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Catastrophic Success

December 20, 2011

New readers to my musings often find it interesting, when they meet me in person, to find me quite an optimistic person, given the nature of my current predictions about the economy. And regarding the short term, defined as less than five years, my writing is admittedly less than sanguine. We do have some problems that are not easily dealt with. And even longer-term, those of a bearish natural disposition can find reasons a-plenty to tone it down.

But five years (at least at my age) is not all that long. One way or another we will get through the current mess. My studies on the nature of progress in a number of fields give me a rather optimistic longer-term slant on life, and most especially in biotechnology. Long-time readers know of my interest in the potential for biotechnology to be completely transformational and disruptive (in a positive way) to society. It is one of the few places I am "long" and willing to get even more long.

Today's Outside the Box is from a source that is no stranger to my regular readers. Pat Cox called last week and told me about an amazing announcement that was made public last Friday, so we are almost "breaking news" here this week. BioTime (BTX) has announced the ability to detect most cancers with a simple blood test that detects markers. This holds the prospect that within a very few years we will all routinely get a blood test for cancer as part of our regular blood work, allowing for very early detection. And as Pat notes, cancer becomes far more treatable if detected early.

As Pat and I talked, I asked him to give us an update on the BioTime story but also on the state of some of the really promising cancer cures. And let me note, these are but a few. There are literally dozens, if not hundreds, of real potential cures. We do live in remarkable times. Comments in the text below in brackets [ ] are mine.

Pat is one of my favorite sources for new, transformational technology. We talk regularly and compare notes. Pat (like me) likes to look over the horizon and think about what is coming. The companies he writes about are typically early-stage research and development plays, in a variety of fields (not just biotech – last month he was writing about robotics!).

You can subscribe to his letter by going to http://www.PatCoxLetter. Warning: his publisher likes rather aggressive marketing, but I just like his letter and research.

Note: I have invested (for quite some time now) in some of the companies he mentions below or have associations with them that I note in the copy. And some I have no knowledge of.) I have not done any transactions in the last few months and will not do anything for at least two weeks. And do NOT chase these stocks. They are typically very small-cap with smaller volumes, and are research and development companies with no guarantees of success. Do your homework, and if you buy then do it for the long term.

I do comment below on one private firm that some of you who sit on foundations and charities that focus on cancer and heath care might want to look into.

Now let's take a look at what Pat and I sincerely hope is the future.

Your planning to live a lot longer than you think analyst,

John Mauldin, Editor
Outside the Box

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Catastrophic Success

When the second stimulus bill passed in February, 2009, I explained to my readers that the "crowding out effect" would guarantee its failure. I took no pleasure in predicting accurately that increased government borrowing would crowd out private investment in innovation, from which flows economic and employment growth.

I bring this up simply because I have extraordinarily good news regarding cancer therapeutics, and I don't want you to assume that I am afflicted with blind optimism. For decades, in fact, I've been among the economists who have warned that our current distress was coming. As you know, we were ignored by the intelligentsia. As a result, the entirely avoidable mortgage and housing bubbles expanded and collapsed, which accelerated our even larger problem – the entitlements crisis.

Political corruption and malfeasance were involved, we now know. I suspect, however, that the larger reason the warnings signs were ignored was essentially psychological. Most people avoid extremely unpleasant news until they no longer have a choice.

This is particularly true with regards to the entitlement crisis because it involves perhaps the greatest unpleasantness of all. It is the reality that we are all facing the prospect of aging, serious illness, and death – in that order.

The aging population, however, is the root cause of our financial problems. More than a third of the federal budget goes to transfer payments and services for people age 65 or older. Nevertheless, we're behind on the payments and the bill is increasing as more and more people live longer.

This is the result, primarily, of unexpected scientific breakthroughs that have dramatically expanded our medical options. Unfortunately, Social Security was designed in 1935, when fewer lived to see the retirement age of 65. Only a fringe of visionaries believed that new technologies would push life spans close to 80 by the end of the century.

Nevertheless, it has happened. Retirement ages, though, have not adjusted, so Social Security is running on empty. Medicare may not have been designed to benefit the aged, but about half of all healthcare services are consumed by the five percent of the population that is dying. They are, it's no wonder, almost all older people.

These worsening fundamentals have not plateaued. The demographic pyramid, with large numbers of young payers and very few aged beneficiaries, is flipping. I'm sorry to be the bearer of bad news, but I hope at least to convince you that I'm not in denial about the problems we face. Therefore, I hope you'll take me seriously when I say that very recent scientific breakthroughs are more than capable of solving our entitlement and debt crises.

