M. S. Sterman & Associates (merchant banking), Pilgrim Financial Services (investment in distressed securities), and The BankHouse (merchant bank). Since 1986 Mr. Sterman has worked at the Mayflower Group, a Boston‑based merchant bank to originate, men‑ tor, and finance start‑up and early stage ventures. Mr. Sterman received a B.A. degree from Brandeis University in 1953 and an M.B.A. degree from Harvard University in 1955. He served in the U.S. Navy as a lieutenant from 1955‑1958.
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TMX LS Microcap Mag AD 2011_Layout 1 11-03-24 5:19 PM Page 1
NEW YORK
INSTITUTIONAL INVESTMENT FORUM WALDORF ASTORIA OCOTOBER 6 2011
Speaker line-up and agenda coming soon … www.cambridgehouse.com
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V i E W P o i N T S
Washington Healthcare Update O
n January 5, 2011, sixty‑three freshmen members of the U.S. House of Representatives were sworn into Congress. Exactly two weeks later, the majority of them and their Republican colleagues voted to repeal Obamacare, the controversial healthcare legislation. Although this legislation never made it through the Senate or earned the President’s signature, the new Republican majority in the House quickly made good on their campaign promise to cut the fed‑ eral budget. “Americans need a better health care solu‑ tion than the law passed by Congress last year,” stated freshman Congressman Steve Stivers (R‑OH). The reaction underlines the credo of the freshman class: correct the over‑ reach by Democrat leadership in both the legislative and administrative branches over the past two years. So, how will all of this affect emerging healthcare companies? Will the market see stability in a divided Congress and there‑ fore promote more investment? Will budget cutting measures spurred on by Tea Party advocates create a significant drop in federal procurements? Answers to these questions and more ensue.
Members of Congress affiliated with the Tea Party recently attempted to compel new House Speaker, John Boehner (R‑OH), and his leadership team to cut $100 billion in
spending in fiscal 2012, as set forth in their “Pledge to America.” Realistically this would barely reduce the budget from $3.9 trillion to $3.8 trillion if adopted. Constitutionally, each year the House must originate a budget, send it to the Senate for approval, and hope that the President signs it into law. For the last several years, the federal government has been funded by continuing resolution (CR), which indi‑ cates a serious impasse between Congress and the President. Imagine if a business were forced to run on 80 percent of the previous year’s budget, receiving outlays in one‑twelfth increments – that is the uneasy state in which our federal agencies currently operate. Because of budget issues, agencies likely delayed procurements once again this year, which hurt small businesses the most. Thankfully, a complete government shut‑ down was averted by a mid‑April vote to fund government programs for the remain‑ der of the fiscal year, minus $38 billion. Therefore, frenetic procurement season is expected in federal contracting between now and September 30. Further, companies should be mindful of the escalating Obamacare showdown in the House as budget season moves into full
The Federal budGeT
n By ElViS oXlEy
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Since the federal government is a well-capitalized purchasing giant, there is a likelihood that a company’s product or service is in need. swing in April. Although Congress approved Obamacare in the last session, the House of Representatives must initiate and approve budgets for all federal agencies. There is much talk of “beheading the Hydra” or “starving the beast” within Republican lead‑ ership. Budget packages from House Speaker Boehner and his lead budget man, Paul Ryan (R-WI), will likely leave out funding mecha‑ nisms for undesirable parts of the healthcare bill. If they don’t fund it, the agencies can’t do it, simple as that. Thus, a CR for FY’12 is already in the works.
