I originally published a teaser solution for this Adam O’Dell pitch on April 12, 2021, and the ad still carries a February 2021 date — but despite that date, the pitch has been modified a bit, and it’s being re-circulated heavily again. This remains one of our most-requested stories, and the ad includes a few “bonus” small cap stock ideas. The following was last updated on January 3, 2022.
Adam O’Dell is pitching an “Imperium” machine and the world-changing returns that might come from… and, as you might imagine, his favorite “one small company” that is the best investment play on those changes. So let’s dig in and see what he’s talking about, shall we?
O’Dell used to be a market technician specialist for the Harry Dent newsletters, which got “dissolved” and were sucked up by Banyan Hill a couple years ago, and now he’s off in his own corner as the investment strategist for Money & Markets, which I guess remains either owned by or affiliated with Banyan Hill. This particular ad is for his Green Zone Fortunes, an entry level letter ($47/yr) that profiles one stock that’s “in the zone” each month. He generally focuses on technical and quantitative analysis, so I guess in some ways he’s playing in a similar sandbox to folks like Louis Navellier — screening and grading stocks to rank them.
The only pitch of his that I’ve looked at recently was back in the summer of 2020, that was a gold stock spiel and, well, the three mainstream gold stocks he pitched were, as you might expect, levered to gold prices — gold is down about 3% since then, so two of the stocks are down about 25-30% and the third is down 6%. If you bought all three and held, you would have lost some money at this point… and at the best moment, when gold peaked a couple months after those picks were pitched, you would have done roughly as well with those three stocks as if you had bought a gold goin. I note that only to remind you that nobody is magic, and nobody has a “system” that picks the right stock all the time… but, as always, we’ll try to judge each investment idea we hear on its own merits.
So what’s he peddling today? What is this “Imperium” business? He starts out with what looks like a blueprint of a special machine…
“This machine… contains a technology that will be the most transformative in history….
“It’s a technology I call … Imperium.
“Of course, it’s not enough to spot a mega trend before the masses…
“You must also pick the right stock…
“And I believe I have the No. 1 stock to take advantage of the ‘Imperium’ mega trend…
“It’s the small-cap company that makes this machine…”
And the big picture spiel is all about this being the next mega-trend…
“Because investing in “Imperium” now could be like getting into internet stocks in the early 1990s…
“Where rare and exceptional stocks like Intel shot up more than 8,000% in 10 years.”
So what’s the story? This is, as you’ve probably already guessed, some sort of genetic testing company. And no, it’s not my all-time favorite company in the space, DNA Friend, so who is it?
We get the rundown of usual suspects who are involved, a list of names that is typically meant to inspire confidence:
“Jeff Bezos recently added to a $100 million investment…
“Elon Musk says Imperium is “amazing…”
“Bill Gates’ investment fund is contributing to a $429 million investment… saying Imperium is ‘one of the most powerful technologies of the 21st century’…
“Mark Zuckerberg’s $3 billion fund is heavily backing ‘Imperium’…
“And Peter Thiel … a man that Forbes, Fortune and the New Yorker all call the best tech investor in history… He’s adding to a $110 million investment.”
Those people are not all invested in the same company, of course, but those are references to DNA-related investments those bigwigs have made, particularly into companies that are synthesizing DNA — like Peter Thiel’s backing of Synthego or Bill Gates’ bet on Ginkgo Bioworks (DNA).
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So what’s our little genetic engineering or synthetic DNA stock today? Might it even be a more general genomics company? Let’s see what other clues O’Dell drops…
“‘We are at the cusp of [Imperium] really entering the mainstream.’ — MIT Scientist”
OK, so that’s just a quote from Illumina CEO Francis deSouza (yes, he did go to MIT — though he’s been a tech executive for 30 years since then), and the quote is now three years old. Yes, genomics and gene sequencing is probably past the “inflection point” now, given dramatically lowered costs for gene sequencing and the many practical uses that are already becoming pretty mainstream (like targeting cancers with specific drugs based on the genotype of the disease or the patient, for example).
