Since our inception a decade ago, we have reviewed hundreds of publicly traded companies in an attempt to bring forward novel and disruptive investment ideas. Our mission to uncover the next big story in the Canadian junior market has led us around the world, from Asia to South America, Europe and all over North America in just the past twelve months.
Due to our relentless pursuit of providing industry leading coverage and research, we turn down new featured clients on almost a weekly basis. We don’t need to feature dozens of companies every year, and we take our reputation very seriously. This is why we only introduce roughly six to eight companies as clients and featured companies annually. And although we’ve had losses, like any speculators, we’ve also had unforgettable wins.
Disruptive technologies with the potential to change an entire industry, or a company with a chance at making a world class discovery, are the opportunities that get us out of bed in the morning. We love the disruptors, the big swingers and companies with audacious goals.
With that, we have a new story to share with you today… this story begins with a technology that was born at one of the world’s most sophisticated science laboratories…
Many of our world’s most advanced defence, security, science and energy technologies are developed or invented at California’s Lawrence Livermore National Laboratory (“LLNL”).
For more than 60 years, the Laboratory has worked to strengthen the ability of the Department of Defense (DoD) to achieve precision effects; and, with regards to science, deliver discoveries that position Lawrence Livermore researchers to solve pressing national security challenges. Our newest featured company’s technology was developed at Lawrence Livermore with ~US$20 million already spent (from government funding) on R&D, including three past prototypes.
LLNL’s Physical Assets:
- Main site: 497 facilities (6.7 million gross square feet) on 820 acres
- Site 300: 216 facilities (0.4 million gross square feet) on 7,000 acres
- Replacement plant value: $6 billion
Human Capital:
- 6,300 employees (including term employees and post-doctoral fellows)
- 2,700 scientists and engineers (more than 40% of whom are Ph.D.s)
- 700 facility users, visiting scientists, teachers and students
FY13 Costs: $1.5 billion
- Weapons activities: 62 percent
- Safeguards and security: 8 percent
- Nonproliferation: 10 percent
- Science and energy: 6 percent
- Homeland security: 2 percent
- Department of Defense: 12 percent
- Non-federal: 3 percent
source: https://www.llnl.gov/about
You won’t see Lawrence Livermore’s tech at your town’s amateur science fair. This Laboratory is federally funded and has put out some of the coolest, most cutting-edge technologies in history. Every so often, a Lawrence Livermore funded prototype gets spun out of its laboratories and licensed into the private sector…
Our new client and featured company, which we are about to introduce, operates in the pathogen detection space – a multibillion dollar industry. Pathogen detection sounds high-tech, and it can be; but, simply put, it is a method to identify harmful bacteria or viruses that cause health problems.
The US government has recently passed legislation (which we will elaborate on shortly) for stricter pathogen testing requirements for the food industry. The failure to detect pathogens can result in lost lives and billions in revenue / market cap of negatively affected companies.
In Pathogen detection: A perspective of traditional methods and biosensors, the authors argue,
“In spite of the real need for obtaining analytical results in the shortest time possible, traditional and standard bacterial detection methods may take up to 7 or 8 days to yield an answer.”
The above article was published in 2006. Our research found that today certain cases of bacterial detection methods have been reduced to 1-3 days, particularly those competing with our featured company; however, 1-3 days still leaves much room for improvement. Our newest featured company aims to provide potentially life-saving results in roughly 1 hour with its technology. If accomplished, this would completely disrupt the pathogen detection market. If you’ve read our letters over the years, you know this type of potential industry disruption is precisely what we look for in a featured company…
According to our newest featured company, its pathogen detection technology — licensed from LLNL — is designed to target underserved markets of approximately US$17.8 Billion. The four key markets pathogen detection is vital for, are as follows:
*Food Safety
*Veterinary Diagnostics
*Water Quality Monitoring
*Aquaculture Pathogen Detection
Over the span of ten years, Lawrence Livermore National Laboratory has spent roughly $20 million in R&D funds to improve the ability to detect pathogens. The result of these funds are three different generations of bio-detection instruments. With each passing generation, improvements were made to the screening capabilities of these instruments. Our new featured company’s technology represents an advancement over the three previously developed instruments; and it now aims to develop the fourth generation of this technology for potential commercial applications. Our new featured company states that it “aims to continue an LLNL tradition of having exciting technologies developed at the Laboratory go on to become commercially successful.”