Given the political landscape, micro-cap healthcare companies may want to skip the federal contracting marketplace. Before doing so, companies should study the facts. The budget for the Department of Veterans Affairs (VA) was $6.1 billion in fiscal year 2010 and will likely remain at this level regardless of the political environment. Culling budget from our veterans is politi‑ cal suicide for Republican or Democrat. The Department of Defense (DoD) added anoth‑ er $2.1 billion in TRICARE expenditures. The Department of Health and Human Services (HHS) dwarfs the VA by thirty-fold at $185.5 billion. Emerging healthcare com‑ panies can ill afford to ignore a market worth over $200 billion. So how do micro-cap companies take advantage of healthcare purchases by the federal government? First, companies should understand how the current budgetary envi‑ ronment affects decision-making between Capitol Hill and federal agencies. Most Congressmen agree on the need to buy goods and services that support the war fighter – in particular those things that are lighter, smaller, and more efficient. Cardiac
Analytics (www.cardiacanalytics.com) is a good example. The company sells equipment that detects coronary artery disease more accurately and non-invasively than current technology. Cardiac Analytics’ equipment is less expensive than those used for nucle‑ ar stress tests and catheterization. Cardiac Analytics said that it can save the VA $1 billion in costs alone. RevMed (www.revolu‑ tionsmedical.com) is another good example. RevMed sells vacuum retractable syringes, which can help eliminate needle-stick inju‑ ries and workers compensation costs across all federally operated hospitals and clinics. Second, companies should review their corporate ownership structure and feder‑ al contracting law for small business. The VA obligates 17 percent of its contracts toward Service Disabled Veteran-Owned Small Businesses (SDVOSB’s) and an addi‑ tional 12 percent with Veteran Owned Small Businesses (VOSB’s). A veteran who owns 51 percent or more of his/her micro-cap com‑ pany is in luck! Alternatively a company may want to find a channel partner like Buffalo Supply (www.buffalosupply.com) that is experienced in federal contracting and has trusted relationships with senior contract‑ ing officials. Many other set-aside categories also exist to benefit the small business owner. Agencies are compelled to reach their con‑ tracting goals with each group (http://www. sba.gov/content/small-business-goaling). Third, companies should recognize pro‑ grams within agencies that encourage and reward innovation. Many have heard of the Department of Energy’s “X PRIZE” that inspired a litany of entrepreneurs to build energy efficient cars several years ago. Now the Tesla car company is traded on NASDAQ. Similarly, Army Medical Command’s New Product & Idea Web site (http://www.usam‑ raa.army.mil/pages/Products_Ideas/index.
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Federal Procurements
cfm) is an excellent resource that encourages micro-cap companies to submit their prod‑ ucts for review by Army doctors. Companies with the right products can quickly find themselves with a well-heeled client that spans the globe. Similarly, the FDA’s Center for Devices & Radiological Health (CDRH) has issued a call for innovative companies (http://www.fda.gov/AboutFDA/ CentersOffices/CDRH/CDRHInnovation/ default.htm) to demonstrate their unique value. It may be just the opportunity a company needs to expedite approval for its novel medical device. According to the FDA’s site, “CDRH is responsible for advancing public health and facilitating innovation to help bring novel technologies to market and make the medical devices that are already on the market safer and more effective.” Fourth, companies need to be consistent and patient. The average time to close a federal contract is 18 months. Companies with unique products, protected intellectual property, experienced management teams, demonstrated private sector sales, and a well-capitalized business plan will succeed through tenacity and relationship build‑ ing. Companies that attempt government contracting on a whim and do not have the dedication will fail miserably. Before doing business with the federal gov‑ ernment, companies should start by finding out what agencies are buying. Valuable infor‑ mation is available on the Federal Business Opportunities Web site, www.fbo.gov. Since the federal government is a well-capitalized purchasing giant, there is a likelihood that a company’s product or service is in need. Good opportunity exists to do business with the federal government, so companies should take advantage of it now before the budget shrinks by more tens of billions. n Elvis Oxley is president of Oxley Consulting, LLC, a Washington, DC based firm that sources capital for emerging growth companies and teaches them the art of government contracting. www.oxley-consult‑ ing.com
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V i E W P o i N T S
Review of Hong Kong Mines and Money Conference, Mar. 22-26