And yes, Illumina (ILMN) is a pretty easy first choice if you’re looking into genomics companies — they’re huge (market cap $60 billion, $3 billion in sales) and could never be considered a “small cap,” so definitely that’s not the stock being pitched here, but they are the largest and most dominant “pure play” on genetic sequencing as a business. They have leading market share in sequencing machines and all the related products and services to make those machines work, and they’re also trying to buy back their former testing company Grail, which is working on commercializing cancer screening tests. Not cheap at 70X earnings or so, though I regret not buying it when it was on my watchlist and dipped briefly below $300 late in 2020, when their testing volume was down a bit because of COVID — they don’t really have a monopoly, but their market dominance and high margins do make me think of them in the same breath as Intuitive Surgical (ISRG) (which I do own, just for disclosure’s sake).
But anyway, that “imperium” machine image is just a picture of a genetic sequencer — it doesn’t really matter which one it is, since the pitch isn’t actually for the company that makes the machine, despite what’s implied early on in the tease (though if you’re interested in the specifics, the form factor actually looks more like a ThermoFisher (TMO) sequencer, one of the Ion Torrent machines).
So what, then, is our “one small company” in this pitch? More from O’Dell…
“I’ve found the No. 1 small-cap stock to cash in on as Imperium soars nearly 200,000% in the next four years…
See AlsoLord Commander of the ImperiumPredicting Ups and Downs in the Stock Market Using AI – Quantilus InnovationAbout us – ImperiumHow Machine Learning Helps Predict Stock Prices“The first time scientists sequenced all the DNA inside a single person, it took 13 years … and cost $2.7 BILLION….
“Yet, the fruits of this incredible breakthrough have been unavailable to the masses … until NOW.
“You see, thanks to hardware developed by my No. 1 Imperium company, (which I’ll now refer to as my No. 1 DNA company) anyone can get their DNA sequenced in under eight hours … at a cost of just $239.”
OK, that is in the range of prices you’ll see pitched for doing full genome testing, though more often that will cost close to a thousand dollars. Any other clues about this specific stock?
“The most exciting part is that my No. 1 DNA stock is set to be a central player in this fast-emerging mega trend
“It’s all thanks to their incredible competitive advantage.
“They’re able to process DNA much faster than the competition thanks to a new kind of microchip they’ve developed and patented.”
OK, a special kind of microchip… that sounds appealing, but how does it help with gene sequencing? More from the ad:
“It’s made from silicon just like the microchips you find in your computer…
“And it allows my No. 1 DNA company to process DNA at 10,000 TIMES the speed of the previous technology thanks to its unique ‘nanowell’ technology.
“Before the invention of this microchip, DNA was manipulated in test tubes by hand…”
That’s not really true. Yes, “nanowell” technology is important for DNA sequencing machines, but all the modern ones seem to use some variety of that. Maybe this “one small company” has a better mousetrap? In O’Dell’s words:
“This breakthrough microchip means my No. 1 DNA company will play a foundational role in the mass adoption of DNA technology…
“In much the same way the company Intel was central to the roll-out of the internet…
“…it’s my firm belief that the biggest company in the world will eventually be a DNA company.
“It could easily be the company I want to give you the details of today … my No. 1 company for the DNA revolution.
“They’re no more than a small-cap stock right now.
“Yet as you know, they have the patent on a microchip that will power every kind of application for DNA technologies now and into the future.”
OK, so how is this different from the chips and silicon being use by Thermo Fisher, Illumina and others? Maybe they’re a supplier to those companies?
“Understandably, the microchip that my No. 1 DNA company makes is the first-choice hardware in the industry…
“In fact, they have A-list clients lining up to use their technology…
“They’ve already partnered with the Broad Institute…
“MIT…
“Harvard…
“Microsoft…
“$50 billion biotech giant Illumina…
“And even DARPA, the military’s advanced research division, who says this microchip puts my No. 1 DNA company light-years ahead of the competition…”
That DARPA reference is a bit secondhand, it comes from this quote, from a pandemic response researcher at Vanderbit who received DARPA funding:
“Twist is the only synthetic DNA provider who can deliver the quantity and quality of DNA we need for our projects rapidly. We are working with them not only as a vendor for synthetic genes and antibodies, but have expanded our relationship to leverage the Biopharma capabilities, which we believe complement our antibody discovery efforts.”