For that reason, learning about some of LLNL’s past successes are quite relevant.
LLNL: A History of Buyouts
Chromosome painting is a technology used to diagnose cancer and other chromosomal disorders. It was invented at Livermore and licensed by Vysis, who made it a focus of their company. Vysis was later acquired by Abbot Laboratories in 2001 in a deal worth ~$350 million. The market for chromosome painting now exceeds $1 billion.
Another invention out of Livermore was a kind of Rapid PCR (Polymerase Chain Reaction) which can shorten the time for genetic analysis. (When you type in pathogen detection on Google, it is largely about PCR.) Time is invaluable when hoping to detect infectious diseases and some cancers. In 1996, the technology was licensed to found Cepheid. Just last year, Danaher (DGR: NYSE), a $60 billion market cap, Fortune 500 company purchased Cepheid in a deal worth $4 billion.
Another LLNL spinout success was QuantaLife. The technology developed at the Laboratory is known as Droplet Digital PCR, which is used to detect rare cancerous mutations and provide accurate gene copy number counts. The technology was licensed to found QuantaLife in 2008. QuantaLife was acquired by Bio-Rad Laboratories (NYSE: BIO) in 2011 in a deal worth $162 million.
LexaGene Holdings: Our New Featured Company
Our newest featured company is LexaGene Holdings (LXG: TSXV) (LXXGF: OTCQB); and its Founder and CEO, Dr. Jack Regan, completed his post-doctoral training at Lawrence Livermore National Laboratory, where he developed automated instruments to detect respiratory pathogens and bio-threat agents.
Furthermore, Jack worked as the Group Leader of the Advanced ddPCR Applications Division at QuantaLife (mentioned above), where the company moved from concept to commercialization in roughly 36 months. He was arguably the most prolific inventor at QuantaLife, and his contributions helped justify the $162 million valued buyout by Bio-Rad, a US$6 billion market cap company. Dr. Regan chose to leave Bio-Rad about six months ago to focus on LexaGene Holdings in an attempt to bring its pathogen detection technology into commercial markets.
Note: Part of QuantaLife’s ‘secret sauce’ was that it could provide accurate gene copy number counts quickly. Dr. Regan and LexaGene’s employees are now working to reduce the time it takes to accurately detect and quantify pathogens.
Jack knows what it takes to bring a technology from concept to commercialization and the value creation that happens along the way.
LexaGene’s instrument, currently being developed, is known as LX6, and it represents what could be a significant improvement in detection capability over the predecessor instruments.
Note: On Gen #2 and Gen #3 featured above, LexaGene’s founder and CEO, Dr. Jack Regan, was the lead author on the manuscripts describing these instruments.
LexaGene has strategic relationships with Boston Engineering and, you guessed it, Lawrence Livermore National Laboratory. According to Dr. Regan,
“The main concepts used by LexaGene’s LX6 prototype have been previously developed and proven to work at Lawrence Livermore and in other published work, which has boosted the confidence that LexaGene’s technology will work as advertised.”
While Dr. Regan was working at LLNL, one of these previously developed devices (above) became part of the Department of Homeland Security’s BioWatch program. It has been used to detect bio-terrrorist attacks, such as weaponized anthrax. It has also been used to monitor the air quality in New York City’s Penn Station and alert officials if a bio-threat agent is detected.
LexaGene is developing its LX6 instrument with the assistance of Boston Engineering (BE), a professional engineering firm in Massachusetts. BE works with many fortune 500 companies, and has been contracted for work for the Department of Homeland Security, US Navy, and the National Oceanic and Atmospheric Administration.
source: pg. 6 LexaGene Corporate Presentation
LexaGene’s management is targeting a LX6 prototype completion date in November, 2017.
With the LX6, LexaGene intends to demonstrate the very first fully automated pathogen detection platform that is ‘open-access’.
Potential Differentiators:
- Firstly, the automation is expected to cancel the need for a skilled technician.