The End of Cancer as a Deadly Threat

Last week, an announcement was made by BioTime Inc. that could quickly cut the cost of cancer in half, saving in excess of $100 billion annually. This breakthrough is not a cancer treatment. It is a revolutionary diagnostic technology.

To understand why it is so important, we need to understand that cancer isn't a single disease at all. The medical term is "malignant neoplasm," which encompasses any condition of uncontrolled cell growth. There are hundreds if not thousands of different types of malignant neoplasms, and many have almost nothing in common with any of the others.

This has made cancer diagnostics very inefficient, though it is a multi-billion-dollar industry. A test for prostate cancer, for example, won't detect breast cancer. Even current breast cancer tests don't detect all breast cancers.

If all the existing diagnostics were used to test one individual for early-stage cancers, it would cost many tens of thousands of dollars – perhaps more. If all people were checked for all cancers on a regular basis using existing diagnostics, it would bankrupt our entire healthcare system.

To make matters even worse, many diagnostics are notoriously inaccurate. Some miss as many as half of cancers but return extremely high false positives that have their own costs. False-positive PSA (prostate-specific antigen) tests, for example, generate unnecessary biopsies, surgery, impotence, incontinence, and other problems. Some diagnostic procedures, I might add, are also extremely unpleasant.

As a result, most people are tested for cancers only when there is reason to believe they may have the disease. Most diagnostics are used, therefore, to gain information about existing and problematic cancers, not to detect them before they become a problem.

As a result, many cancers are not found until they are sadly well-established and aggressive. It is an oft-repeated truism in oncology that early detection translates into far more successful treatment. Early detection also dramatically reduces the costs of therapy.

What we need, obviously, is a simple blood test that would, with high accuracy, find cancers in their early stages. Combined with revolutionary new cancer therapies that are just around the corner, we would see the end of most catastrophic cancers. Even with existing therapies, the impact on lives and healthcare budgets would be enormous.

Moore's Law, Bioinformatics, and Genomics

Over the last few years, I've written often about BioTime's ACTCellerate program, one of the most important projects in contemporary science. Dr. Michael West and BioTime scientists are decoding and cataloging the genetic changes that occur in human cells as they progress from their original embryonic state.

To accomplish this monumental task, BioTime scientists rely on large-scale genomic analysis and bioinformatic analysis of the data, using increasingly powerful computers. Thus far, BioTime scientists have mapped over 40,000 gene sequences expressed in different cell types.

This information will allow BioTime to turn a few of your blood cells into induced pluripotent cells, and then into any type of cell you need. Those cells will be completely rejuvenated and functionally young. Already, BioTime's ReCyte Group is on track to reverse age-related cardiovascular and immune-system conditions.

However, the knowledge and tools that the company has created have far more uses than hacking cellular codes. BioTime used the same tools to examine hundreds of adult cell types, both normal and cancerous. In the process, they discovered that many genes being activated in cancers had never before been associated with malignant neoplasms.

Genes express proteins that can be easily detected. (A simple consumer version of a protein detector, by the way, is the home pregnancy test.) And having identified the genes activated by the most-common cancers, it was a relatively simple process for BioTime to design a blood test for the proteins expressed by those genes.

This is off-the-shelf technology. Many medical device companies manufacture diagnostic devices that identify proteins in blood. But early in-house tests found that BioTime's prototype was more accurate in terms of identifying cancer-free individuals than is commonly observed in PSA cancer tests. This discovery convinced the company to prioritize development of the technology.

BioTime's commercial cancer-detection device will probably be priced no higher than existing diagnostics that test for only one type of cancer. I expect the device will detect a wide range of cancer types, including cancers of the breast, lung, bladder, uterus, stomach, and colon, as well as others.

My guess, looking at wholesale prices for similar laboratory devices, is that the cost in materials for testing an individual for a broad spectrum of the most-common cancers will eventually be no more than $15. It is impossible to predict the size of the market for a simple broad-spectrum cancer detection test, because no such diagnostic exists; but the potential is huge.

[The test itself should retail for about $100 in the beginning (with the price falling over time), giving the company extremely healthy margins. Which means they can do even more research. BioTime CEO Mike West is one of the most driven men I know, but he is also a genuinely nice guy and soft-spoken gentleman, not given to hyperbole.]

The von Eschenbach Connection

This is a true disruptive technology and its impact will be noticeable both in terms of average life expectancy and healthcare costs. The announcement explains why, several months ago, Andrew von Eschenbach, Ph.D., joined the board of BioTime.

