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Installment 50 - Ask the Investor Hosted by Jason Gruner
Jason Gruner is the Founder of Stem Cell Media, LLC. Which is the parent company of www.investorstemcell.com www.stemcellceo.com and www.stemcellfuture.com with a background in finance and marketing. DayTrader, Blogger and Father of 3, married to my best friend living on Martha's Vineyard. Became interested in RegMed after losing my step-Dad, kids nanny "Ducky" and several friends in the span of 18 months to unmet medical disease. My goal is to bring investors and stakeholders together in thoughtful discussion to educate and publicize the incredible advancements in the regenerative medicine sector of public companies.
Q: Recently President Obama signed the Jumpstart Our Business Startups bill. It cuts some U.S. Securities regulations. However, North American Securities Administrators Association president, Jack Herstein, said the bill would needlessly expose main street investors to greater risk of fraud by creating new jobs for promoters of Internet boiler room investment scams. I thought it was supposed to help smaller companies get investment money that they would not normally have access to. What is your opinion on this bill and will investors have to be more wary of investing in start up biotech companies because of it?
A: My opinion on any government intervention when picking winners and losers in business is just wrong. Our government has proven time and again that when it comes to business endeavors and securing return on investment it is not up to the task. As an example, it generates 30 billion dollars a year in taxing sales of cigarettes, prints warnings on cigarettes packs and in doing so is allowing genocide on our population from tobacco companies. The diseases associated with smoking affect the poorest people in the U.S. The financial cost of cigarettes to the U.S. is over 100 billion dollars per year. Not much of a return on investment? More than 500,000 Americans die directly from smoking cigarettes every year and this is simply blood money. In an odd way, I have cigarettes to thank for my interest in regenerative medicine using stem cells. In 2006, I lost my step Dad, 3 friends and my kid’s nanny to cancer in the span of 18 months, all thanks to cigarettes.
OK, back to your question. The capital market and private equity is what has always driven the economy up until September 2008. Corporations should only have incentives to hire and produce goods in America. Anything outside of this is picking winners and losers. It is my opinion that similar to the FDA, the SEC is using substandard technology and practices before 1990 for the most part. Algorithmic programs are in fact being run in China and elsewhere outside the reach of U.S. law via thousands of computers to manipulate the market. If the Fed wants the economy to pick up then they need to make it safe for retail mom and pop investors to feel protected. Place the Uptick Rule back in use. U.S. wealth of its citizens is near $34 trillion dollars. Trillions are sitting in banks and safety deposit boxes. Money is sitting on the sidelines in fear and lack of trust in a broken financial system. American banks are leveraged over $500 trillion dollars still. The credit crisis has not only destroyed the economy, but it wiped out private equity investment money for biotech companies and in the process has set back research and development 5 years at least. In doing so may have cost the lives of millions from drugs not making it market? We should already have cellular therapies approved by the U.S. FDA. Biotechs are now forced to take on loan shark terms and provisions to secure money for research and development which causes dilution to the average retail investors, which then causes the retail investors to stay away from companies forced to engage. This viscous circle has wiped out hundreds of biotech and drastically curtailed efforts to bring drugs to market. I know of a company with a Phase II/III trial for acute myocardial infarction (AMI) trading at $0.02 a share. In 2009 it lost all of its lenders and the science is sitting stagnant even though AMI treatment worked in hundreds of clinical patients. Billions of dollars spent on research and development sit languishing in intellectual property. I have seen money being lent at 22% interest to Biotechs and equity investors receiving 50% off the current common stock price for them to buy stock. I call this death spiral financing.
Q: There is a fight in the courts as to whether gene technology can be patented or not. Do you think that if it cannot, that fewer companies will want to get involved in research that involves something they may not be able to patent?
A: Patents are designed to protect investments in a technology investment by the company. It takes 15-20 years and hundreds of millions of dollars to bring a drug to market in the USA. If a company is not able to have a legal avenue to protect its intellectual property, it will go elsewhere in the world and or simply not invest in that area of research. The losers are then those suffering from diseases, just as we have seen in the EU recently that does not allow hESC patents to be obtained. Research has shifted elsewhere and halted altogether.
Q: The Information Technology & Innovation Foundation released a report that says the U.S. is starting to fall short of the kinds of investments needed for long-term competitiveness in the areas of high tech medicine, biotechnology, pharmaceuticals and life sciences. It had some alarming facts such as China already has more gene sequencing capacity then the entire U.S. and about 1/3 of total global capacity. China continues to expand in other areas as well. Job growth in high wage, high skill jobs in the life sciences sector are flat-lining in the U.S. while employment in other countries shows consistent growth. Why do you think this is happening in the U.S and is there a way to turn this alarming trend around?