- Also, the open-access feature could empower end-users to target any pathogen of interest.
- Furthermore, LexaGene’s LX6 is intended to detect many pathogens at once and is designed to be extremely easy to use, so individuals without molecular biology training can quickly test samples for the presence of pathogens.
LexaGene explains:
“End-users simply need to collect a sample, load it onto the instrument with a sample preparation cartridge, and press ‘go’. The instrument is expected to offer excellent sensitivity, specificity, and breadth of pathogen detection.”
For a full list of the potential advantages, click here.
A potential application related case study Daryl Rebeck, LexaGene’s President, explained to us involves the food industry. When there is an E. coli scare and thousands of pounds of lettuce must be tested, retailers cannot afford to store the lettuce for 1-3 days awaiting results. With LexaGene’s LX6, the instrument is being designed to process six samples at a time, in an on-demand fashion, returning results in about 1 hour. Whether it is a food concern or an ocean that people are unsure is safe to swim in, knowing sooner could save lives, instill confidence, and potentially prevent billions in losses. Here is an example of the economic damages which ensued from a relative scenario:
The US stock market was in an uptrend during the above period when Chipotle’s market cap decreased by billions of dollars. While LexaGene’s LX6 cannot prevent all E. coli, salmonella, and norovirus outbreaks, it has the potential to help food producers measure the risk on their product during the packaging phase. They can then use this information in deciding whether the food items are sufficiently safe to send to grocery stores and restaurants…
It is important to note that, according to Food Quality News, “The global food testing market is expected to grow at around 6% during the forecast period of 2013 – 2018 to reach $4.63bn in 2018 from $3.45bn in 2013, according to a market report.”
RnR Market Research is even more optimistic with their projections for this market, stating,
“The food pathogen testing market is projected to grow at a CAGR of 7.8% from 2015 to 2020, to reach USD 10.79 billion by 2020. The market is driven by factors such as the increase in the outbreak of food borne illnesses, implementation of stringent food safety regulations, and availability of advanced rapid technology. The high growth potential in emerging markets and untapped regions provides new growth opportunities for market players.”
As you may imagine, there is consistent interest from major biotech companies in acquiring new technologies related to diagnostics and detection…
For an example, Roche, one of the world’s largest biotech companies, announced the acquisition of IQuum, a molecular diagnostics company based in Massachusetts on April 7th 2014. IQuum was a private company and under the terms of the agreement, Roche will pay IQuum shareholders USD $275 million upfront and up to USD $175 million in contingent product-related milestones.
“The acquisition will provide Roche with access to IQuum’s Laboratory-in-a-tube (Liat™) System, which enables healthcare workers to perform rapid molecular diagnostic testing in a point of care setting, closer to patients and with minimal training.”
LexaGene’s automated pathogen detection platform allows for use with minimal training. And its marketed ease-of-use could speed its adoption. Potentially more important, the technology returns a result in about an hour, and up to six samples can be asynchronously processed at the same time. These advantages are selling points for the company to potentially disrupt multiple industries.
Summary of LX6 Prototype Potential Advantages:
- Capable of asynchronously processing six samples at a time
- Processes up to 50 ml of pathogen-containing sample solution for excellent sensitivity (>10-Fold better in volume handling than competitors)
- Purifies the genetic material in samples prior to screening the sample for 22 pathogen targets
- Returns results in about one hour
- Open-access system allows for customized genetic screens – this is a unique feature not available in any other sample-to-answer technology.
Why now?
With a reported CAD$2.8 million in its treasury as at March 13, 2017, LexaGene is well-funded to develop its LX6 prototype to demonstrate its potential commercial applicability. The company anticipates being the first to provide a sample-to-answer instrument that can be used to detect any pathogen of interest. The LX6 prototype is expected to be complete by November 2017.
Before prototype completion, this story could receive media attention due to the company’s recent announcement:
On March 21, 2017, the company announced that DMG Productions has selected LexaGene to be featured in an upcoming episode of Innovations with Ed Begley Jr. The show will air in the third quarter of 2017 on the FOX Business Network, which is viewed by approximately 85 million households worldwide.
