Periodically we publish our stock picks. Stocks that we like are “Hot” and listed below. Stocks not considered hot are removed.
Buy Medicago $0.53 (MDG on the TSX)
Medicago Inc (MDG)
This is a most interesting company. Normally we would hesitate in recommending a company that is involved in the creation of vaccines or bio sciences or the biotechnology sector. Inevitably these companies run into delays with the 3 phases of testing and approvals, and often what seems great promise, comes crashing down after years of work, and millions spent. The USA has a system of approvals where the large testing and trials do not occur until the last phase of the approval system. (Interestingly in Europe, the system is reversed.) What happens on a regular basis, is that enormous sums of money are raised and spent on the development, and as the process or drug goes through approval phases I & II, excitement and promise builds. As it does, the stock price also rises. Then phase III occurs and either it is a multi-year test, or some flaw occurs, and the stock either plummets or drifts downwards for years.
So we mention Medicago with some trepidation, but it has some quite unique attributes.
The Stock Price
The stock came out above $1.00 in 2006, and then plummeted like every other stock in the great crash of 2008. It recovered, like most other stocks, to the $0.70 range, which it touched in 2009 and also in 2011. It has generally drifted lower since, recovering just a bit recently. It is still modestly priced at its current level above $0.50. As the company is nearing its goal, most of the downside on the stock should be behind us.
A Unique Technology
We reprint the opening descriptive paragraph from the company’s website.
Medicago is a clinical-stage biopharmaceutical company developing novel vaccines and therapeutic proteins to address a broad range of infectious diseases worldwide. The Company is committed to providing highly effective and competitive vaccines and therapeutic proteins based on its proprietary Virus-Like Particles (VLPs) and manufacturing technologies. Medicago is a worldwide leader in the development of VLP vaccines using a transient expression system which produces recombinant vaccine antigens in plants. This technology has potential to offer more potent vaccines with speed and cost advantages over competitive technologies, enabling the development of a vaccine for testing in approximately one month after the identification and reception of genetic sequences from a pandemic strain. This production time frame has the potential to allow vaccination of the population before the first wave of a pandemic.
Tobacco Plants – Weird isn’t it?
In simpler terms, the company experimented with infiltrating plants with a DNA sequence to create an influenza vaccine. With the help of generous financial support from Philip Morris, the tobacco giant, the company now uses tobacco plants, grows them (they grow rapidly) to a certain stage, then immerses them in a DNA solution, then turns them upside down so that the plants suck up the DNA bearing solution, and voila, within weeks produces the essence of a flu vaccine. The process can take as little as 19 days.
Somewhat strange to believe, but it apparently works. The result is virus-like particles that the company claims can be mass produced to provide almost unlimited numbers of vaccine doses to combat any strain of the flu that is identified.
The advantages of this method are:
1) a much quicker response time to any influenza outbreak than other methods are able to meet
2) a much less expensive vaccine than is currently available
3) amazing potential from a natural base
Another product in development is that the company claims it can develop treatments for rabies which is a world-wide problem. Other products in the pipeline include non-influenza VLP’s and Biosimilars.
Head office is in Québec City with rented premises of 16,000′ including a 7,000′ laboratory. Medicago also owns a 14,000′ pilot production facility which includes a greenhouse built to comply with cGMP standards, as well as an extraction/purification unit.
There Are Many Believers
The CEO is Mr Andy Sheldon who was voted “Best Virus CEO in the World”. Could it be that we will have yet another award show on US TV. I am amused as I ponder the possibilities of who the competitors on this show would be.
More seriously, the Management and Board of Medicago are quite impressive and include many highly regarded names in the field. The USA Network NBC did a clip on this company recently and has reported on Medicago a number of times. Likely this coverage was more the novelty of using tobacco plants to interest viewers than anything else, yet the company remains in the sights of the network.
Every investor looks to find that company that will change the world in some way. Whether it be the “new” Microsoft, Apple, Facebook, or whatever, if you find an early stage company that has the potential to radically change the way humans act or perform or react, it could be a great investment. Most of these so-called disruptive technologies fail, but every once in a while, the world is changed. More and more companies are deciding that Medicago has the potential to be one of these great companies, and are entering into agreements with Medicago to participate in this potential. The potential may be realized, or may not, yet the list of involved participants continues to grow and is impressive.
Mitsubishi Tanabe Pharma Corporation is a strategic partner and is funding the development at least three vaccines, first agreement for Rotavirus, an advance payment if C$33,000,000 as well as potential milestone payments for the first agreement, royalties on future sales, Mitsubishi to fund all development costs.
Mitsubishi Chemical has a strategic alliance with Medicago to evaluate potential of combining MC system with Medicago plant protein production technologies.
Philip Morris Products SA has a commercial agreement for influenza vaccines in China, US$12,000,000 in upfront and potential milestone payments, and royalties on future sales of pandemic and seasonal influenza vaccines in China which utilize the Medicago technologies.
U.S. Department of Defense DARPA Award of US$21,000,000.
PATH grant for influenza studies by Medicago
Infectious Disease Research Institute research collaboration with Medicago on Phase I H5 with new adjuvant, intradermal.
In addition to the above, the company expects to announce yet another major agreement and funding shortly. So far the company says it has received a US $15,000,000 unsecured loan from a major Pharma with a view toward licensing.
The company has zero revenues from the sale of its products and does not expect to earn revenues until stage III trials are finished. A realistic expectation is revenue will commence in meaningful amounts in 2015, that is if all goes well.
Given the range of impressive companies that either have bought into the story, or are considering some sort of arrangement, MDG seems as good a bet as one could find. The stock lows are hopefully behind us and the company looks forward to the short term commencement of commercial production.
Whats-Hot-or-Not – Historical Picks
February 2, 2013 E Mini (ES – CME) June 2013 $1,496.75, or, IYY ETF
February 10, 2013 Scorpio Mining Corporation (SPM-TSX)
February 21,2013 Medicago (MDG-TSX)
We may or may not have positions in the securities we name. In making an investment decision numerous factors must be considered including portfolio balancing, timing, cash and capital reserves, asset allocation and other factors. Readers are strongly advised to do their own research. Matters discussed contain forward-looking statements that are subject to risks and uncertainties and actual results may differ materially from any future results, performance or achievements expressed or implied.
Views expressed are opinions and not investment advice. Persons investing should retain a licensed professional to guide them and not rely on the opinions expressed herein. This report is neither a solicitation nor a recommendation to buy or sell securities. We are not a registered investment advisor nor a broker-dealer. The information contained herein is based on sources which we believe reliable but is not guaranteed as being accurate or a complete statement or summary of the available data.