So yes, our match here is Twist Bioscience (TWST), which has been a fascinating company and gotten quite a bit of press since 2015 or so, and went public in late 2018. And yes, part of their innovation was a silicon plate of “nanowells” that had dramatically higher capacity than the existing hardware. Here’s how Twist describes itself:
“We are a leading, rapidly growing synthetic biology company that has developed a disruptive DNA synthesis platform to industrialize the engineering of biology. The core of our platform is a proprietary technology that pioneers a new method of manufacturing synthetic DNA by ‘writing’ DNA on a silicon chip.
“We are leveraging our unique technology platform to manufacture a broad range of synthetic DNA-based products, including synthetic genes, tools for NGS sample preparation, and antibody libraries for drug discovery and development. Additionally, we believe our platform will enable new opportunities including discovery partnerships for biologic drugs, and will enable new applications such as digital data storage in DNA.”
It’s a little easier to understand if you go back and read a little of the coverage of Twist five years ago, like this Wired article from 2015, but you can get a pretty good overview from their final Investor Presentation of 2021.
I can’t claim to understand the technology very well, I’m afraid, but the financials have been ramping up nicely, with a boost from COVID-related work giving them a little revenue jolt last year and getting them over $100 million in sales for the first time, though they’re still a ways from reaching commercial scale even with their largest business, the next generation sequencing materials and services… and the more revolutionary stuff that is really the focus of the company, including their synthetic biology products, drug development from their discoveries that might end up generating royalties, and the potential for using their “DNA on a chip” technology for data storage, seem to me to be mostly “5+ years in the future” stories. They’re growing now, but you’ll probably have to have either some imagination or a good store of patience to see those businesses blooming into something large.
Twist is also working, like a lot of other companies, to put their expertise and their data libraries to work in generating antibodies for specific purposes that can be developed into drugs by pharmaceutical and biotech companies, and that stands out a potential revenue driver, too, though it’s a small segment of business and presumably won’t really bear any fruit for many years (their first partnered program is about to begin clinical trials, and if it’s successful — about 10% are — it will probably take about seven years to get to FDA approval, though the company might earn milestone payments from partners along the way).
Pretty interesting company, one that we’ve heard name-dropped by a couple other pundits over the past couple years as it ramped up… and it has now come down a bit off the February 2021 highs, along with most growth stocks (this ad from O’Dell was originally dated February 2021, during which month the price fell from about $200 to $140, and today it’s around $80), so how does the valuation look today?
Well, you’ll want to pinch your nose a bit — revenue growth has been strong, which is encouraging in a biotech world where revenue is often years in the future… but with a $4 billion valuation, the stock is also trading at about 30X revenues and roughly 20X projected 2022 revenues (that’s much better than the wild 50X multiple it carried near the peak in early 2021, but still very high by any historical context), and each dollar of revenue is costing them a little more than $2.
Analysts are guessing that revenues will double again by 2023, and they are getting progressively more efficient, with better gross margins and lower selling and R&D expenses as a percentage of revenue, so there is certainly a possibility that they can “grow into” this valuation… but that improvement has been pretty gradual, not fast enough to let us imagine that the company has any hope of becoming profitable in the next couple years. They’ll probably still be chewing through at least $100 million or so a year in cash for the foreseeable future, roughly as they are now (there are only a couple analysts, to be clear, so don’t put much weight on those numbers, but there’s no sign that their heavy spending will let up, or that revenue is likely to accelerate dramatically).
The good news? They can afford to burn the cash to scale up the business, they raised a bunch of money in the past few years (about $750 million, of which roughly $450 million in cash is left as of last quarter), so they should be in good shape as long as they can continue to make traction with new customers and keep the revenue line rising.
Whether or not the stock soars from here, I don’t know, and the science is beyond my pay grade… but they do have partnerships with a lot of large tech leaders (yes, including Illumina, also an early investor and strategic shareholder of Twist, I think they still own about 3.5% of the company… and Ginkgo, which was by far Twist’s largest customer in its early years and probably still is, though they only represent roughly 10% of TWST revenue now), they do have a visionary leader and see a huge potential market for their synthetic biology products and testing equipment and services, and the potential to expand pretty quickly as they build their “Factory of the Future” facility in Portland… and, yes, they have been a top holding in Cathie Wood’s ARK Genomic Revolution ETF (ARKG) for most of the past year, and the Ark funds are one of TWST’s largest owners, so they have gotten a fair amount of attention for that (even with Wood’s star falling a bit these days).