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or more than two decades, I have attended many investment conferences in the natural resources industry. These confer‑ ences give me a chance to travel the world. I get to see different countries and meet many new people from all walks of life. Over the years I have made many life‑long friend‑ ships. Most importantly, the conferences help me to become a better investor. I have always felt that the best way to invest in a company would be to meet management in person. Further, the conferences allow me to learn about what is happening in the natural resources industry. In every conference (I go to about six to eight conferences a year), I learn something new. My expenses over the years have been small when compared with the financial rewards gained as an investor. In the early years, I limited my travels to conferences in the United States where I live and Canada. I thought that I would find most of the information near home. I was at a conference in San Francisco when a smart money manager recommended that I attend a conference in Asia. He said that I should go the Mines and Money conference in Hong Kong. The conference was scheduled for the week, March 22 to March 26, 2011. Returning home from San Francisco, I thought about the Hong Kong confer‑
n By lAUrA STEiN
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ence. The trip there would take me halfway around the world for four days. I asked myself whether I would find information there that I would not otherwise find in North America. I also thought about the extra time and costs required to travel the long distance, not to mention the time away from home. After discussing this with my husband, I decided that taking the trip to Hong Kong would be worthwhile. I arrived in Hong Kong and was ready for the Mines and Money conference. On day one, I attended one of several pre‑conference workshops. I gathered information, got to speak with a few participants, and met one of the conference organizers, Leo Stemp. Leo came by to greet me when I picked up my badge. He gave me a conference book. I flipped through it and read some of the information. It was easy to understand and had good information about speakers, pan‑ els, and the companies that would be pre‑ senting at the conference. The second and third days were simply amazing and opened up a new world of knowledge and investing. The conference hall was spacious and had well‑spaced aisles where guests could find plenty of coffee stations. The conference doors opened at 8 a.m. Those who got up early could get their morning drink and breakfast without having to wait in long lines. After breakfast everyone started heading toward the conference hall to hear the first of many speakers scheduled for the day.
The rest of the morning I saw speakers and exhibit booths, splitting time between com‑ panies from Canada and those from other parts of the world. Many Europeans attend‑ ed the conference. Lunch was served during a three‑hour period in a large area with seats and tables. The lunch break allowed participants to relax with business people or friends. We enjoyed the good food and service. The setup was better than anything that I had seen before. After the third day, I was overwhelmed by the amount of information and contacts that I had made. Later that evening, I attended a gala dinner. The event featured a quality menu and entertainment with an Asian fla‑ vor. It was good to speak with people whom I had met over the last few days in a relaxed atmosphere. On the fourth day, I attended a post‑ conference summit about Mongolia. There was a lot to learn about Mongolia, an area of the world of which I knew so little. Overall Mines and Money conference in Hong Kong was well‑run. I came home with an abun‑ dance of new investment information and ideas. The next Mines and Money show is in Beijing in June 2011. I hope to be there after having so wonderful an experience at the Hong Kong show. The schedule for all upcoming Mines and Money conferences can be found at www. MinesandMoney.com. n
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Full Bore or Bust! Half-assed ‑adjective Slang: Vulgar Insufficient or haphazard; not fully planned or developed Incompetent; lacking sufficient ability or knowledge —Dictionary.com
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e are inching closer to becoming a half‑assed country. The mod‑ ern household will soon read in dimmer light. The government will outlaw the use of incandescent bulbs, and people will have to buy them on the black market. We will wear dingier clothes. Front‑end washers won’t work under current standards. We’ll drive cars that leave us stranded in bad weather. And, our toilets won’t flush right. We’ll have to stick around the bathroom lon‑ ger. Will it be one flush or two this time? We will walk into this new lifestyle dumb‑ founded and leave with lower expectations. Excuses for failure have been around for decades. When I was growing up, I was told that I had to be twice as good. Now kids are told they can be twice as bad, but get a waiver. In the past nice guys finished last. Now they don’t have to finish at all. They will be pro‑ vided for by the mean guys who bothered to run the race and cared about winning. Years of relentlessly demonizing success is taking its toll on a nation. We aren’t crawling out the abyss with the same aplomb as in the past. Then there is policy. It took until the clock was within minutes of midnight before we decided to bomb the hell out of Libya to back rebels sympathetic to al‑Qaeda. Our energy policy, economic policy, health care
