Cures or Quackery?

Ask a doctor about a supposedly revolutionary medical discovery, and chances are you'll get a quick thumbs up or thumbs down.

I did just that the other day, ringing up a prominent New York physician, Samuel Mann, professor of clinical medicine at New York Presbyterian Hospital and a well-regarded specialist on hypertension.

The reason: to solicit his thoughts on a supposed revolutionary product I heard about on Wall Street, where stories of companies with major medical breakthroughs are a dime a dozen, the overwhelming majority of which are strictly hot air -- a clear danger for impressionable investors.

I queried Mann on a drink alleged to have a number of positive medical implications, basically a liquid product drawn from living algae grown in purified water. The water in which the algae are grown is then drawn off, filtered and bottled under the trademark ProAlgaZyme, or Paz for short, a drink that is supposed to elevate good cholesterol (HDL) and lower bad cholesterol (LDL).

This cholesterol view is based on a study undertaken in 2007 by Paz's owner, Health Enhancement Products of Scottsdale, Ariz., a low priced bulletin-board stock whose price has soared over the past year, ballooning more than 10-fold from $0.13 to $1.54. It's currently trading at around $0.65, down sharply from its recent high, but still well above its 52-week low, indicating that a number of investors buy the story of the supposed medical pizzazz in Paz.

The key results of the 2007 study, as reported in a medical journal, Lipid in Health and Disease, found that Paz lowered total cholesterol by 60 milligrams and raised good cholesterol by 15 milligrams.

But that's by no means the entire benefit of this supposed miracle drink, according to anecdotal stories making the rounds. Paz, it's said by some large shareholders of Health Enhancement Products, or HEPI (its stock symbol), as some call it, can also aid people afflicted with HIV, diabetes, prostate cancer, inflammation and obesity, and has, in fact, helped some get rid of such diseases.

Skeptical? How can you not be? If real, this product--which in past years boasted bogus claims that it decreased the risks of a sroke and a heart attack--would have to be one of the great medical discoveries of all times. Paz would be a household word and doctors would surely be recommending it like crazy.

Addressing the cholesterol aspects of Paz, which is said to have no side effects, Mann doesn't give the product a thumbs up or a thumbs down, but rather views it as either "real or a fraud."

"This is not a fluke; there's no middle ground," he says. "It's either wonderful or nothing."

Mann, who has published many articles in professional journals, questions the validity of the company's 2007 study, noting it took place in Cameroon; likewise, the authorship of the article in Lipid Health and Disease, he says, is "highly suspicious" since it involved eight people, four from the company and four from the University of Cameroon.

"I don't believe the findings," observes Mann, who notes there is no drug currently on the market that can raise HDL by 15 milligrams.

Mann also raises the question of why the company, given the dramatic findings in its study, didn't follow with a slew of additional studies to further validate the cholesterol managing abilities of Paz.

In contrast to Mann's concerns, Wayne State University, a research university in Detroit, conducted a preliminary study Indicating Paz showed encouraging results in inflammation when managing cholesterol.

Paz -- which the company has owned for 10 years and was first marketed in Germany about 30 years ago -- is HEPI's chief product. It's not sold in any store and can only be ordered directly from the company through the purchase of a 32-ounce bottle at $24.95 each That's about an eight-days supply, what with the daily recommendation of four ounces -- two in the morning and two in the evening.

HEPI, essentially a health and wellness company, is principally engaged in the development of products comprised of pure, all-natural compounds that can be used as a dietary supplement and food additive.

It reshaped itself in 2003 after some of its top officials had a run-in with the law and went public early in 2004 at about $1 a share by merging into a shell. Later that year, the stock -- there are presently 110 million shares outstanding fully diluted -- hit a high of 7 5/8.

HEPI recently announced that it was given a "notice of allowance" for its proprietary algae extract from the U.S. Patent and Trademark Office, after which, it said, a formal notice of patent issuance will follow. Once issued, the patent, according to HEPI, will provide intellectual property protection for the company's proprietary algae extract, specifically as it applies to addressing a wide range of conditions and illnesses.

Sounds good, but despite Paz's supposedly wondrous medical benefits, HEPI's bottom line has been abysmal. The company has been a consistent money loser and last year lost $6 million on puny revenues of just $70,000.

HEPI doesn't have a CEO, but I did chat with the head of sales, John Gorman, who is basically running the company. "We'll get a new CEO when we have a marketable product," he says.

One former CEO of HEPI, Howard Baer, described by the Securities and Exchange Commission in November of 2006 as a recidivist securities law violator, was charged by the SEC, along with the assistance of his son, Kevin, HEPI's executive vice president, of disseminating materially misleading information about HEPI and Paz in press releases and the company's annual, quarterly and current public filings.

Asked why HEPI didn't engage in a number of follow-up studies on Paz to the one conducted in 2007, Gorman blamed it on lack of funding. That still appears to be a dilemma, given a monthly burn rate of $70,000 to $75,000 and the fact that the company has less than that in the bank. Gorman did say, though, HEPI has a $675,000 line of credit that can be tapped at any time.

In view of his comment that Paz helps people challenge such diseases as HIV, cancer, diabetes and inflammation, why, I asked, doesn't he promote this message? Because, Gorman replied, "we're limited in what we can say because of the Food & Drug Administration rules."

Gorman, incidentally, also mentioned his father had been diagnosed with prostate cancer in 2003, but he eliminated it in just 35 days as a result of drinking Paz during that period and initiating an organic diet. His father, now 66, is still alive.

Our conversation, I'm sorry to say, was abruptly ended by Gorman, who told me he had to go to a meeting, We set a time when he said he would call back, but he never did. I tried calling him back, but he never responded.

If I had gotten him, I would have posed such additional questions as why it took 30 years to discover Paz's supposed medical benefits, his reaction to Mann's ridicule of Hepi's 2007 study, his strategy for growth and when, if ever, might Hepi have a marketable product?

I would have also asked him about some remarks I heard from Skip Davidson, a former broker at Oppenheimer & Co., who told me he holds a seven-figure stake in Hepi and described himself as very close to the company.

"I jokingly call Paz snake oil," Davidson says, "because how can you make any claims when you don't know what's in the product and what it does." He also told me HEPI would go head-to-head with Lipitor, America's leading anti-cholesterol drug, an action that seems highly dubious given the company's meager finances.

One other intriguing observation from Davidson -- about four years ago his collie, Bart, developed a growth on his chest. He took him to a vet who told him Bart had lymphoma and suggested he put the dog away. One of Davidson's friend was an official of HEPI, who suggested he feed the dog Paz. Davidson did that, and about three months later, he says, he took the dog back to the vet, who told him the lymphoma had disappeared. Bart lived another two years before dying from kidney stones.

The bottom line here: Is Paz Rx or B.S? That's the $64,000 question. In any event, it's worth keeping in mind that one of the company's biggest stockholders calls the product snake oil.

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