Additionally, LexaGene reported,
“As a benefit of being selected, DMG will also produce a 30-second educational commercial spot to air during prime-time on networks such as the Discovery Channel, Fox Business, CNN, TLC, Travel Channel, RFD-TV, and Food Network.”
See full press release:
LexaGene selected to be highlighted on FOX Business Network
Regulatory Environment Favors Enhanced Pathogen Detection
The FDA announced a new Food Safety Modernization Act that could transform the landscape related to this industry, with regulations to be rolled out between 2016-2018. According to the FDA,
“The FDA Food Safety Modernization Act (FSMA), the most sweeping reform of our food safety laws in more than 70 years, was signed into law by President Obama on January 4, 2011. It aims to ensure the U.S. food supply is safe by shifting the focus from responding to contamination to preventing it.”
These new regulations could provide an opportunity for LexaGene’s LX6, as food production companies may be forced to upgrade their detection practices. The current regulatory environment strongly favors new technology adoption to improve food safety.
Like Cepheid, which was bought out less than six months ago, LexaGene’s LX6 also utilizes rapid PCR for genetic analysis. Unlike Cepheid’s technology, however, the LX6 is designed to detect more pathogens in a single test. Cepheid detects just 4 pathogen targets at once, whereas the LX6 will screen for 22 pathogen targets at once.
To clarify, according to the Mayo Clinic,
“Rapid PCR uses real-time PCR, an automated rapid thermocycling process that incorporates amplification and detection in a single procedure inside a closed reaction vessel. This process significantly reduces the risk of contamination by nontarget DNA.
Rapid PCR technology medical applications can include:
- Identifying infectious organisms.
- Determining antibiotic resistance.”
These are huge markets and LexaGene aims to build a premier pathogen detection system for them.
With respect to prototypes, particularly in the life sciences sector, there is rarely just one. You build an instrument, evaluate it, and then build it better.
LexaGene’s Founder and CEO, Dr. Jack Regan, believes LexaGene’s LX6 prototype is “finally at the point where it is a commercially viable instrument.”
He explained to us that the previous pathogen detection models built for biothreat detection and respiratory viral detection allowed for only one sample to be processed at a time. This alone, prevented these instruments from becoming commercially viable. However, LexaGene’s LX6 is “capable of asynchronously processing 6 samples at a time,” according to the company.
With a market cap of approximately CAD$41 million, LexaGene’s top four markets represent an estimated $17.8 billion industry. With updated FDA requirements rolling out between 2016-2018, and the average number of food inspections to increase dramatically, the opportunity for new technology adoption in this space has never been greater.
Much of the risk from an R&D standpoint has been mitigated via nearly a decade of development, three prototypes and over $20 million spent at Lawrence Livermore National Laboratory (LLNL). It should be noted that LexaGene’s founder and CEO, Dr. Jack Regan, was the lead author on the previous two instruments. Dr. Regan has been pushing this ball down the field for quite some time…
We take the work completed at the LLNL very seriously; and as such, LexaGene is the largest stock position we have of all our featured companies. So, recognize that we are biased when it comes to the company because they are an advertiser client and we own shares and warrants of LexaGene as we participated in its recent private placement. We acquired stock in LexaGene for our own investment purposes and will in the future acquire or dispose of shares as we see fit. Please take responsibility for practicing your own thorough and independent due diligence. Learn about the risks associated with investing in micro-cap technology companies of this nature. Pick your spots…
With an anticipated timeline of completing the prototype by November 2017, we wanted to introduce this potentially industry changing story to you now. LexaGene’s (LXG:TSXV/ LXXGF:OTCQB) stock price has been in a upward move for weeks. After breaking to a high of CAD$0.99 in early April, its shares last traded for CAD$0.81.
This marks the initiation of our coverage on LexaGene. Expect updates from us in the near future.