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policy, and educational policy are all half‑ assed. Maybe in a perverse way some edu‑ cators have decided to split the difference. We try to win but can’t stand the work. A story in USA Today recently found that educators had been fudging test results at a Washington D.C. school. Crosby S Noyes Education Campus was a “shining star.” It was an example of how public schools could be turned around. Students at the school saw their “proficient” or “advanced” test score in math climb to 58 percent from 10 percent over a two‑year period beginning in 2006. The teachers at the school won bonuses of $8,000 in 2008 and 2010. The principal received a $10,000 bonus for those years. I’m a huge fan of bonuses for deserving teachers. But the cel‑ ebrating was premature. A USA Today inves‑ tigation found that for the past three years Noyes’ classrooms had extraordinarily high number of erasures on standardized tests. The pattern was that wrong answers had been erased and changed to correct answers. In 2010 fourth grade math students at Noyes had an erasure rate of 11.0 versus a district average of 1.7. The fifth grade read‑ ing class had an average erasure rate of 10.4 versus the district average of 1.3. The most egregious differential came in 2009. Seventh grade students at Noyes outwitted the dis‑ trict by a score of 12.7 to 0.8. Hey, they’re trying because the old saying goes, “If you ain’t cheating, you ain’t trying.” In Georgia, a principal plead guilty to a felony charge of falsifying test scores on a state document. He was banned from schools for two years. The real crime here was that we had resorted again to another easy way out. Some Noyes Education parents were skep‑ tical. The test scores didn’t seem to mea‑ sure up to their child’s true skills. Bravo
to those parents who understood that it’s not about passing, it’s about learning. Too many parents have pushed for easier courses, less homework, and more accommodative grading. Half‑assed curriculums and sub‑ par testing just isn’t the right recipe to fend off the mounting global challenge. If that wasn’t enough, I came across one weekend a headline in the New York Daily News: ”The Danger of College for All!” I understand that not everyone is built for college. I even accept the half‑assed argument that the fear of college may cause someone to drop out of high school. But, how can a college degree be dangerous? Someone can choose to be a bum with a college degree, but he can’t be in charge of engineering at Boeing without one. Biggie Smalls, one of my favor‑ ite rappers, said that he was “considered a fool for dropping out of high school.” To become a rapper like Biggie is like winning the Mega Millions lottery. With those kinds of odds, someone who drops out of school ought to be considered a fool. But even more foolish than this is the idea that going to college can ruin a person’s life. This is where we are as a nation. If we were running the Boston Marathon, we would be gasping for air at Heartbreak Hill. It’s a serious test, a true test and the kind of test where answers can’t be half‑assed or erased. She whom I love is hard to catch and conquer, Hard, but O the glory of the winning were she won! —George Meredith We must take the hard road sooner, rather than later. We must preserve glory already attained and reach for glories to be had. We owe it to our children and grandchildren. O the glory of winning! It’s fading from our lips and drying in our pores. n
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V i E W P o i N T S
Finding the Medicinal Peace G
ood health is a gift beyond compare. Those who are blessed with it are the richest of people, and those who do not have good health seek to receive the blessing of healing with all of the passion that they can find within themselves. I know this to be true because I am not blessed with good health. I have been close to death five times‑‑and five times have remained here. I attribute the miracles of my survival to good medical care, a loving family and friends, and a loving God. Those of us who survive critical medical episodes know the power of that miracle firsthand. And those of us who live with chronic medical issues understand that miracle in an even deeper way. I have been challenged by medical epi‑ sodes and have learned many lessons from
the illness and the survival. In my tradition, the word for “miracle” and the word for “test” is the same word. This teaches that all medical conditions are not punishments or judgments, but are challenges that force us to find out what we are made of. In the five times that my life has been challenged, I have learned that my survival and that the quality of my life fol‑ lowing that challenge are not in my hands, but in the hands of those I surrender to for care and comfort. I am currently living with an illness that has lasted for six years. One
n rABBi STEPhEN
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While extremely weak and in a wheelchair, I went to India four years ago for extensive treatment in herbal and nutritional medicine which saved my life. Upon writing this article, I have just returned from my second trip. Because of both the allopathic (Western medical) treatments and the naturopathic (complementary medicine), I continue to lead a somewhat active life and manage my chronic conditions, and live with the pain. of the symptoms of this illness is that I live in constant, excruciating pain which even drugs can’t handle. I have been to many different physicians and medical centers in an effort to find relief, let alone a cure, and it is not to be found there. The pain I endure is from a case of shingles which destroyed the nerves in my back from the center of my chest to my lower hips, and have left the nerves in the whole right side of my torso stripped of any capac‑ ity to manage nerve signal transmission, and so I am in