Mon, Dec 8, 2014|Sean Goldsmith

Dave Lashmet nails the call...

Dave Lashmet nails the call... Two takeovers in four months... The world needs a new antibiotic... Why we created Stansberry Venture... Major tailwinds for health care... Check your inbox tomorrow morning...

Stansberry's Investment Advisory research analyst Dave Lashmet nails the call...

Today, pharmaceutical giant Merck agreed to buy biopharmaceutical company Cubist in a deal valued at around $9.5 billion, according to Bloomberg.

Cubist makes drugs to treat bacteria and superbugs. And in September, Porter and his team (led by Lashmet, a biotech whiz) recognized Cubist was a takeover target because of its new drug Tol/Taz – renamed "Zerbaxa." As Dave wrote in the September issue...

We expect Cubist is on larger drugmakers' short list of acquisition candidates. We can't guess which Big Pharma firm might make the plunge, since all of them can gain from buying Cubist. But the industry is consolidating.

It comes down to this: Tol/Taz – "Zerbaxa" – is the only new Gram-negative antibiotic on the horizon, which means it's a set-your-own-price opportunity for Big Pharma companies interested in entering the specialty market for antibiotics. The new Gram-negative drug candidate Tol/Taz – "Zerbaxa" – was fantastic in its final-phase trials.

We believe Tol/Taz – "Zerbaxa" – will win approval in December, which gets the sales cycle going in 2015. If a takeover happens, it could very well occur before pricing is set on the new drug. So if a big drug company wants to enter the antibiotic market by grabbing Cubist, it could happen before Tol/Taz – "Zerbaxa" – hits the market.

Big Pharma wants antibiotics because of the growing threat of drug-resistant bacteria. We won't go into too much detail today, but more and more bacteria are becoming resistant to antibiotics because of overuse. And according to the U.S. Centers for Disease Control and Prevention, antibiotic resistance is killing at least 23,000 Americans a year, making it "one of our most serious health threats."

Cubist plans to introduce four new drugs by 2020 to fight drug-resistant bacteria. We talked to Dave about the Cubist/Merck deal. Here's what he told us...

Cubist was such an attractive candidate for Merck... not just for its existing drugs, but also for its new drugs awaiting FDA approval. As far as Wall Street accountants are concerned, this new drug is worth zero. It has no sales and legally speaking, it's not even a product.

Merck saw it was a new antibiotic treating superbugs that can evade most (and sometimes all) of the existing drugs. This new drug is worth billions. Merck's confidence in this new drug is based on the published clinical trial results, which were stellar. This new drug was safer and better than the standard of care.

Cubist shares surged more than 35% today on news of the takeover. Subscribers who purchased Cubist are up nearly 50% since September.

Plus, this is the second antibiotic stock that Dave wrote about recently that Big Pharma went on to buy out. In the August issue of Stansberry's Investment Advisory, Dave recommended pharmaceutical company Durata Therapeutics. As he explained in that issue...

One government response to the frightening trend of antibiotic resistance has been rationing – eliminating the common use of antibiotics. The idea is, if you want the old antibiotics to work, nobody can use them. That way, these weapons will remain ready when our need is dire.

Of course, rationing resources – whether medicines or food or oil – never works the way governments plan. The answer is not to cut off access... but to foster innovation. Trust in human ingenuity. And in the case of drug-resistant superbugs, the need is urgent... For the first time in 50 years... the world actually needs a new antibiotic.

Big Pharma understands how profitable cornering this market will be... And companies are already spending huge amounts of money on acquisitions. As Dave explained...

More important, in 2013, two similar antibiotics companies each sold for 100% more than this little company, even before those other firms' drugs won final regulatory approval for sale from the FDA. In other words, Big Pharma was taking on more risk with less guarantee of success, for double what this new antibiotics company is trading for today.

At the time of the recommendation, Durata had an approved drug – dalbavancin – ready to be brought to market. Normally, when you're speculating in biotech, you have to bet on companies whose drugs are in trials and could be years away from coming to market... or the FDA could kill them.

It's high risk. And with Durata, Stansberry's Investment Advisory subscribers were able to skip those steps. Because Durata had an already-approved drug, Dave knew it was a more attractive takeover candidate.

