One of the most important factors in astronomical returns -- aside from buying the right company -- is buying your shares early, when ordinary people have never heard of the stock. Of course, there is a danger in being too early. But you can guard against that danger by starting with just a small investment and adding more shares when you see more and more success.
This sort of early-stage investing is very similar to the venture capital industry. Maybe one or two of the stocks will fail, or break even. But these small losses are irrelevant if and when the third stock has a 1,000% return. Here's why Ontrak (OTRK 3.73%), Nano-X Imaging (NNOX 0.80%), and Zymeworks (ZYME) are all strong candidates for stratospheric outperformance by 2025.
Image source: Getty Images.
Will Ontrak overtake Livongo Health?
Ontrak is competing with market leader Livongo Health (LVGO) in a new virtual niche that marries the internet with healthcare knowledge. These companies send virtual text messages to people who have chronic medical conditions like diabetes. Health insurance companies love this service because it helps change patient behavior, and keeps the disease from getting more serious (and more expensive).
Both of these stocks have been on fire in 2020. Livongo's stock has jumped almost 400% in 2020. Ontrak has had similar explosive returns. The stock (back when the company was known as Catasys) opened at $16.60 at the beginning of the year. Now, shares are going for $62.
Which of these companies will emerge victorious in 2025? As first-mover, Livongo has definite advantages and a big head start. But Ontrak is coming on fast. While Livongo is dominant right now in diabetes coaching, Ontrak is heading into new verticals like congestive heart failure and COPD.
The other intangible is that Livongo has been acquired by Teladoc Health. So Ontrak is now the largest pure-play in this space.
Image source: Nano-X.
Is the X-ray market about to be disrupted?
Nano-X Imaging is a newly public company that is using technology that was developed by Sony to disrupt the X-ray and other medical imaging systems. And yes, the designers were inspired by Star Trek.
Nano-X is offering a new miniaturized system, far simpler than the big cumbersome X-ray machines and CAT scan machines hospitals use today. Your average CAT scan device weighs over 4,000 pounds. The ARC weighs in at a little over 150 pounds.
What's even nicer is the new device is far cheaper, too. While traditional medical imaging systems cost over $1 million and up to $3 million, Nano-X will be dramatically undercutting this market on price. It can manufacture its ARC device for $10,000.
For stock investors, what's really exciting about this company is the business plan. Nano-X wants to sell its device at cost, or below cost, in order to make its system far more ubiquitous. The company will make its money by taking a small percentage every time the device is used. The near-term goal is to distribute 15,000 of these ARC devices around the world.
At $10,000 a pop in manufacturing costs, the company will need about $150 million to execute its plan. (The company raised approximately $153 million in its very recent initial public offering.) The stock has had both a huge run-up and a nasty fall after short-selling outfit Citron Research called the company a "fraud."
Like most of your major rule-breakers, it will likely be a highly volatile stock, with major price swings up and some scary drops. The major issue facing this company -- maybe the only serious worry -- is how well this device works. Is this nano-device good enough to outperform all those million-dollar CAT scan and X-ray machines?
Recall that this technology was first developed by Sony, one of the world leaders in miniaturization. Sony spent over 15 years developing the ARC system. Now SK Telecom is a big investor in Nano-X. The Korean telecom giant has plans to distribute 2,500 of the company's systems in Korea and Vietnam next year, pending approval by regulatory authorities.
The ARC device has yet to be approved by the FDA. But if it is approved, medical imaging might just get a lot simpler, easier, and cheaper. We might have to invent a new category for this one: hardware-as-a-service (HaaS).
Why is big pharma so desperate to collaborate with Zymeworks?
What stands out about Zymeworks is the remarkable number of collaborators who are using its platform technology. This is a tiny company, with a market cap under $2 billion. And yet look at its client roster:
| Collaborator | Market Cap | Number of Drug Candidates |
|---|---|---|
| Johnson & Johnson | $390 billion | Up to 6 |
| Merck | $216 billion | Up to 7 |
| Eli Lilly | $144 billion | 1 |
| Bristol Myers Squibb | $134 billion | Up to 10 |
| GlaxoSmithKline | $98 billion | Up to 6 |
| Daiichi Sankyo | $61 billion | Up to 3 |
| BeiGene | $23 billion | Up to 3 |
That's a who's who of big pharma, all eager to use this tiny company's technology to find 36 drug candidates. Of course almost all of these drugs are in preclinical trials. But it's rather shocking to imagine how big the Zymeworks pharmaceutical pipeline will be in five years. The company has revenue-sharing agreements in place with all of these companies. This is not only a validation of Zymeworks' science, but also a major source of future revenue streams.
The company's lead molecule, Zanidatamab, is being evaluated as a best-in-class treatment for patients with HER2-expressing cancers, including breast cancer. It's currently being evaluated in phase 1 and phase 2 trials. The FDA has given the molecule two separate Fast Track designations.
Over the next five years, as many of these drug candidates move through clinical trials, the valuation of Zymeworks should increase dramatically. While it's early in this company's journey, this platform should unlock immense value in the years to come.