Q: Why do you think this is happening in the U.S?
A: GREAT Questions.
Simply put, no term limits on elected officials, limits on funds spent on a campaign, and mandatory debates to find out where these politicians stand. Abuse of power and financial fraud by our elected officials on both sides of the aisle are responsible for the rise of China and for the most part society ills in USA over the past 25 years. As an example lobbyists from Big Pharma squashed the Degette (D) Castle (R) Stem Cell Research ACT of 2009. Under a Democrat super majority and 75% of bi-partisan support this bill was not passed and made law. It is ironic under the Obama Presidency that less research investment dollars has been spent than under Bush when it comes to Stem Cell research.
Q: Is there a way to turn this alarming trend around?
A: The only way of turning it around towards the U.S. favor is to do the same thing to China that the U.S. did to Japan in the late 80’s. Our country is powering China's economic engine as our infrastructure crumbles around us and 1 out 4 children do not have enough to eat in the U.S. If we cut off the fuel (by tariffs) then the engine will slow and sputter. If China is forced to play fair through tariffs, the competitive advantage is removed. Demand for products that once came from China can and will be manufactured not only in the USA, but also in Mexico and South America. One of the many positives of tariffing China would mean more jobs in Mexico and South America, which would drastically reduce illegal immigration to the United States. The decision by the U.S. to force China to play fair would end up bringing down its communist government. The middle class you mentioned are numbering over 300MM now in China and just may stand up to overthrow a government that sterilizes it's citizens and jails those that object to the state.
Q: If a person has a small amount of money ($5-10K) to invest, are some of the start up biotech companies too big a risk in your opinion?
A: Again, I am not a licensed FINRA member. So my opinion is my own. I do not know your financial situation and or other metrics which would allow me to form an opinion. I can say that an investment should never be made unless you understand that you may lose the entire investment. The stock market is legalized gambling on a national level. However, reading and self-education gives the average investor solid footing. But a retail investor must always be mindful and watchful at all times. In my personal portfolio I invest 20% of assets in high-risk endeavors, 30% in mutual funds, 20% in fixed instruments, 20% stock and 10% cash/gold/silver. This works for me. If I had just $10,000 dollars to invest I would personally buy 10 different highly rated mutual funds and place $50.00 in each per month. Finding ways to save money is simple. Take lunch to work, do away with dry cleaning, quit bad habits (scratch tickets, smoking. Illegal substances), before you buy anything go online and check prices. It is cheaper to buy your Ajax cleaner off of Amazon.com than at the grocery store! If the toilet is broken? Go to Home Depot and learn how to fix it yourself. Everyone must save 10% of their monthly income. Easiest way to do this is auto withdrawal from your salary so you never feel it. You must work towards having one-year salary and NOT six months for reserves in case of hardship. The peace of mind of being able to pay your bills for a one-year period is worth 10X more than any vacation and or car you will ever buy.
Q: I saw an article about a device that sounded fantastic. It said that it might be made available to the public in a couple of years as it is just in the research and development stage right now. What is a good way for an ordinary person to find out more about the research in order to decide whether or not this might be a good investment if the company goes public?
A: Reach out to the company you are interested in and possible competitors. Even if they are a private company they will have a marketing department, then look into public companies and see where the differ. I have been amazed by the power of email and relationship building over the net. Set up alerts on Google news so you have the news before anyone else, i.e. Press Releases and SEC filings. The FDA is a great resource as well in that they advise of status on clinical trials in almost real-time. I once found out about a merger from a blog from Vietnam. Google is our friend!
Q: Can you please tell me some general rules when looking for companies I can invest in that are doing stem cell work? I think it is important to support them, but I have no idea what to look for.
A: Again I am not a member of FINRA so my opinion is my own and I cannot offer specific companies for investment. It is important to support them because the current World Healthcare model is not only broken, it is splintering. 10,000 baby-boomers turning 65 every day. As an example, it costs over $100,000 for a heart triple by-pass, plus a lifetime of drugs and doctor visits and degrading quality of life. What if a company could take some bone marrow out of your leg and turn the marrow into heart cells to fix the damage to the heart tissue? It is already being done. If you are doing philanthropic investing then you should focus on a company working in an area that has a personal interest to you coupled with an angle of research that affects millions. If it is an unmet medical need classified by the FDA and the Company in question can show the FDA through clinical trials that the drug is not only safe but that it is showing clear efficacy, then the FDA is moved to issue compassionate use designation. Although considered an Orphan Drug Disease (affecting less than 200,000 people in the U.S.) several companies are in late stage phase I trials for ALS and are showing no safety concerns. The average life span of an ALS patient is 2-5 years. I would imagine that one or both might receive approval in Phase II for its drugs in 2013?
