Beware These Penny Stock Quacks
By Dr. George Huang
January 22, 2010
I couldn't believe my ears...
Last week, I sat through dozens of biotech company presentations at the OneMedForum conference in San Francisco. It's an off-shoot of the annual JPMorgan health care conference that takes place every January.
I attended the OneMedForum rather than the more prestigious JPMorgan conference for one simple reason... The JPMorgan meeting is full of names like Celgene and Genzyme. These prominent biotechs have already made their shareholders a fortune. Their mega-growth days are mostly behind them.
On the other hand, the scrappy, hungry no-names at the OneMedForum are mostly worth less than $200 million... and they're desperate to garner investor attention. Finding the right company here can make you rich.
There's just one problem: You have to sit through a lot of crap.
So I came to the conference hoping to find a few possible gems. I also came prepared to sit through a number of garbage stories. What I found was some of the most blatant hokum I've ever seen. If you own shares in any of these companies, watch out...
Let's start with "Microcyn" technology. Oculus Innovative Science (OCLS, $52 million market cap) claims to have discovered a miraculous solution for healing wounds.
The company's products are already approved by the FDA. They're potent enough to kill a wide variety of pathogens – including viruses, fungi spores, and even drug-resistant bacteria. They have absolutely no side effects... Even better, the market for these products totals billions of dollars.
As the CEO said over and over again, "Just one sliver of the pie will make shareholders in tiny Oculus rich."
His sales pitch was brilliant. And the Oculus story is seductive. If I hadn't already looked into the company, I probably would have fallen into his trap. Luckily, I knew better...
Turns out, "Microcyn" products are really just an ultra-diluted mixture of bleach and salt water. Diluted Clorox could perform the same "miracles."
Another hot topic at the conference was "oral insulin." As you know, insulin is the last line of defense for diabetes. But it must be injected. And patients hate needles. The drug industry is spending billions to find in easier way to deliver insulin. So far, nothing has come to market.
But that didn't stop Generex (GNBT, $163 million market cap) from laying claim to the ever-elusive oral insulin blockbuster. The company bragged it found a way around FDA regulations and is selling its insulin spray directly to diabetes patients. Thing is, you're going to find it right next to its "Crave-NX 7-Day Diet Aid Spray" in the supplement aisle of your local Walgreen's.
If Generex had anything comparable to injected insulin, a swarm of Big Pharma companies would be fighting to scoop it up. Except for gullible shareholders, no buyers have emerged.
I also heard from Inovio (INO, $120 million market cap), a company with a "paradigm-shifting" universal flu vaccine. Not quite. It's going to be about five years behind the competition.
And of course, there are the requisite stem-cell companies on the verge of curing every disease imaginable, if only they can start clinical trials... Or the drugs that'll cure cancer... if only patients could survive the treatment.
I try not to get jaded. But I hate seeing investors get duped over and over again by sexy stories that don't have an ounce of science behind them. So do your research. Don't fall for the management line. Remain skeptical.
And when you come across a story that sounds too good to be true, remember, it probably is.
Good investing,
George Huang |