Dave said Durata could try to bring the drug to market by itself. He estimated dalbavancin to be a $360 million drug, which would produce up to $300 million in net profits. That would definitely move the needle for Durata, a company with a market cap of just $340 million. But he thought a takeover was more likely...

Right now, Durata has an untested marketing plan and a sales force with 10 days of experience to win thousands of doctors' time. But a Big Pharma firm that needs a new antibiotic for its sales channel has a ready-made solution in dalbavancin.

In practice, that's why Pfizer bought Vicuron [the firm that originally created dalbavancin] nine years ago and paid $1 billion just for dalbavancin. We also know Cubist bought two other antibiotics firms in 2013 for $800 million each. So the acquisition price for Durata could easily be double what it's worth today.

To make a long story short, Pfizer originally purchased Vicuron for $1.9 billion in 2005. The company had two drugs that were nearly complete (one of which was dalbavancin). The other drug won approval in 2006 and become a huge success. But dalbavancin failed in an embarrassing blowup for Pfizer.

Two former Vicuron executives bought the drug back from Pfizer for only $10 million, getting Pfizer to pay for $6 million of trial costs.

Sure enough, on October 6, biotech firm company Actavis agreed to purchase Durata Therapeutics for $675 million with a potential bonus.

Now... before we get a flood of angry e-mails... we need to be clear. Unlike with Cubist, Stansberry's Investment Advisory subscribers didn't profit from the Durata acquisition.

When Porter and Dave recommended Durata, shares rallied as the large number of Investment Advisory subscribers piled into the stock. Bloomberg also reported on our analysis... amplifying the buying interest. After that initial surge of buying subsided, Durata's share price fell again... triggering the position's 25% stop loss. We closed the position for an 8% loss after holding it for around 63 days.

The stock did what Dave anticipated... and in the time frame he predicted. But the small stock simply couldn't handle the volume the recommendation created.

We need a more exclusive service to recommend these types of companies... That's the purpose of Stansberry Venture. We wanted a service that would allow our readers to get in on early-stage companies with huge upside potential.

Essentially, we wanted to give our readers the same types of opportunities available to the largest venture-capital firms, which make billions of dollars in profits by funding companies like Facebook and Twitter in their infancy.

With Venture, we're doing the same thing, except we're scouring the public markets... and you can access these opportunities even if you're not a millionaire or a venture capitalist. As you can see from his track record, Dave is the perfect man to head up this effort.

Porter recently explained a little bit about Dave and why we decided to start Stansberry Venture...

Dave is extremely plugged in to the technology and biotech sector. He's an inventor with three active patents. He has developed, packaged, and sold his ideas to one of the largest consumer-electronics firms in the world.

He has also spent the last 20 years working as an independent technology analyst, and close to a decade researching and writing about technology at five major universities.

Before going further into Stansberry Venture – and how you can access this product – we want to explain why we're so bullish on biotech today... and why we expect we'll see even more takeover activity in the sector.

As True Wealth editor Steve Sjuggerud likes to say, "If you catch just one biotech bull market in your lifetime, you may never have to work again."

Steve explained the tremendous opportunity in biotech investing in the November 25 DailyWealth...

Biotech booms are like nothing else in American investing... The potential gains – without leverage – are extraordinary. As one example, biotech stocks gained over 600% in their three-year bull run ending in 2000.

That wasn't a one-off occurrence... Biotech stocks have delivered triple-digit returns (or near-triple-digit returns) in many calendar years (based on the Datastream U.S. Biotech Index). Take a look:

Year	Percent Return
1985	146%
1989	64%
1990	104%
1991	170%
1995	88%
1998	75%
1999	147%

It has been 15 years since we've seen a triple-digit year in biotech stocks. We're due for a great run in biotech. And right now, I believe we're in the middle of it...

As we've explained in the Digest time and time again, Steve, Dr. David "Doc" Eifrig, and Porter have been making their readers a fortune in biotech and health care stocks.

True Wealth subscribers are up 390% on Steve's top health care recommendation since March 2011. Retirement Millionaire subscribers are sitting on four triple-digit winners in health care stocks. And True Wealth Systems closed a biotech position earlier this year for a 184% gain in less than two years.

