Is Pharmacyte Biotech a Boiler Room Stock?
When investing in disruptive technologies, it is important to be able to identify investments you should not invest in along with those that may show promise. In the disruptive technology space, you will come across three types of companies; startups or private companies which often show the most promise but hold their cards close to their chests, publicly traded companies with lots of regulatory requirements, and over-the-counter companies which you should typically avoid like the plague. We have seen countless examples in the past of over-the-counter (OTC) companies that follow the same steps through a sometimes lengthy lifecycle that will end up with “investors” losing money 99% of the time. One (OTC) Company that we came across recently which seems to quite heavy on promises and press releases is PharmaCyte Biotech (OTCMKTS:PMCB).
There’s a classic film that came out in 2000 called Boiler Room in which a naive young man finds himself working for a corrupt stock promotion firm called “JT Marlin”, the name clearly a play on “JP Morgan”. The below firm seems to be capable of causing similar confusion:
With no affiliation to investment bank Goldman Sachs, this firm called Goldman Small Cap Research was compensated for the above report in the amount of $4000 for a research subscription service and $2500 for a series of articles and updates. In the past month, a total of 7 compensated “reports” were published including one titled “PMCB is a 4 Bagger“. I always appreciate it when my investment adviser describes upside for a potential investment to me in the form of “baggers”. Nevertheless, let’s take a closer look at what all the hype is about.
As stated on the Company website:
PharmaCyte Biotech is a clinical stage biotechnology company focused on developing and preparing to commercialize treatments for cancer and diabetes based upon a proprietary cellulose-based live cell encapsulation technology known as Cell-in-a-Box®.
We can look at the latest 10-Q filing to get an understanding of how this Company came about. Note that this company was originally called Nuvilex but changed their name in January of this year.
In June of 2013, the Company acquired a biotechnology called “Bio Blue Bird”. Biotech investors would automatically raise an eyebrow here. If you googled “Bio Blue Bird”, you’d be taken to the website of a very successful cancer immunotherapy company called “Blue Bird Bio”. You’d have to look very closely to see the difference in names. In fact, there is no website for “Bio Blue Bird”, so we don’t know much about what was actually acquired here. PharmaCyte tells us that they acquired exclusive, worldwide licenses to use a proprietary cellulose-based live cell encapsulation technology for the development of treatments for all forms of cancer.
In July of 2013, the Company paid $2 million to Austrianova Singapore for an exclusive, worldwide license to use their cellulose-based live-cell encapsulation technology called Cell-in-a-Box for a diabetes treatment. According to the Austrianova website, “The Cell-in-a-Box® technology, developed by Austrianova, is a means to protect, isolate, store and transport living cells”. Austrianova was an Austrian biotechnology company that had set out to develop a cell product targeting pancreas carcinoma. The company had planned the launch of their cell product in 2008 but then went bankrupt instead. Later in December 2014, Pharmacyte paid another $2 million for rights to use cell-in-the-box with cannabis. Yes, cannabis stocks have been all the rage in 2014 among the penny stock world so no surprises there that PharmaCyte would want to ride the coattails of this trend.
The Company promises various clinical trials to begin this year. As they should, investors are questioning just how any clinical trials can be funded. As we discussed before, the drug approval process is expensive with the average cost for the full life-cycle of a drug approval having reached a staggering $1.3 billion by 2005 alone. Pharmacyte has just under $1 million in cash on their books. For the 9 months ending January 2015, they had burnt through $7 million in cash, a less than a tenth of that amount being actually spent on R&D. The Company is very audible about an orphan drug designation they received in December 2014. The truth is, such a designation is not that hard to get. According to the FDA, 60-70% of applications result in granting orphan drug designation status. There are so many legitimate non-OTC companies with exciting value propositions that exist out there today, not to mention biotech ETFs that allow you cheap diversification. Why would you want to take a punt on a promoted stock and most likely lose all your money?
It’s important to remember, that management of OTC companies may not necessarily be acting in a malicious way. Through no fault of their own, their stock could be promoted and the result could be a bunch of “investors” who were hoping for a “4 bagger” but are now caught holding the bag. PharmaCyte Biotech (OTCMKTS:PMCB) will be added to our growing list of “disruptive” OTC companies, all of which we would warn investors to avoid like the plague.
Of course, as is typical with many OTC companies we warn investors about, we expect to hear the same retorts in the comments section. “Clearly you’re short”. “You wish you would have loaded up”. “You have ulterior motives”. Etc. As we have stated many times before, we will never short any stock discussed on this site. We simply believe that it is as equally important to talk about what one should not invest in as it is to talk about what one should not invest in.
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