Expensive story stock, but it’s a pretty interesting story as they try to build a synthetic biology powerhouse. Don’t know if they’ll succeed, and they’re not growing fast enough to make it an easy buy… but if you’re interested in the long-term trajectory of the business and not just in the stock price momentum, it’s a lot more palatable at $80 than it was at $200.
And I said I’d take a look at those other stories as well… shall we? This ad has often been pitched with the “buy this $2 stock” headline, and that refers to one of these smaller “bonus” stocks, not to Twist… let’s see what they are. Clues, please!
“BONUS DNA STOCK #1
“This Company is Trading for Just $2.10 Right Now
“Despite their tiny size, they’re set to become a key player in the fight to combat everything from cancer to viruses.
“They use therapies based on DNA technology to help a patient’s immune system fight and eliminate disease on its own.
“And they’re incredibly powerful.
“In fact, their number one treatment is so revolutionary it’s attracted two “Breakthrough Award” grants from the Department of Defense totaling $15 million.”
Other clues?
“Their number one product is currently in an FDA-approved trial to see if it works as a therapeutic for “long haul” COVID-19….
“They have many other uses for their main drug…
“In fact, it’s the only known therapeutic against Chronic Fatigue Syndrome, a disorder that robs our economy over $9 billion each year.
“So even if the long-haul COVID-19 trial doesn’t work out, this company could still be a great investment.”
Hoodat? This “speculative play” teased by O’Dell is AIM ImmunoTech (AIM), and like Twist it’s a lot cheaper now than it was when he was pitching the story in February (it was around $2.10 back then, it’s now back below a dollar). This company has been around for 30 years or so, with lots of ups and downs as their primary drug, Ampligen, rose hopes of cancer and chronic fatigue patients but failed to get FDA approval, though it never really took off dramatically (the market cap is around $50 million right now, it has spiked above $200 million a couple times). The firm was called Hemispherx Biopharma until 2019, when they apparently wanted a fresh start and a name change (and started issuing massive numbers of shares to raise capital for this fresh start).
They do have compassionate care permission to use Ampligen with 100 chronic fatigue patients in the US, but haven’t gotten full approval — they are still studying Ampligen in several cancers and in chronic fatigue, and are working to begin a clinical trial in “long COVID,” but the only full approval they have for use of the drug is in Argentina.
Where it goes from here, I don’t know — they have about $38 million in cash left over from the $75 million in equity raises they’ve done over the past couple years, and they say they’re being careful with money and are well-positioned, but I would assume they’d need some glowing clinical trial results or a huge partnership deal to do anything exciting from here. Color me skeptical, mostly because Ampligen has been through 15 years of “failure to get approved” drama, but at least expectations are very low now… so perhaps there’s room for some co*ckeyed optimists to dig in and see if they find a gem.
Another?
“BONUS DNA STOCK #2
“When I first spotted this stock they were $1…They’re now over $3 and don’t look like stopping…
“Thing is, I’m even more excited about the second DNA stock contained in the report.
“Why?
“Because they use an incredibly profitable business model when done right.
“I’m talking about the royalties business.
“Yet this isn’t like any type of royalty business you’ve heard about before…
“Because they’re selling royalties on DNA sequences…”
This one I’m not entirely sure of, but the Thinkolator’s best match is Applied DNA Sciences (APDN), which has been teased several times over the years as an exciting next-generation DNA story — though until recently, almost exclusively as it used DNA as a security tool, identifying products in the supply chain, applying unique DNA-based tags to those products, and helping to prevent piracy. They have been well under a dollar many times over the years, though in part that’s because they’ve done three huge “reverse splits” to get out of penny stock land over the past 20 years or so. It is at $4 a share now, but thanks to those splits the shares have lost about 99% of their value since they were teased as a huge 19-cent opportunity by Patrick Cox a decade ago… and it’s still a tiny company, with a market cap of about $30 million.
They’ve gotten a bit of a new lease on life from COVID testing, since they have some test products that generated a big surge in revenue over the past year, though that hasn’t come close to being enough to make them profitable… and COVID’s snarling of supply chains also slowed down their attempts to get their DNA tags used by manufacturers. I have a hard time taking the company seriously after looking at previous teases, but I guess nothing is impossible — the best quick overview is probably from their investor presentation last summer if you’d like to learn a little more about the company.