Q: What do you feel is one of the most promising areas in research and development right now that a person can invest in?
A: I am investing in companies using hESC from IVF clinics and also working towards Adult stem cell therapies using a patient's own bone marrow. I am also looking for “off the shelf” applications in this area of research because it would be very attractive to Big Pharma distribution models. Two fold reason for concentration is that no ethical dilemma exist in that no fetal tissue is being used and or hESC and also because these are the patient’s own cells they will not require a lifetime of immunosuppressant drugs. I feel strongly that a quantum leap in healthcare using stem cells is happening now and in the next 2-4 years these cellular therapies will take over as first use when MD’s look for treatment. Last week Osiris was the first company in the world to be allowed to commercialize a stem cell drug in Canada. This drug will help with rejections in bone marrow transplants in children.
Q: Do you think if Texas begins to allow stem cell clinics to operate within the state that it will have an effect on the stem cell research community? If patients can go and get treatment and it works, then some companies that are doing research may find their technology not so valuable. Investors could see their investments lose value. I may be wrong about it and maybe it would have no effect, but that is why I am submitting my question.
A: In my opinion, Texas is simply trying to bypass the FDA. Texas and California are the economic engines of the U.S. economy. Unlike the Federal government that can simply print money, states have to operate within budgets. It is a huge financial drain to take care of those that have no means. California has invested in CIRM and Texas has decided to fast track stem cell use. The FDA is an antiquated, over worked, under manned agency that simply has become a wall of no instead of a partner in the pursuit of treatments. The FDA operates to find ways to say no, instead of working with companies for the most part to find ways to make things happen. Not because they are mean spirited, but they are following protocols established before the home computer was a mainstay and this is causing massive delays. If we as a society could find a way to reduce the cost of healthcare through cellular therapies, this would cause a domino effect. The #1 unmet medical need in the world is age related macular degeneration (AMD). It afflicts people from 40 and up and no viable treatments exist. 15MM people suffer from AMD! What if a company could inject new Retinal cells into the AMD patients eyes allowing them to see clearly again? What if that person could go back to work and not collect government assistance, but pay back into the system? At least 5MM people are collecting government disability connected to blindness from AMD. What if the Federal Government did not have to pay them anymore because they could go back to work? You can see from this example that the dominoes really start ticking down the hypothetical road! Cellular therapies going mainstream will allow MD’s to concentrate on consultative medicine/preventive medicine instead of putting out medical fires and thus reduce the costs of healthcare further. But we must ask ourselves does Big Pharma want to stop making little blue pills? I am of the opinion that certain lobbyists are placed incredibly inaccurate (lies) about hESC. ALL clinical hESC come from IVF clinics PERIOD. The naysayers of hESC research would have us believe that stem cells come from abortion clinics. In fact IVF hESC have just three options after successfully undergoing IVF. The embryo is either 1) frozen indefinitely, ultimately becoming unviable 2) destroyed in a medical waste fire 3) used in ethical research.
Q: Investing in stem cell companies seems pretty risky, but in reality is it any more risky than a lot of other investments one could make? Your opinion please.
A: In my opinion, all investments are risky and no investment should ever be made unless the investor understands that they can lose all or portion from an investment. The degree of risk in an IBM that makes widgets and a company in early stage biotech are both risky. However IBM has been around since the early 1930’s and has billions of dollars in the bank and the XYZ biotech has no hope of generating revenue for years. YHOO was once $0.34 a share in 1996 only to go up to a $100.00 shares four years later. I have seen biotech’s go from $0.43 a share to $35.00 a share just 18 months later. Research and self-education is key when investing in any stock and none more so than Stem Cell Stocks. So many variables, I read all of the SEC filings before an investment (go back five years) go to message boards and find out what the street thinks about the company. Most biotech companies do not get analyst coverage and analysts can be paid by companies for positive opinions. I ask myself how much will the drug be worth and how soon to market? Who are the competitors? I ask, is the drug they are working on going to affect the bottom line of a Big Pharma? Reason is that if it is, Big Pharma may buy the company and or partnering with the company to capture future revenues.
Had UC treatment April 5th, 2007
Had autologous treatment March 19, 2010
Had bone marrow and adipose stem cell treatment (autologous) June 16, 2010
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