Why the Pentagon Wants to Use This Penny Stock to Cure the Flu

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A tiny clinical-stage biotech firm is pioneering a ground-breaking new way to fight the flu.

Their process is so radical it has caught the eye of DARPA , the shadowy research and development arm of the Pentagon.

What makes their process so unique is that the company uses tobacco plants instead of eggs to produce the recombinant proteins that are the key to vaccines.

Its goal is to dramatically cut the time it takes to manufacture vaccines, which can take as long as nine months to put into production.

In fact, in a key test of the firm's technology DARPA recently ordered 10 million doses of a vaccine candidate as part of a $21 million project.

By all accounts they came through with flying colors, delivering 10 million doses of the H1N1 influenza vaccine in just one month.

So who is this ground-breaking new vaccine company?

It's a tiny Canadian-based firm called Medicago Inc. (OTC:MDCGF; TSX:MDG).

"A Great Win" For Medicago

To learn more about this fascinating new technology and Medicago's chances for success, I recently spoke with the firm's CEO, Andy Sheldon.

Of course, I just had to know more about Medicago's relationship with DARPA, one of the world's leading high-tech king makers. It's an agency I have followed for years.

Sheldon told me that:

"It's highly significant to us. The program was designed to see if we could produce the product as fast as we said we would, in other words, 10 million doses in one month. That was their final challenge.

"What's really important is that we actually produced significantly more than 10 million doses through that process. So, we exceeded their expectations.

"I just need to say this. There were two other companies that were actually on that same program. To our knowledge they did not succeed. We haven't seen any press releases but we understand they did not produce any flu vaccine... That (in and of itself) is a great win."

That puts the firm at the leading edge of a growing attempt to greatly improve vaccines to combat the flu and other diseases.

The Never-ending Battle Against the Flu

Fighting the flu is a big part of the roughly $30 billion vaccine industry. It's a battle that puts roughly 200,000 Americans in the hospital each year.

Here's the thing. The U.S. does a good job of spotting the strains of flu likely to strike each year. But that requires keeping tabs on outbreaks in other parts of the world several months in advance.

But standard flu vaccine tech is several decades old -- many vaccines are still grown inside chicken eggs.

That's why there is still a very real threat that a new strain of flu will hit, for which there is no vaccine.

Take the case of SARS, for instance

It landed in 2003, killing roughly 800 around the world and causing about $10 billion in damage to the global economy. Yet, there still is no SARs vaccine on the market today.

It's no wonder Medicago wants to make a clean break with the past...

The firm is focused on creating "virus like particles" (VLPs) that mimic the structure of the real flu. Here's how Medicago's VLP process works.

First, Medicago gets a strain of the virus and isolates its genetic structure. Then, it inserts the genetic material into the tobacco plants.

Incubation takes four to six days. After that, they harvest the plants to extract the VLPs. The particles are then purified to make them clinical grade.

The company is careful to point out that it doesn't reproduce an actual virus. Therefore, Medicago says, there's no chance it could release a strain of flu or other disease into the general public.

The firm relies on tobacco plants because they allow for the rapid expression of virus-fighting proteins.

Based in Quebec, Medicago operates a production greenhouse in tobacco-rich North Carolina that could scale up to produce 10 million units of vaccine a month.

That's a pretty big development for a biotech firm that still has no products on the market. That's why with a market cap of about $130 million, Medicago is a classic penny stock. It trades for roughly $0.50 a share.

A Nod From the Pentagon

But there is more good news on the DARPA front.

Early last month, Medicago said the agency had awarded it the right to bid for the "manufacture and delivery of certain tobacco-produced proteins."

Not only could that generate sales by 2014, it adds to the firm's overall momentum. By the end of this year, Sheldon notes, Medicago will have three compounds in clinical trials.

For his part, Sheldon has the right track record for running this aggressive microcap.

He has 30 years of drug sector experience and joined Medicago from industry giant Shire plc (NasdaqGS:SHPG). Last year, he was named CEO of the Year at the World Vaccine Congress.

And he has received a unique education for his job. He holds degrees in both agricultural and biological sciences.

And talk about economies of scale. With tobacco as the focus, Medicago can build a vaccine plant that's 10 times cheaper than a conventional facility, saving hundreds of millions.

And turning tobacco into a life saver is exactly the kind of cutting-edge science I'm talking about when I say we are now living in the Era of Radical Change.

High tech is moving at warp speed, and it is firms like tiny Medicago that are turning the world upside down -- and creating new opportunities for investors.

>>If you liked Michael's article, you've got to read DARPA's New "Transient Electronics" Are Right Out of a Spy Novel.

About the Author

Michael A. Robinson is one of the top financial analysts working today. His book "Overdrawn: The Bailout of American Savings" was a prescient look at the anatomy of the nation's S&L crisis, long before the word "bailout" became part of our daily lexicon. He's a Pulitzer Prize-nominated writer and reporter, lauded by the Columbia Journalism Review for his aggressive style. His 30-year track record as a leading tech analyst has garnered him rave reviews, too. Today he is the editor of the monthly tech investing newsletter Nova-X Report as well as Radical Technology Profits, where he covers truly radical technologies – ones that have the power to sweep across the globe and change the very fabric of our lives – and profit opportunities they give rise to. He also explores "what's next" in the tech investing world at Strategic Tech Investor.

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