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Mystery Movers: Spectral Diagnostics jumps 22% as Canadian biotech goes viral

Chris Parry Chris Parry,
6 Comments| November 5, 2013

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It’s a good time to be in the medical game, at least in Canada.

Company after company in the local biomed/biotech/biopharm industries are jumping to new levels in stock price and turning investors that taught themselves how to read drilling results into people familiar with Phase III Clinical Testing.

Some of these companies are moving on the back of good trial news - if you want to cry at a missed opportunity, take a look at the graph on Lorus Therapeutics (TSX:T.LOR, Stock Forum) for the past week.

Some are moving because they’re moving closer to production - like ProMetic Life Sciences (TSX:T.PLI, Stock Forum), which I own a small piece of and have enjoyed the September-October ride as I will now be able to afford a steak dinner.

And some are moving because the big dogs have come to shower them with hundys like an NFL player in a strip club… Hello Paladin Labs (TSX:T.PLB, Stock Forum), is there a two-drink minimum here?

Spectral Diagnostics (TSX:T.SDI, Stock Forum) doesn’t have an action packed feeding frenzy news releases dotting the internet with cancer-curing promises and 'can’t miss' pumpers. It hasn’t been ensnared by a giant takeover bid or drowned in investors due to a product that will increase our life expectancy to 'Lloyd Robertson + 10' levels.

So why did it jump 22% today? And why has it increased 200% in three months?

Let’s go to Danny Deadlock, Stockhouse TickerTrax columnist and the king of vulture capitalism, for a little background from 2010:
“Spectral's objective […] is to obtain FDA approval for a Septic Shock treatment that has proven very successful in other countries; currently nothing is available in North America and SDI has the rights to the United States. If approved, the potential revenue is well in excess of $100 million annually. A month ago the company announced that (the Euphrates trial) had commenced and approximately 360 patients at 15 sites would be enrolled throughout the United States.”

The Euphrates trial is nearing conclusion.

From a September 26 news release:
“Spectral Diagnostics Inc., a Phase III company developing the first theranostic treatment for patients with severe sepsis and septic shock, today announced that the 184 patients required for the planned, second interim analysis have been randomized into its EUPHRATES trial. After the randomized patients have been followed for 28 days, all data will be accumulated and analyzed.

“The Data Safety Monitoring Board (DSMB) will then review the data and report to the Sponsor, which is expected to occur in early 2014. […] The current composite 28-day mortality rate of 33 percent for randomized patients in the trial continues to suggest that the trial is enrolling patients who are at greatest risk for a poor medical outcome and, therefore, would most likely benefit from the Company's theranostic treatment.”

Deadlock again: “Few therapeutic options are available to treat more than 250,000 patients diagnosed with severe sepsis in the U.S. each year. The disease remains a leading cause of mortality. Toraymyxin has been used safely on more than 70,000 patients worldwide but formal trials have never been conducted.”

Not to jump the gun, but now they are, and they’re deep into the process.

Worth noting: This is a medication that is already in use around the world but has yet to go through the FDA churn so it can hit the US market. That churn is nearing its conclusion and when it ends, there will be sales. Oh lordy, there will be sales.

But it’s not just me that thinks so. Perhaps more pertinent to the sudden stock jump is that TD Waterhouse has reportedly today pegged the stock, which was trading at $0.50 (now $0.61), as a BUY with a 12-month target of $5.00.

Not too foul.

One thing to consider in the contrarian column, the company is nearing the posting of its most recent financials, which, if they’re anything like last time around, will point to a pretty tight capital situation.

The company has a decent handle on cash burn, and it raised $6m earlier in the year through a private placement, but it would officially be cash-free right now if it hadn’t done so, and will almost definitely need to generate more financing in the next quarter to keep the wheels turning.

This hasn’t been a problem for them before and likely won’t be in the future – but with 133 million shares outstanding, there might be some pressure on share price – or the stink of blood in the water that so often attracts takeover offers.

Canadian biotech is kicking the kind of ass right now that makes mining executives go out and get legless drunk and mistreat their children. Many West Vancouver dogs are being kicked every time a ProMetic Life Sciences doubles or a Lorus bangs another dinger out of the park.