constant pain. This resulted from the third episode of the collapse of my lungs, as the result of a condition caused by influenza in 1985. This last episode, which occurred in 2005, also left me with an autoimmune neuromuscular degenerative disease like muscular dystrophy, as well as the growth of a tumor and other conditions. Needless to say, I’ve had many medical doctors who have tried and have cared for me with unquestionable skill, diligence and concern. While extremely weak and in a wheelchair, I went to India four years ago for extensive treatment in herbal and nutri‑ tional medicine which saved my life. Upon writing this article, I have just returned from my second trip. Because of both the allo‑ pathic (Western medical) treatments and the naturopathic (complementary medicine), I continue to lead a somewhat active life and manage my chronic conditions, and live with the pain. It is the practice of medita‑ tion (Jewish based) and prayer that helps me manage the pain levels that pharmaceuticals
cannot contain. My story is not unique. There are mil‑ lions of people just like me who live with critical and chronic health issues throughout their lives. Just getting up in the morn‑ ing and getting dressed, let alone going to work, is a miraculous accomplishment in the face of the overwhelming demands of the body. Maintaining relationships, functional employment and participation in life is a miracle of the mind and spirit. I speak here for all of us who have such hope and confi‑ dence in the shattering of medical barriers and boundaries so that new treatments and medicines can be found and developed from both the pharmaceutical and natural worlds, so that our conditions can be managed and alleviated. I await that moment when some researcher or practitioner will find that way to relieve my pain. It is because I know that they are out there working that I have confi‑ dence that there will be found, in the future, some remedy that is perfect just for me. As this issue of Micro-Cap is focusing on biotech, so is it that I encourage those who read this article to know that investment in new areas of medical research are not only good business but are also doing what we call a “mitzvah”—a good deed established by God for the well-being of humanity. Those who dedicate their lives to healing are to be praised and supported; their work is sacred and their purpose is honorable. In my childhood, my father’s business involved medical research and the develop‑ ment of medical equipment, so I am inti‑
mately aware of how such work can only happen if there are investments in place to support it. It is, from the point of view as a patient, very difficult to be patient when the process of developing new medicines and treatments is so expensive and requires so much money to bring them to the stage of approval by government agencies. Since I am trained in naturopathic practice and healing, I understand how frustrating it can be for any practitioner or researcher to develop and market their discoveries. It seems as if the treatment of disease is moti‑ vated and controlled only by money. When it is so difficult to introduce new products, those of us in need are required to wait… and wait… and wait, until someone finds the money and the approval to provide us treatment. I know that these questions are much more complex than I seem to express them here. I am aware of all of the dynamics, complexities, politics and finance it takes to deal with health care. It seems that the more sophisticated we become, the more compli‑ cated we make things. It should be the other way around—the more knowledgeable and sophisticated we are, the simpler it should be to care for those in need. Since this is not so, then those of us who are concerned about the research and development aspects of new medicines and medical treatments must continue to support those who have dedicated their lives to this effort. I am someone who has had a mostly positive experience with our health care system, but as a Rabbi, psychologist and healer, I know so many for whom that has not been true. I have, as an American, been raised to believe in human rights. As a Rabbi, I know that healing is given by God freely to humans and through humans, without judgment; the saint and the sinner alike are entitled to the best treatments that can be found. So I understand health care to be in the vernacu‑ lar of American ideals—a human right. The pursuit of my life, liberty and happi‑ ness is consumed with issues of health care and its delivery. When biotech first came
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into public consciousness, there was the usual discussion among ethicists, politicians and religious leaders as to the morality of such pursuits. My tradition teaches that the universe in which we live is not evil, corrupt, an illusion or a place of constant pain. It is simply unfinished. It is up to humans, in partnership with each other and in following the highest standards of ethics and spiritual teachings, to work with the forces of exis‑ tence, God, or whatever else you may refer to in order to bring existence closer and closer towards completion. The most familiar word around the world from Judaism is the word “shalom” which most people translate as “peace.” In fact, the word really means “wholeness.” It refers to the completion of some task—the repayment of a debt, the repair of something broken—and the whole goal of this world is shalom… wholeness Bringing completion into the lives of indi‑ viduals means, above all, to bring