Streetwise Reports: You co-sponsor the AlphaNorth Capital conference every January in the Bahamas that introduces small-cap companies. Would you tell us a little bit about the conference?
Steve Palmer: The conference focuses on non-resource companies. We started the conference four years ago. There was a lot of focus on resources and not much was being done on the non-resource front, so I thought it was a good niche to do a non-resource conference for small caps. The conference has become bigger and better each year. The first year we had 18 companies attend; 46 companies attended this year.
SWR: Before we talk about specific companies, would you talk a little bit about what you're seeing in the economy right now and how that is impacting your investing?
SP: We continue to be very bullish on equities in general. President Trump's policies, such as infrastructure spending and lowering tax rates, are generally, from an economic and market point of view, very pro-growth. There are a lot of data that show that global growth is accelerating. All of that is generally very good for the Canadian equities because that market is overweight in the resource sectors. That will have a disproportionate, positive benefit to Canada and particularly the junior market.
It's been a rough few years since 2011 for the junior market. It hit an all-time low in January of last year, so we're roughly 15 months into the new bull market. The market has rallied significantly from that time, and I expect it to continue.
SWR: Does your fund specialize in investing in Canadian companies or do you invest in companies anywhere?
SP: We can invest in companies anywhere. I find that there are ample opportunities in the Canadian market. I know the Canadian market best, so I tend to focus there. But occasionally I come across a company that is not Canadian. Generally the fund holds over 90% Canadian companies.
SWR: What guides you in making investment decisions?
SP: We look for situations where we can get in early, usually in private placements where we get the benefit of a warrant to get increased leverage to success. One of the greatest risks for micro- and small-cap companies is running out of money. A lot of these small companies are constantly in need of funding, so if you can invest at a time when the company is raising money, that eliminates that risk, at least in the short term.
It's really all about risk versus reward. We try to get in early when the stock is cheap, when nobody knows about it, before there's any analyst coverage, etc., and with limited downside presumably, with lots of leverage to the upside. And that's the situation with all the companies I will talk about.
SWR: What are some of the companies that attended the conference that you're excited about?
SP: I really like Neurotrope BioScience Inc. (NTRP:NASDAQ). It has huge potential. The company is doing a Phase 2 trial for Bryostatin 1 for Alzheimer's disease, and in some people the drug has been shown to actually reverse the disease, which has never been done before. Most of the drugs on the market just temporarily alleviate symptoms and perhaps delay disease progression a little bit.
The trial has enrolled 148 patients with moderate to severe Alzheimer's in 26 sites in the U.S. The top-line data is expected in April 2017. I'm really excited about that because this near-term catalyst can be quite positive. The company is well funded and recently listed on NASDAQ. I don't think there's anything bigger that you could target than an Alzheimer's drug. It's the No. 1 cost to the financial system in the U.S. So it has decent risk/reward.
Since the conference, that stock has done very well. In fact, it has been the best performing stock from the conference to date. It was $7 at the time of the conference, and it's now around $19.
SWR: What is another company?
SP: Continuing on the biotech theme, Antibe Therapeutics Inc. (ATE:TSX.V; ATBPG:OTCQX) also presented at the conference. It is developing a pain medication, ATB-346, that is a derivative of naproxen and avoids the use of opioids, so it's non-addictive. Opioid use is obviously a big problem in North America, with people becoming addicted and people using it as a recreational-type drug, and there have been lots of deaths.
SWR: Where is ATB-346 in the clinical trial phase?
SP: Antibe has completed a Phase 2 trial for osteoarthritis. The drug does not cause significant GI injury such as ulceration and bleeding in animal testing like regular NSAIDs do. And the trial showed pain relief nearly double that of naproxen. It will now conduct more Phase 2 trials. The company is targeting a huge market, and we think it has very good risk/reward.
SWR: Is there another biotech company that you would like to talk about?
SP: Another company is Helius Medical Technologies Inc. (HSM:TSX; HSDT:OTCMKTS), which is similar to Neurotrope in that it focuses on brain function, but it takes a totally different approach. Helius has found that there's evidence that stimulating the tongue with electric impulses while doing a task helps rewire the brain. Its PoNS device is currently in a Phase 2 trial for traumatic brain injury and the company is expecting results in June. We think it has a very good chance of success. If it works in traumatic brain injury, it's also shown that it potentially works in a lot of other diseases, too.
Even in healthy patients, it improved brain function. There's also a trial going on right now in British Columbia where it's taking healthy patients and using this device twice a day. A smaller trial showed some very interesting results for improved cognitive function which they are now trying to replicate in the current larger trial. It is also focused on multiple sclerosis as an indication.
SWR: So it has multiple platforms to success.
SP: Yes, that's why I like it. There are multiple targets. It's well funded. There are near-term catalysts. It's lower risk and requires less time to go through the regulatory process because it's a device.
SWR: What's the next company you want to talk about?
SP: It's Peekaboo Beans Inc. (BEAN:TSX.V), which is a different kind of company, a consumer product company. It is based on Vancouver. It sells kids' clothing through direct marketing, so there are no stores. It's all word of mouth; mothers who have play dates with their children talk to other mothers and they buy the clothes. Its clothes are very good quality, likened to Lululemon-type quality. They're all custom designs that are very functional for kids, making them more independent. So it's easy for them to put their own clothes on, do up zippers, etc. The mothers who buy the clothing get discounts toward their own purchases. Plus when they sell to others and get other people involved, they can earn money from home. It has expanded quite nicely in the Canadian market. The company trades at a cheap valuation at roughly one times revenue.