I've long considered BioTime the leader in the field of regenerative medicine. I was nevertheless puzzled when von Eschenbach joined the team. His resumŽ includes former jobs such as commissioner of the FDA during George W. Bush's term and director of the National Cancer Institute. He is considered by many to be the leader in the fight against cancer. In 2003, when he was director of the National Cancer Institute, von Eschenbach announced his goal of eliminating suffering and death due to cancer by 2015.

His motive for working with BioTime is now obvious. I've spoken to him since then, and he's confirmed that he believes the BioTime pan-cancer diagnostic will have an enormous impact as soon as it is widely implemented. Moreover, he believes subsequent applications of the technology have the potential to deliver true personalized medicine with extremely effective therapies specifically tailored for individual patients.

Von Eschenbach's goal of reducing cancer to an irritation rather than a killer is achievable – even if his time frame was off. It might not be that inaccurate, however, as BioTime has chosen to go first for European approval of the CE marking process . As approval of devices in Europe is much faster than it is the US, we could see the test on the market there before the end of 2014. Many countries outside of Europe take their lead from the EU, so it should move rapidly into Canada and other markets. With post-market data from these nations, I would expect that approval in the US would take as little as one additional year.

Then, because early detection of the most common cancers would be simple and inexpensive, insurance companies would find it in their own financial interest to encourage routine PanC-Dx testing, as BioTime is calling their technology. Because physicians are already familiar with this type of testing, market penetration will not require overcoming a learning curve. Cancer rates and costs will begin to fall dramatically.

That, however, is only the beginning of the story. Simultaneously, a raft of next-generation cancer therapies will be coming to market.

Though I've already tested your attention span, I'd really like to give you just a brief overview of some of the most exciting new drugs coming to oncology. These are drugs so far beyond anything you've seen yet, they make current treatments seem medieval by comparison.

[John here. I talked with BioTime's Mike West last week, and he is very charged up about the cancer tests. But then we talked at length about the challenges facing his regenerative medicine work. He is still optimistic, and progress is being made. The regen work is my interest and why I own a small number of shares. I also agree with Pat about the inclusion of Andy von Eschenbach, whom I have met several times and really like. He is a very impressive and focused researcher.]

Bexion Therapeutics

Bexion, while still private, has attracted enormous attention where it matters. Their drug consists of a nanotech joining of two naturally occurring substances found in human cells. Together, they have the ability to exploit one of the few characteristics that all cancer cell share, the transfer of phosphatidylserines to cell wall exteriors to fend off immune response.

When the Bexion drug is administered, these nano-probes seek out phosphatidylserines and collect on the surface of cancer cells. There they trigger natural cell suicide, or apoptosis. Cancers die but healthy cells are unharmed.

Bexion's drug has been shown effective in preclinical tests against an extraordinary range of cancers. Moreover, its seek-and-destroy mechanism could make it an ideal diagnostic tool for use in conjunction with BioTime's broad-spectrum blood test. Because a marker can be attached to the Bexion drug, it is possible to light up cancers using scanning technology, giving doctors a 3D view of neoplasms.

Most remarkably, in animals testing, Bexion's drug appears to somehow bypass the blood-brain barrier. This makes it a most promising candidate for treatment of brain cancers, which are among the most lethal of cancer types. Clinical tests are expected to begin in 2012.

[There is a long story here, but I found this company through Pat as I was trying to help a friend find a possible cure for his young son's glioma (brain tumor). It was too early for human trials, but we became enamored with the technology and helped raise a small round of funds for the firm, including my own funds. I encourage you to go to http://www.bexionpharma.com/ and look around, click on the technology link, and see how the animal studies have progressed and why I am so excited about Bexion. Look at their boards and research. If you sit on the board of a foundation or charity that works with cancer-related issues, I urge you to take a deeper look, as each cancer must have its own trials, and the sooner we get started the sooner a cure can be approved. I am hopeful, and I think if you take an in-depth look you may share my optimism. You can contact the company from their website.]

Provectus Pharmaceuticals

Rose Bengal is an amazing molecule first used in the 1800s as a wool dye. Then it was employed as a diagnostic marker due to its unique ability to penetrate diseased or damaged cells but not healthy cells. In World War II it was used widely and successfully to protect soldiers from malaria, though it was never popular because it turned the whites of users' eyes blue.

In post-war Japan it was used as a food dye, and researchers discovered that humans and animals that consumed the most had the lowest cancer rates. Fast-forward to the Oak Ridge National Laboratory, where scientists were fascinated by the molecule's remarkable electronic characteristics, as well as its ability to absorb and convert light and other low-level radiation.

Extensive "compassionate usage" of a modified Rose Bengal molecule has shown remarkable efficacy in the treatment of metastatic melanoma. Phase II human clinical tests for liver cancer have been completed, with spectacular results. Preclinical indications show similar promise for other organs. Like Bexion's drug, these modified Rose Bengal molecules are dangerous only to cancer cells. I could go on.