them out of their struggles and into a state of healthy well-being. In this paradigm, all the knowledge that we need to accomplish the goal of wholeness is already waiting there to be uncovered. Those who spend their lives studying and searching into the natural world find that this is so. Discovery of new medicines and treatments is like the joy of turning over a rock and finding a treasure. Since I spend my life in the company of people who are ill, treating them, and in the company of doctors, practitioners and researchers from all fields, I delight in the joy that lights up their being when they reveal something new that can bring relief and well-being to those who struggle with illness. Seeing the look on the faces of people who are healed of their condition, whether they are physi‑ cally or emotionally relieved, and to see their families reunited in health, I witness the most sacred and touching of moments. Many people express their sympathy for my suffering. I am grateful for their con‑ cern, but I have learned an important lesson and that is that illness and suffering are not the same thing. Illness and pain are physi‑
cal states; suffering is an emotional state. Suffering is born when the person identifies with their condition and sees themselves as the illness, the pain or the condition in which they live. In surrendering themselves to their illness, they cease to be themselves. They lose their identity. They live con‑ stantly in the boundaries of their illness and its treatment; having nothing else to focus on, everything they experience is felt through the filters of being their illness. They become isolated in their pain and suf‑ fer because of that isolation. I learned this lesson once when I was in a particularly massive attack of pain, and while crying out and writhing in my discomfort, my son held me in his arms and expressed how angry he was at my suffering. At that moment, I knew that while I was in agony of body, I was not in agony of mind, and I said to him, “As long as you hold me, I don’t suffer. I’m just in pain.” For me, this is the model of health care. As long as the doctors and practitioners, researchers and investors work together to find remedies, medicines and treatments, I will not fall into the despair of suffering. I will remain in the confidence of knowing that there are those who work to bring me shalom, or wholeness. The strongest of all medicines is love, and the greatest of all treatments is caring. When we get sick, it is never just the individual who has the ill‑ ness or condition. It happens to the whole family. When I got sick, I learned this les‑ son and it kept me from falling into despair and suffering. So many of us who become ill that think that no one can understand what we are going through, including our family members, and some even fall into the arrogance of entitlement because we are sick. The illness does not entitle anything as long as we separate ourselves from our family and friends in the isolation and the despair of illness. Surrender is the most difficult thing for all humans to do, and in this case, I do not mean surrender to the illness but to surrender to the need for love and care from those around us. When
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we all work together, then suffering abates. What is left is dealing with only the illness, not its psychological components, which are sometimes worse than the illness itself. We who are ill very quickly learn to live very different lives. Illness changes it all. I now must look at every breath I take and every move I make, the expenditure of energy and moments of rest. There is a dif‑ ferent economy to my life. That economy involves maintaining myself in a balance in between the illness and the well-being, between the sick and the healthy. All my acts affect my physical state and express my emotional and spiritual state. In the six years of my illness, I have almost forgot‑ ten what it’s like to be healthy, but I have certainly learned what it’s like to be loved. I have learned about fear and faith, despair and confidence. I have learned that hope is a wish built upon a dream that something will happen that you believe won’t happen. Hope is built upon a doubt. So instead, I have trust—the trust that I am capable of handling my condition, the trust in the people who love me and care for me, and the trust and confidence in my doctors and practitioners, and trust in the Holy One whom I serve in my illness by not sur‑ rendering to despair but living in that state of confidence, that all things can be made whole… including me. n
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SGS-COC-004752
lEgAl • TAX • ACCoUNTiNg
The Compliance Corner
M
any of our recent columns in this publication have dealt with the new and revised rules that FINRA and the SEC are promulgating. Each of these rules impacts various industry participants in different ways. We are told that these rules are necessary to protect investors and maintain market integrity. Noble causes if nothing else! If I may, I would like to digress from our normal “heed the warning” atmosphere that usually accompanies this column to a broader discussion of the impact the rules and regulations have on our industry in particular and the broader commercial well‑ being of our democracy. All of us who are registered participants in the industry appreciate the fact that not just anybody can hang out a shingle and be a broker (legally). More importantly, we under‑ stand that there are barriers to entry. Once we overcome the barrier, we are entitled to prac‑ tice our chosen business. However, it appears that having overcome the barrier only entitles us to increased scrutiny, limitations on activity, and in some cases frivolous prosecution (some may say persecution) and all in the name of investor protection and market integrity. However, the unintended consequence of this vigorous regulatory enforcement regime has been a marked decline in the ability of