All the best with your investments,
PINNACLEDIGEST.COM
LexaGene Holdings Stock information
Exchanges: TSX Venture & OTCQB
Symbols: LXG & LXXGF
Stock Price: CAD$0.81
10-Day Avg. Volume on TSX Venture: 51,000 (approximate)
Share structure as at 03/13/2017 according to LexaGene corporate presentation:
Shares outstanding: 49,460,423
Warrants outstanding: 11,246,363
Stock options outstanding: 2,175,000
Treasury: $2.8 M CAD
LexaGene Corporate Presentation
LexaGene Holdings Online Resources
Disclosure, Risks Involved and Information on Forward Looking Statements: Please read carefully before proceeding.
THIS IS NOT INVESTMENT ADVICE. All statements in this report are to be checked and verified by the reader.
This report may contain technical or other inaccuracies, omissions, or typographical errors, for which Maximus Strategic Consulting Inc., owner of PinnacleDigest.com, assumes no responsibility.
Important: Our disclosure for this report on LexaGene Holdings Inc. applies to the date this report was released to our subscribers (April 23, 2017) and posted on our website. This disclaimer will never be updated, even after we have sold all of our shares of LexaGene Holdings Inc.
In all cases, interested parties should conduct their own investigation and analysis of LexaGene Holdings Inc. (“LexaGene” or “LexaGene Holdings” or “the Company”), its assets and the information provided in this report.
Forward Looking Statements:
All statements in this report, other than statements of historical fact should be considered forward-looking statements. These statements relate to future events or future performance. Much of this report is comprised of statements of projection. Such statements or information involve substantial known and unknown risks and uncertainties, including general business, economic, competitive, political and social uncertainties; LexaGene’s ability to leverage the mentioned technology; its ability to design and conduct development activities and studies and clinical trials for its technology; the potential timing and results of any such clinical trials LexaGene may conduct; its ability to obtain regulatory approvals in order to market any planned products; its ability to achieve financial projections; and its ability to achieve milestones. Factors that could cause the Company’s results to differ materially from those expressed in forward-looking statements in this report include, without limitation, the following risks: any development activities or clinical trials LexaGene may conduct which may not produce favorable results; regulatory agencies may require that LexaGene undertake additional or more costly studies than anticipated; LexaGene may never gain regulatory approval for any of its product candidates; it may not be able to protect intellectual property rights; the intellectual property of others and any asserted claims of infringement; general business and economic conditions may limit its ability to obtain necessary capital to carry out all of its business plans; the consequences of competitive factors in the industry in which LexaGene operates may restrict the success of any product candidate it is able to commercialize; the company may not be able to attract or retain key personnel, and the willingness of third parties to sign agreements with LexaGene on terms that are acceptable to management of LexaGene. Readers are cautioned that this list of risk factors should not be construed as exhaustive.
Such forward-looking statements or information are based on a number of assumptions which may prove to be incorrect. In addition to other assumptions identified in this report, assumptions have been made regarding, among other things, operating conditions, capital and other expenditures, and project development activities. Undue reliance should not be placed on forward-looking statements because we can give no assurance that such expectations will prove to be correct.
Risks and uncertainties respecting junior technology companies such as LexaGene are generally disclosed in the annual financial or other filing documents of those and similar companies as filed with the relevant securities commissions, and should be reviewed by any reader of this report. Investors are cautioned not to consider investing in any company without looking at said company’s regulatory filings and financial statements. More detailed information about LexaGene and the risk factors that may affect the realization of any forward-looking statements shall be found in its filings as required by Canadian Securities Administrators and may be read free of charge on the System for Electronic Document Analysis and Retrieval (SEDAR) filing system on the SEDAR internet site at http://www.sedar.com. Every reader of this report should review LexaGene’s regulatory filings and financial statements filed on SEDAR.
The information and statements contained in this report are made as of the date hereof and Maximus Strategic Consulting Inc. (owner of PinnacleDigest.com) undertakes no obligation to update publicly or revise any forward-looking statements or information, whether as a result of new information or future events or otherwise.
PinnacleDigest.com is an online financial newsletter owned by Maximus Strategic Consulting Inc. We are focused on researching and marketing for public resource and technology companies. Nothing in this report should be construed as a solicitation to buy or sell any securities mentioned anywhere in this report (particularly in respect to LexaGene). This report is intended for informational and entertainment purposes only. The author of this report and its publishers bear no liability for losses and/or damages arising from the use of this report.
