By Sven Olson
Over the last several years, microcap stocks have been at the center of a lot of controversy, as inexperienced investors are often led down paths that are filled with false promises of large returns and innovating technologies. These promising stocks often trade with a short-term pop and are then followed by a period of profit taking that leaves the retail investor wondering how the share price could have fallen so quickly. However, we must acknowledge that no company was created with a billion dollar valuation. At some point, all companies began as an idea, and through the process of proper execution (and sometimes a lucky break), companies grow and become great stories of the market. These stories are few and far between, yet they do exist. Key examples are Jazz Pharmaceuticals (NASDAQ:JAZZ), Akorn, Inc. (NASDAQ:AKRX), Threshold Pharmaceuticals, Inc. (NASDAQ:THLD), Pharmacyclics, Inc. (NASDAQ:PCYC), and Questcor Pharmaceuticals, Inc. (NASDAQ:QCOR) as they have all grown to billion dollar companies from sub-$50 million companies in just a few short years.
Today, I am looking at another company that could possibly fall under the latter category, and due to its “lucky break”, it could become a great story in the market: Advanced Medical Isotope Corporation (OTC:ADMD). Most likely, you have never heard of this $22 million market capitalization company, but so far in 2012 it has returned a consistent gain of more than 200%, with 170% during the last three months. Unlike a lot of microcap stocks that rally, there are legitimate drivers to its gains that could potentially lead to much larger gains over the next few years.
On April 10th, the company obtained exclusive rights to eight patents surrounding radiogel technology, provided by Battelle. Radiogel is a novel means to provide a targeted dose of radiation by utilizing an injectable water-based gel that delivers yttrium-90. What makes it so unique is that radiogel delivers the radiation directly to the tumor but without the use of a catheter, which is common in other therapies, such as GliaSite Radiation Therapy System by IsoRay, Inc. (NYSEAMEX:ISR). Once the gel warms to the temperature of the patient’s body, the polymeric portion of the mix forms a lattice that traps the radioactive yttrium-90 microspheres, thus not allowing them to effect healthy cells. The radiation stays in place within the body, and only targets the tumor tissue, allowing for localized and controlled high doses of radiation directly to the tumor.
Prior to the announcement that the company was awarded the patents surrounding radiogel, ADMD was focused on using medical isotopes for diagnostic and imaging purposes. However, according to Advanced Medical Isotopes’ form 10-Q, 90% of all radioisotopes used in the U.S. are for diagnostic purposes, such as PET scans; and Nordion Inc. (NYSE:NDZ), Covidien (NYSE:COV) as well as Lantheus Medical Imaging control nearly the entire space. Because of supply issues and the scarcity of isotopes, most investors did not believe that ADMD could grow in this space or steal market share from these three — and that because of the instability surrounding the production of isotopes, that ADMD could never create a stable and sizable business model. As a result, its stock has never appreciated…until now, and only because of its transition with radiogel. In my opinion, the gains following the announcement of radiogel are well-deserved due to the potential of the product and its likelihood to be well accepted into the medical community.
With radiogel, Advanced Medical Isotope Corporation (ADMD) has the rights to a treatment for localized radiation, which still remains the number one choice in cancer treatment, despite the recent medical breakthroughs in oncology (such as immunotherapy and antibody-drug conjugates). In my opinion, Advanced Medical Isotope Corporation got lucky and acquired patents to a technology that has the potential for widespread use. I suspect that radiogel will prove to be effective and much safer than traditional yttrium-90 radiotherapy at treating cancer, as it will be used to treat solid tumors that cannot be surgically excised, such as liver, head & neck, kidney, and pancreatic cancers, that often do not respond well to conventional external beam therapy (EBT).
Whether or not ADMD will become a market-leading performer for the next several years is anyone’s guess; although it does have that opportunity with a product that should be easily transitioned into the market. Far too often microcap stocks are advertised as having promise, but almost never have the catalyst behind the excitement, and almost always lose shareholder support. ADMD is now trading close to 52-week highs, four months after announcing its rights to radiogel, and its gains haven’t been too aggressive, but rather spread out, slow, and steady. At this point, this small company looks to have a technology that could lead to massive gains for many years to come. I believe it is worth watching throughout the development of the product, as it could become a common treatment in the fight against a wide array of cancers.
Disclosure: Long QCOR and ADMD.