Inovio Pharmaceuticals

Inovio is a leader in DNA vaccines. Using an extremely small electrical pulse, the company puts engineered DNA plasmids into cells. These circular rings of DNA utilize the body's own genetic mechanisms to manufacture RNA proteins that train and mobilize the immune system to attack various diseases, including cancers.

Inovio is in Phase II human tests for both leukemia and cervical displasia. Positive results in HIV and hepatitis-C show the adaptability of this technology for treatment of a wide range of diseases.

Galectin Therapeutics

Building on the work of one of the greatest Russian scientists of all time, Alexander Oparin, Galectin Therapeutics is the leader in an entirely new field of science known as glycoscience, which involves the use of complex carbohydrates – essentially foods – as drugs.

One of the deadly characteristics of cancer tumors is their ability to protect themselves by producing proteins that bind with sugars. These are galectin-3s, and tumors use them to create a lethal cloaking field that allows them to hide from our immune systems.

T cells have evolved to attack disease and pass information back to the thymus so specifically targeted T cells can be manufactured in large numbers. However, when T cells encounter a cancer's lethal galectin net, they are shut down and eventually die.

Galectin Therapeutics' naturally occurring plant sugars have the nearly unbelievable ability to protect and resurrect dying T cells. This makes their nontoxic carbohydrate drug, on its own, effective against cancers in general. In conjunction with cancer vaccines or drugs, however, it magnifies the effectiveness of the therapy to a quite astonishing degree.

Currently, the esteemed Ludwig Institute for Cancer Research, the largest international nonprofit dedicated to conquering cancer, is funding Phase I/II clinical tests of a Galectin Therapeutics carbohydrate drug in conjunction with a melanoma vaccine. Oh, and by the way, this drug also appears to reverse the fibrosis that causes cirrhosis of the liver and subsequent liver cancers.

[I am on the board of directors of Galectin (GALT) and have a small position, which I have announced I intend to add to.]

In Conclusion

John Mauldin recently published a letter here that included the term catastrophic success. The banishment of lethal cancers provides us with an example. It will lengthen lives, reduce healthcare costs, and enrich investors. If, however, we do not come to grips with dramatically extended health spans, it could make our entitlement crisis far worse and eventually lead to complete national collapse.

As a society, we failed to heed the clear warnings regarding Fannie Mae, Freddie Mac, and the mortgage and housing bubbles. Many of our so-called intellectuals are still pretending it didn't happen. Similarly, they are behaving as if the entitlement crisis is not serious.

Imminent cancer diagnostics and therapies, as well as breakthroughs in heart disease, Alzheimer's, liver disease, and more will give us the ability to grow our way out of the current financial mess. All we've got to do is stop pretending that a retirement age set in the 1930s makes an ounce of sense today.

Productive life spans will continue to lengthen and the costs of dying will be pushed back significantly. This will give us a window of opportunity to balance our budget. Then, regenerative medicine will really kick in, growing life spans even more rapidly.

These disruptive innovations will change everything. If exploited wisely, they will enable a period of unprecedented prosperity. If they are used to fund political fantasies, though, things will get much worse.

Discuss This

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Pedro Gonzalez

Dec. 21, 2011, 1:14 p.m.

Mr. Mauldin you wrote on 12/20/201 Outside the Box E-Letter, Catastrophic Success the following stement “... my interest in the potential for biotechnology to be completely transformational and disruptive (in a positive way) to society.” What society? The top 1% earners of developed countries societies?

Gerald Ferguson

Dec. 21, 2011, 1:17 a.m.

A valuable article, but I don’t understand the reference to “intellectuals’ as not knowing about failings in our economy. Authors, composers, scientists, artists, musicians, are not who I think of with knowledge of Wall Street or the housing market.  Instead, economists and politicians are more to the point, and they do not spring to mind as “intellectuals”.

Barry Mannefeld

Dec. 21, 2011, 1:04 a.m.

I don’t see this as so catastrophic John.  In fact, if it is as you write it, the productive life of Americans could be extended enough to solve the demographic problem.  Also, the high costs of dying could be put off for several years, shifting the annuity payout backwards, allowing for more accumulation.  Third, we would have a systematic liquidation of savings that would allow for the transfer to the younger working generation.  I would have to examine this last thought.  Most productive people in the US don’t quit working until they have to, from what I have seen.

Paul Accampo

Dec. 21, 2011, 1 a.m.