We Are Not Financial Advisors:
Be advised, Maximus Strategic Consulting Inc., PinnacleDigest.com and its employees are not a registered broker-dealer or financial advisors. Before investing in any securities, you should consult with your financial advisor and a registered broker-dealer.
Never, ever, make an investment based solely on what you read in an online newsletter, including Pinnacle Digest’s online newsletter, or Internet bulletin board, especially if the investment involves a small, thinly-traded company that isn’t well known.
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The past performance of LexaGene’s management and leadership personnel is not indicative of future results for LexaGene and should not be used as a reason to purchase any security mentioned in this report.
We Are Biased:
Most companies featured in our newsletter, and on our website, are paying clients of ours (including LexaGene – details in this disclaimer). In many cases, we own shares in the companies we feature. For those reasons, please be aware that we are extremely biased in regards to the companies we write about and feature in our newsletter and on our website.
Because LexaGene has paid us CAD$75,000 plus gst for our online advertising and marketing services, and we (Maximus Strategic Consulting Inc. and an employee) own shares and warrants of the company, you must recognize the inherent conflict of interest involved that may influence our perspective on LexaGene; this is one reason why we stress that you conduct extensive due diligence as well as seek the advice of your financial advisor and a registered broker-dealer before investing in any securities mentioned in our reports.
Maximus Strategic Consulting Inc., owner of PinnacleDigest.com, its officers, directors, employees, and consultants shall not be liable for any damages, losses, or costs of any kind or type arising out of or in any way connected with the use of its reports, products or services, including this report. Maximus Strategic Consulting Inc., owner of PinnacleDigest.com, its employees, consultants and affiliates are not responsible for any information provided by any of the companies mentioned in our reports or third party writers. You should independently investigate and fully understand all risks before investing.
We want to remind you again that PinnacleDigest.com is often paid editorial fees for its writing and the dissemination of material. The clients (including LexaGene) represented by PinnacleDigest.com are typically early-stage companies that pose a much higher risk to investors than established companies. When investing in speculative stocks such as LexaGene it is possible to lose your entire investment over time or even quickly.
Disclosure of Compensation & Stock Ownership:
Set forth below is our disclosure of compensation received from LexaGene and details of our stock ownership in the company as of April 23, 2017:
Maximus Strategic Consulting Inc., owner of PinnacleDigest.com, has been paid CAD$75,000 plus gst to provide online advertisement coverage for LexaGene for a pre-paid nine month online marketing agreement. The company (LexaGene) has paid for this coverage. The coverage includes, but is not limited to, the creation and distribution of reports authored by PinnacleDigest.com about LexaGene (reports such as this one), as well as display advertisements and news distribution about the company on our website and in our newsletter. This is our first report on LexaGene. We (Maximus Strategic Consulting Inc., owner of PinnacleDigest.com) subscribed to LexaGene’s private placement. In that private placement we purchased 165,000 units of LexaGene at a price of CAD$0.30 per unit. Each unit consists of one common share and one common share purchase warrant. Each warrant entitles the holder to acquire an additional common share of LexaGene for $0.60 per share for a three year period. Alexander Smith, Head of Market Research for PinnacleDigest.com, also purchased 133,000 units in that same LexaGene private placement. We (Maximus Strategic Consulting Inc. and Alexander Smith) may buy more shares of LexaGene following the release of this report. We (Maximus Strategic Consulting Inc. and Alexander Smith) intend to sell every share we own, as well as any shares we may purchase in the future, of LexaGene for our own profit. All shares we (Maximus Strategic Consulting Inc. and Alexander Smith) currently own or purchase in the future of LexaGene will be sold without notice to our subscribers. Please recognize that we benefit from price and trading volume increases in LexaGene. Please recognize that we are extremely biased when it comes to LexaGene.
Maximus Strategic Consulting Inc. and PinnacleDigest.com (including its employees and consultants) are not chartered business valuators; the methods used by business valuators often cannot justify any trading price for most junior stock exchange listed companies. LexaGene is considered to be a junior stock exchange listed company.
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https://www.pinnacledigest.com/disclosure-compensation/
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