It is in the process right now of raising additional funding to launch in the U.S. The U.S. is a much larger market, obviously. With direct marketing companies, investors are much more aware. There's a much bigger focus on direct marketing in the U.S. There have been lots of other companies in that space that have done quite well and achieve high valuations. So I'm pretty excited about that opportunity.
SWR: And is there one last company that you'd like to touch on?
SP: Yes, Cymat Technologies Ltd. (CYM:TSX.V). It has technology that basically creates air bubbles within aluminum. It has been working on this for years, and I've been aware of the company for more than a decade. But just recently it seems to have finally started getting traction on multiple fronts. The product is used in architecture and design for decoration.
But there are other applications for this. Cymat has sold product now into the military vehicle market in Europe. It's very lightweight because it's aluminum and most of it is air. But it has the effect of cushioning from explosives. The undercarriages of some military vehicles are being lined with this product. So that's another application. It actually made its first sale last year on that. We expect further sales in that particular market this year.
It also got a sale into the nuclear industry where, for example, the product is being put at the bottom of an elevator, so in case there's an elevator that malfunctions and falls, it'll be cushioned by the material.
Cymat has been working for a long time to get into the automotive market. The company is doing some final testing with a major automotive company just over the last few months to put it into the wheel wells of vehicles. Historically, when they conduct crash tests, a lot of the car manufacturers just do, as you see on TV, the front—driving into a brick wall, for example, the airbag goes off and protects the people in the car—or the back for rear-end collisions. But this is for what they call front offset collisions, where you hit a wall or an object on an angle and hit the corner of the vehicle. It has found that using this material inside the wheel well or the bumper of the cars can drastically mitigate damage and cushion the impact.
SWR: So this material doesn't have to be very thick to be effective at cushioning?
SP: In an application like cushioning the fall of an elevator, it's several feet thick. But in architecture it can be very thin. With its technology, the company can vary the size of the bubbles. So depending on what you're using it for or what look you want, you can just make it with bigger bubbles or smaller bubbles.
SWR: Do you have any parting thoughts for our readers?
SP: Several people have commented to me in the last few months—and you see a lot of it in the media, too—that the equity markets are expensive. It's been a long bull market since 2009 from historical standards. But I don't view it as expensive in the context of very low interest rates. Historically, when interest rates have risen from below 5% up toward the 5% level, you've had a positive reaction for stocks. Price-earnings multiples have increased. So some of the comments about the larger caps have some validity, but I do believe that even those are still very cheap.
But the junior market in Canada is just starting. This bull market started only a little over a year ago. And it's retraced only a minor part of its decline while most other equity markets have hit all-time highs since the global financial crisis. So I think investors need to distinguish, when they talk about Canadian equities or equities in general, there are truly different situations, the junior market versus the large caps. I would just encourage investors not to ignore the junior space because over the long term, small-cap equities are the best performing.
SWR: Thanks, Steve, for your time.
The AlphaNorth Capital Conference is one of seven annual conferences produced by Vancouver-based Capital Event Management (CEM); the conference mandate is to connect capital with opportunity. In addition to the AlphaNorth Bahamas event, CEM conferences include stops in Whistler, BC; Scottsdale, AZ; Montreal, QC, Kelowna, BC; Muskoka, ON and Palm Beach, FL. In each case issuers from all sectors meet and establish relationships with top investors in the field, leading to financings and after market support. Full details at www.capitalevent.ca.
Steve Palmer is a founding partner, president and chief investment officer of AlphaNorth Asset Management and currently manages the award-winning AlphaNorth Partners Fund, AlphaNorth Growth Fund and AlphaNorth Resource Fund. Prior to founding AlphaNorth in 2007, Palmer was employed as vice president at one of the world's largest financial institutions, where he managed equity assets of approximately CA$350M. Palmer managed a pooled fund, which focused on Canadian small-capitalization companies, from its inception to August 2007, achieving returns of 35.8% annualized over a nine-year period, which ranked it No. 1 in performance by a major fund ranking service in its small-cap, pooled-fund category. Palmer earned a bachelor's degree in economics from the University of Western Ontario and is a Chartered Financial Analyst.
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Disclosure:
1) Patrice Fusillo conducted this interview for Streetwise Reports LLC and provides services to Streetwise Reports as an employee. She owns, or members of her immediate household or family own, shares of the following companies mentioned in this article: None. She is, or members of her immediate household or family are, paid by the following companies mentioned in this article: None.
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3) Steve Palmer: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: Neurotrope BioScience Inc., Antibe Therapeutics Inc., Helius Medical Technologies Inc., Peekaboo Beans Inc. and Cymat Technologies. I, or members of my immediate household or family, are paid by the following companies mentioned in this article: None. My company has a financial relationship with the following companies mentioned in this interview: None. AlphaNorth funds hold shares of the following companies mentioned in this article: All. I determined which companies would be included in this article based on my research and understanding of the sector. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
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