By 2030, the aging Baby Boomer generation will rise from 13% of the population to 19%. That means more money will be spent on health care, medical equipment, medicine, etc. Plus, people in their last year of life make up one-third of total health care costs. According to Fidelity, a retiring couple needs to set aside $220,000 for health care costs.

In addition to getting older, America is also getting fatter and unhealthier. As Dave wrote in the November issue of Stansberry's Investment Advisory...

Cholesterol drug Lipitor is the bestselling drug of all time. The Federal Drug Administration approved it in 1996. At their 2004 peak, statins generated $23.7 billion in sales. In 2011 – the year Lipitor lost patent protection – statin sales totaled $20 billion. Although statin sales are in decline, it mostly reflects increased competition from generics makers... not any progress in the fight against heart disease. The market for heart pills is as big as ever...

Just imagine that the market expands beyond 2 million potential U.S. patients to 4 million or 10 million. Imagine what a $100 billion hit would mean for Medicare. We say this not because of the graying of America, but because of the growing heftiness of American retirees. Here's the aggregate trend, as noted by the CDC:

In short, there are lots of tailwinds for health care and biotech heading forward. But we think the biggest opportunities – areas where you can make five or even 10 times your original investment – are in the tiny (and speculative) biotech firms like Cubist... companies you'll never hear about until a larger firm buys them.

In a phone call this morning, Dave explained that he's not focused on macroeconomic issues like how violence in the Middle East influences oil prices (which hit a five-year low today) or whether an all-time high on the S&P 500 means a market correction is inevitable.

In Stansberry Venture, Dave looks for little-known small-cap companies that are producing the next wonder drug or technology.

You may have received an e-mail about Stansberry Venture this morning. It was an interview where Dave discussed his trading strategy, the types of companies he looks for, and what type of person should consider subscribing to Venture.

If you didn't get the e-mail, you can read the interview right here.

We're officially launching Stansberry Venture tomorrow morning. Keep an eye on your inbox.

New 52-week highs (as of 12/5/14): Axis Capital (AXS), ProShares Ultra Nasdaq Biotechnology Fund (BIB), Bristol-Myers Squibb (BMY), Berkshire Hathaway (BRK), Chubb (CB), CME Group (CME), Dollar General (DG), WisdomTree Japan Hedged Equity Fund (DXJ), Express Scripts (ESRX), Fidelity Select Medical Equipment & Systems Fund (FSMEX), iShares Dow Jones U.S. Insurance Fund (IAK), Invesco Value Municipal Income Trust Fund (IIM), Intel (INTC), Medtronic (MDT), 3M (MMM), ONE Gas (OGS), PowerShares Buyback Achievers Fund (PKW), ProShares Ultra Health Care Fund (RXL), ProShares Ultra S&P 500 Fund (SSO), Travelers (TRV), and W.R. Berkley (WRB).

In today's mailbag, one subscriber writes in to tell us he's enjoying his Cubist profits... and another asks how to get started investing. Are you sitting on big gains in Cubist? Let us know how much you're up at feedback@stansberryresearch.com.

"CBST. Nice Xmas present! Happy holidays to you both. Best Regards." – Paid-up subscriber Dan Flohr

"Dear Stansberry team: I am a trial subscriber who needs to know something you have to date not addressed: how to get started in investing when you are 61 years old, have a mortgage, and have a kid in college. I am retired on disability, and my wife works as a nurse at the local hospital. I have a small life insurance policy with a cash surrender value of about $32,000, and my wife has a 403 (b) worth about $185,000, depending on the market. ; My question is, Would it be wise to cash in the insurance policy to start investing, or make an early withdrawal from the 403 (b) [my wife is 58]? I think your investing advice is very good, but we have put all of our extra money into our house, and don't have any extra to invest. One request: please don't publish this letter with my name in the Digest. My wife and I are in reasonably good health, and we hope to have 10 years to invest before she retires. Thanks." – Anonymous

Goldsmith comment: We actually published a book called the Stansberry Research Starter's Guide for New Investors. In it, Porter, Brian Hunt, Doc Eifrig, Dan Ferris, and Steve Sjuggerud walk readers through the 10 core concepts of investing. As Brian explains in the foreword, "These are the ideas we wish we'd learned before we invested a single dollar. Take them to heart, and you can ignore just about everything else." Get your copy by clicking here.

Regards,

Sean Goldsmith
December 8, 2014