And as I said, this one is pretty iffy as a match for O’Dell’s tease — it could be somebody else, partly because I don’t see any indication of meaningful connections or partnerships between APDN and titans like Monsanto and Dupont, as teased… but part of Applied DNA’s business is licensing out their technology, including their taggants and their authentication tools, for potential future royalties.
One more? Here are the clues for the third “bonus” idea…
“BONUS DNA STOCK #3
“They grow salmon…
“Yet, their fish are different than any that’s ever been farmed before.
“Firstly, they’re using what’s called land-based aquaculture.
“That means they grow the salmon in filtered pools that simulate the wild environment … so they don’t even need a wild body of water!
“And that brings down costs while increasing yield.
“But the big thing that sets this company apart is their unique salmon.
“It’s the first DNA-edited animal approved for consumption by the FDA….
“The global salmon market is worth $17 billion.
“And this company is already disrupting it.
“When I first noticed them, they were trading for $2.92 a share…
“Yet, they’re already past $4…”
I don’t want to sound like a broken record here, but sure, if you liked them at $2.92 and $4, maybe you’ll like them extra — the stock is back down to $2.25 or so these days, thanks in part to some more insider selling late in the year. That’s AquaBounty Technologies (AQB), which did indeed get the first approval for a genetically edited animal for human consumption — that’s their AquaAdvantage salmon, which is a variation on Atlantic Salmon but is farmed in land-based tanks to help make sure there’s no mixing with wild or conventionally farmed salmon. There has since been at least one other genetically altered animal approved by the FDA, the GalSafe pig developed by Revivicor, but the AquaAdvantage salmon was first.
AquaBounty is a $158 million company that has indeed had very rapid revenue growth as they’ve started to sell their salmon (which was only approved in 2018), but that’s just the “growth fro zero” effect — they went from selling $100,000 worth of salmon a year ago to $800,000 over the past year, and they started up the farming facilities with conventional salmon so they’ve really only been selling the AquaAdvantage salmon since May. It’s not exactly an easy business to scale — right now, it costs them about $10 to provide $1 worth of salmon to their customers, and even though that’s better than $20 a year ago, it’s not like growing a software business — each salmon needs space to grow, and food and oversight, and the supply chain to deliver fish to customers is fairly pricey.
My guess is that if this is ever going to become a viable business, it will have to be much, much larger — Salmon farming is huge, but it’s mostly done in sea cages in the fjords in Norway, at vastly larger scale than any tank farm could ever approximate. SalMar is one of the “big five” Norwegian producers, for example, and that’s an eight billion dollar company that sells well over a billion dollars of salmon a year… and it costs them only 50 cents to grow and deliver a dollar worth of salmon. AquaBounty does claim much higher efficiency and better control from their tank farming, but that’s a big gap to close.
They’re talking about adding additional tank farms, including their first large-scale farm in Ohio, and that’s a step in the right direction… but until we see what the numbers look like from that project, and whether they’re dramatically better than the production of their current farms (in Canada and Indiana), it’s hard for me to draw those lines out into the future and envision a point where the operating costs are lower than the sales. Perhaps that’s a failure of imagination, and I’m being too skeptical about a project that is really just barely starting up at this point, but you can make your own call. Their last Investor Presentation is here if you’d like to get an overview and a little more optimism.
Sound like your kind of stock? Ready to chase “Imperium?” Prefer larger and more established players like Illumina or Thermo Fisher, or are you ready to buy into the earlier stage Twist or the even-smaller startups that are coming up behind Twist? Think the much more speculative penny stocks that O’Dell tacked onto the end of the pitch are more compelling… or more frightening? Let us know with a comment below. I’ve left the comments from our original version of this article attached below, in case they’re still helpful.
P.S. Yes, I’m kidding about the DNA Friend endorsem*nt. But that’s OK, they’re kidding too — still worth a look 🙂
Disclosure: Among the stocks mentioned above I own shares of Intuitive Surgical. I will not trade in any covered stock for at least three days, per Stock Gumshoe’s trading rules.
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