our country to create capital, cause business formations, increase employment and other‑ wise restore our economic well‑being. In my conversations with both broker‑dealers and issuers, it has become very apparent that risk has been defined as a bad thing. Anything that involves risk has to be avoided, and the loss of capital must be prevented. Most, if not all of you, who are reading this column are risk takers. You are perhaps an entrepreneur who believes you have a bet‑ ter widget or mouse trap. By default, you are a risk taker and invest all of your capital in a business venture that you believe is worthy of the risk. Or perhaps you are an investor who sees the possibility and wants to partici‑ pate in ideas of the future. Or you are a risk taker who seeks out promising opportunities to present to other investors. None of us know for certain that an idea or investment will work or much less make a profit for us; but we are willing to take the risk. My point is this. We can do all the due dili‑ gence, investigation, and review that is pos‑ sible, and there can still be no guarantee that something will work. But one thing is cer‑ tain. Without risk, there can be no reward. Without risk, there can be no growth. And without risk, we cannot have a market. I bring all of this rhetoric up for one
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By ChET hEBErT
reason. Regulations that stifle capital forma‑ tion can only bring long‑term disaster for short‑term headlines. Regulations that have no actual benefit to our economic growth must and should be reviewed, amended, or repealed. Regulations that negate risk must be repealed. Regulations that only create opportunities for litigation must and should be repealed. Regulations that increase opportunities for capital formation should be embraced and championed. Do not misunderstand my remarks. These remarks are my personal feelings and do not represent anyone else’s opinion other than my own. I am not espousing the virtues of any political movement or organization. My purpose is to invite you to participate in the democratic process. Get involved in industry organizations that advocate for our future and our country’s economic well‑being. Thank you for your patience. In the next issue, we’ll discuss compliance issues. n Chet Hebert is founder and president of The Compliance Department Inc., a compliance con‑ sulting firm located in Centennial, Colorado. The firm assists broker‑dealers and investment advisors in the areas of firm formation, compliance, CRD service bureau, outsourced back‑office processing, and branch office audit services, including AML and Regulation S‑P compliance. For more information about the firm, please visit www.thecompliancede‑ partment.com or call Chet at (303) 339‑9870.
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V I E W P OI N T S by Jack Leslie
Ombudsman It Is Time for Spring Cleaning To look in the past can be painful to some people. Doing so will not help a person’s out‑ look. Managing time, money, and health is often overlooked by most people. To change abruptly will never work in the long run. We often accomplish things in small steps. Only then can we build a foundation for the future. Few diet books, for example, help people achieve their goals. That is so because people often try to change their lifestyle too quickly. The same can be said about the financial well-being of most of us. We have all relied upon advisors and have watched talking heads. When we decide to steer ourselves onto the right path, however, we are not ready for such precipitous change. How then do we expect to have positive results? This question seems simple to answer, yet we often procrastinate or doubt that we can do this by ourselves. Initiating change in small steps will help us achieve success. We can start with the IRA. It is easy to dismiss the simple concept. The IRA is supposedly a long-term retirement plan. How many have had their plan implode? Regulations help owners achieve success, because they must put away money for a greater period of time. Managing the IRA is similar to managing one’s health. When a symptom is ignored, more dire consequences can occur. The same can be said for money and financial planning. Stodgy politicians have a habit with gambling with people’s financial well-being. Some proposed changes currently before legislators may actually hinder people’s ability to maintain their financial health. We need to have a panel of educated and responsible people review these changes. We can dispense with the self-serving political appointees who know very little about gradual change. This is tantamount to having elected offi‑ cials diagnose a person’s ailment in their office and then prescribe medication that does harm. We should all take a physical and financial exam. Our well-being will depend on doing this. Our family will be glad that we did. n
I
t is time for spring
cleaning. This also means getting a finan‑ cial checkup. One’s financial health is closely related to one’s physical wellbeing.
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