But those trains have let the sub-$1 station. Value comes at the transition points in biomed, where tests end and phases shift and products are approved for sale, and I think Spectral is right in the back end of one of those transition points.

I don’t own it, but I’m going to wait and see what happens to the share price at their next quarterly results release and, as long as they don’t teeter too far financially, consider going knee-deep on any stock dip.

If you’re looking for higher risk/higher upside in biomed, Theratechnologies (TSX:T.TH, Stock Forum) could be fun.

They got dogpiled after Health Canada hit them with a non-compliance/withdrawal notice on their Tesamorelin NDS but, as of four days ago, that order was rescinded. It doesn’t mean Tesamorelin is going anywhere necessarily, but the stock is trading low and share structure isn’t crazy. If you’re the kind of person who sticks their hand in a hole in a tree on the off-chance someone left a wallet in there, this might be a good option.

Vivione Biosciences (TSX:V.VBI, Stock Forum) is also a great grab at around $0.20 per share. They’re working on products that detect food-borne pathogens (far) quicker and better than anything on the market. They’re working with the FDA National Center for Toxicological Research, so, hmm, do you think FDA approval is going to be tough for them to get?

Full disclosure: Vivione is a Stockhouse client, and we’re proud of the fact because they’re killing it. They recently took out a very manageable loan to buy more units of their equipment, which gives them volume discounts and allows them to take delivery down from four months to same-week. They have a tight share structure and almost embarrassingly low market cap. When their product hits the market, the entire food processing industry will be on their call list.

In fact, if there's a company out there producing e.coli as a marketable product, and you just know Monsanto is thinking about it, Vivione is a good reason to short that company.

Also, consider Medifocus (TSX:V.MFS, Stock Forum): This company (which is also a Stockhouse client) has a microwave-based technology that can be used to shrink tumors by as much as 50%, and can treat prostate problems with far less discomfort, and with far faster results, than any prescribed treatment out there currently.

Medifocus’ main problem is two-fold: First, thet couldn't be more unknown if they were in the witness protection program. Second, they sold their signature product to Boston Scientific (NYSE:BSX, Stock Forum) a few years back, which promptly and famously went ankles akimbo and, more or less, handed the product back to them.

So now Medifocus is doing the hard work of generating sales and is looking to China as a good place to not only expand but trial new products and also manufacture cheaply.

Share structure is a little bloaty, but with a ground-breaking, inexpensive product base that could really impact a mega-huge industry, they are RIDICULOUSLY under-valued at a $22.8m market cap - and I only use all-caps when I’m so freaked out my limbs are flailing as I type.

Put down your diamond drills and slap on some scrubs. There's gold in them there pills.

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KNE another possible. great read Chris.
November 6, 2013

Hi Chris: Great article, and I couldn't agree more. But I believe you forgot the one stock that has more potential than ANY of those you've mentioned: Avivagen (VIV-V). Check it out. There have been numerous postings about it on this board, but don't take my word for it...look at Pathfinders (the Vancouver based Asset Management Frim) write-up on it on VIV's web site. I personally know of no other company out there that is addressing one of the most serious problems around (antibiotic resist
November 6, 2013

Chris - you want a zinger? I'll give you one, Miraculins (MOM)with under 60 days left in their LOI with Beijing based Cachet Pharmaceuticals. If Cachet jumps in bed with MOM there's no telling how high it could run. Multibagger in the making.
November 6, 2013

PLI .... Huge potential. You nailed it!!
November 6, 2013

I'd love to see some more talk about Lorus Therapeutics. Could you decipher the latest report that boosted the stock price? As well, how far would they be from having their signature product on the shelves?
November 5, 2013

Thanks Chris. When examined closely, Spectral is one of the most unique opportunities available, imo. Please know that Toraymyxin ( PMX ) has now been used on over 100K patients globally ( mostly Japan and parts of the EU ) The addition of Spectral's Endotoxin Activity Assay ( the EAA ), has turned the original therapy ( dialysis like ) into a "theranostic treatment" ( therapy + diagnostic ) Timely, as it offers huge benefit to health care costs and personal care. The EAA screens for appropria
November 5, 2013

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