If you needed any proof that penny shares have the potential to hand out staggering rewards, here it is…
At 7am on 28 September this year, a cancer breakthrough story hit the RNS wires. The news focussed on Parsortix, a small US company. It claimed a tiny cassette it has developed can reveal the presence of otherwise undetected cancer in blood samples… and also measure the effectiveness of cancer drugs.
Now Parsortix is not a listed company, so you couldn’t buy into this company directly. But that didn’t stop some smart penny share investors reaping a windfall from the news.
Holders of AIM-quoted Angle Plc (AGL) saw their investments double overnight as investors scrambled to get hold of the shares. Long-time Penny Sleuth readers may remember Angle from my piece in February 2009, Companies that could lead the country out of recession.
Angle is a Cambridge-based company that invests in start-ups. It has a portfolio of holdings in companies with high growth potential in the medical and technology sectors. One of these, of which it owns 90%, is Parsortix. And it could turn out to be a big winner for Angle…
Tapping into a $4bn cancer treatment market
According to Angle’s Chief Executive, Andrew Newland, 1.2m people are diagnosed with cancer in the USA each year. Each one of them could potentially benefit from being tested with the Parsortix device thirty times a year. That, he says, would amount to a market worth $4bn per annum (implying that the cost of each test is around $100).
Newland has also revealed that the gross profit margin on this product is at least 75%, and quite possibly over 90%. So that is a potential gross profit of at least $3bn per annum – all of which makes the current £26m stock market value of Angle look, shall we say, interesting, to say the least.
Like most of the best products this remarkable device sounds remarkably simple. Essentially Parsortix has come up with a type of filter that separates cancerous blood cells from other blood cells.
According to Shane Booth, the CEO of Parsortix, red blood cells are ‘small and floppy’, enabling them to travel easily over a series of steps enclosed in a cassette that is four centimetres square. White blood cells are slightly bigger but still cross these steps.
Circulating tumour cells, on the other hand, are ‘large and tense’. This means that as they try to cross these steps, they get stuck. This allows them to be both identified and counted.
This could be great news for medical researchers, as they are especially keen to find these circulating tumour cells (CTCs). These CTCs, though, are not easy to find. According to Angle, the Parsortix device can detect one CTC amongst five hundred million healthy blood cells.
This is an advance on the only comparable product available today, Johnson & Johnson’s CellSearch. The latter uses antibodies to attract and capture CTCs. According to Newland, the CellSearch process is not completely accurate. And, at $900 per test, it is also prohibitively expensive for mass testing.
Twice a week I send out an exciting small cap email, ‘The Penny Sleuth’. The simple, plain talking insights and to-the-point small cap commentary – delivered straight to your inbox – will help you master the world of penny share investment.
Three ways this device could help in the fight against cancer
All of this means that the Parsortix test could be valuable in the fight against cancer in three ways. Here’s what I mean…
For patients who have had cancer there is always a fear that, although apparently successfully treated, it will recur. By the time this is evident, it can be too late to do anything about it. The detection of CTCs in the blood could act as an early warning.
A second application is in the treatment of existing cancer. By counting the CTCs in the blood stream before and after treatment, doctors can see which therapies are having an effect and which are not.
Thirdly, there is the possibility of testing groups of patients thought to be liable to cancer through, for example, hereditary reasons. In a simple and cheap way, this device could spot early signs of the disease.
Newland describes this non-invasive test as a ‘liquid biopsy’ and believes that it has huge commercial potential. He believes that the product needs little further development and could provide a really valuable weapon in the fight against one of the world’s biggest killers.
He is also confident of early sales. Already the first iteration of the product is ready for use. Initial customers will be research laboratories that need no regulatory approval. According to Newland, the Big Pharma company AstraZeneca commissions 20,000 ‘blood separations’ each year from Manchester’s Paterson Institute for Cancer Research. Using that as an example, he reckons that the research market could be worth $25m per annum.
Why 2013 could see the next big breakthrough for Parsortix
The big prize, though, is the clinical market which requires regulatory approval in the USA and Europe. Thanks to Johnson & Johnson’s Cellsearch, the principle for such a test is already established. Since this is essentially a diagnostic test that does not involve putting anything into the patient’s body, Newland hopes to have these approvals in 2013.
Research agreements, designed to perfect the product, are expected to be signed soon with leading cancer institutes; a manufacturer has been lined up in Germany; and big medical device companies are already showing an interest in collaboration. It’s all looking good for Parsortix and therefore for Angle.
Commercial opportunities don’t come much bigger than that for successfully tackling cancer. Thanks to Parsortix, Angle could be onto a big winner. And, remember, it has other irons in the fire, too, with its portfolio of companies. In fact, Angle’s shares are up 16% following positive sales data yesterday from its computer game technology company, Geomerics.
Early investors have done well in Angle. Since I first talked about it in 2009, the shares have moved from 7.5p to the current 75p – a true ‘ten bagger’ penny share! It just shows that if you’re prepared to risk a bit of money on penny shares, the pay-off can be worth it.
It’s quite possible the big money has already been made in Angle, although I’ll certainly be watching to see how this Parsortix story develops.
• This article is taken from Tom Bulford’s free twice-weekly small-cap investment email The Penny Sleuth. Sign up to The Penny Sleuth here.
Information in Penny Sleuth is for general information only and is not intended to be relied upon by individual readers in making (or not making) specific investment decisions. Penny Sleuth is an unregulated product published by MoneyWeek Ltd.