We have more cancer today because we are living long enough for our teleomeres to run out, enabling it to develop. Curing all cancers with a drug will allow more of us to live longer, but bring on the next cause of death, increasing medical bills and bankrupting Social Security. At some point we have to acknowledge that we are not immortal.

Keating Willcox

Dec. 21, 2011, 12:30 a.m.

The entitlement problem will solve itself. Medical services will start to follow a Amazon.com like pattern of customer choice and intense competition. And, all of us will be working far longer than 65. Plus, many older folks will find less expensive forms of long term care, and spend their retirement outside of nursing homes.

I think our real problem is the large number of working age people who are unable to perform at good technical jobs of this economy. How does a 9th grade drop out ever make enough to provide a decent living and pay taxes as well.

garry madaline

Dec. 20, 2011, 9:16 p.m.

It’s amazing to me that you can get this much information together in such a short period of time. You have an incredible knack for getting to the heart of most matters and then give another point of view from someone that doesn’t subscribe to your wisdom. I recently passed on your catastrophic success article to my daughter (a doctor) and my 93 year old father’s oncologist. This information is incredible but most important is the opportunity that is being given to us to straighten out a very sick economy that has been made sick by people with personal (get re-elected, make me rich) agendas. I would love to hear your wisdom on how to change the powers that be to those who want to move forward for the good of mankind. Don’t take this as a liberal attitude as I am quite conservative but more of, at the risk of sounding corny Star Trek. Thanks for the hard work and keep it up. I have a newsletter I send to people with 401(k)s and I would like to send them information to link up to you if that’s possible.

Larry Brown

Dec. 20, 2011, 9:13 p.m.

There has been a “general purpose” cancer test available for at least 20 years.  It is 95% accurate wth one test and nearly 100% accurate with two tests.  It is 0% accurate it specificing where the cancer is (which is why doctors do use it).  It costs $200 and is called the AMAS test.

Michael Gorback

Dec. 20, 2011, 9:09 p.m.

BioTime is a “story” stock and the story keeps changing. See http://www.johnmauldin.com/outsidethebox/want-a-new-cardiovascular-system/. The stock was about $8 then. In the past week or so it has moved from $3.50 to $5.50.

Now they are cancer-detection company.

Before going any further let me state that I am a physician with over 30 years in practice. I have lived through all sorts of medical fads, including the fads for easy tests for cancer.

This is not a simple straightforward process. PSA for prostate cancer screening has had its ups and downs - lately mostly downs. The thinking is gradually coming around to abandoning PSA as a screening tool because of the high false-positive rate.

My family had its own experience with the ovarian cancer marker CA-125 when someone developed postmenopausal bleeding. Uterine biopsies, hysteroscopy and ultrasound were negative but a subsequent CA-125 was 3X normal. The family was in total panic and an appointment with an oncologic GYN surgeon was arranged.

I was suspicious about this because CA-125 can go up for reasons other than cancer. I reasoned that with all the jiggering around with multiple biopsies, a trial of hormone therapy, etc, the CA-125 was artifactually high. I asked for a repeat that came back normal.

So these tests can INCREASE the amount of unnecessary medical care one receives, and not all of that medical care is risk-free (very little medical care is risk-free; perhaps one could argue that none of it is). If I hadn’t pressed for a repeat CA-125 we were probably looking at an exploratory surgery and hysterectomy/ovariectomy.

BioTime’s markers might be truly game-changing technology but it has yet to even undergo clinical trials. This is still just a “story” stock. After reading the fluff about BioTime I didn’t bother reading the rest of the so-called analysis.

Dan Ross

Dec. 20, 2011, 7:02 p.m.

Fascinating technology.  The concluding observation regarding pushing out retirement age is only half of the issue.  The obvious conclusion is that people must be intellectually capable of continuing to be productive, employed citizens. 

Today we face the paradox of both age discrimination in the work force AND inter-generational competition for jobs.  Today, employers look at the difference in experience and the difference in price.  It ends up being a simple decision in many cases for a broad class of jobs.

Although it would be nice to posit a world where all people have the entrepreneurial attitude and ability to change during a potential century of employment, I don’t see this happening.  Maybe it will evolve on its own but I don’t see anything other than anecdotal evidence that it is beginning.  You know, all the great stories of people sky-diving at age 90 and beginning new careers at 70.  Like it or not, the bell curve governs the human population.

(John, I know you like Asimov.  Remember the Settler worlds and their robots!)

At the end of the day, I think this is the biggest challenge, not the technology.

Larry Brown

Sep. 27, 2011, 10:11 p.m.

Hi John,

Superluminal has been around for a long time.  Feyman said that a positron was an electron moving backwards in time.

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