04/15/2007
4/15/2007
VOLUME 295
Companies featured in the current edition of the newsletter: ADSX, ARGA, CYTR, EMIS, ENZ, GNBT, GSHF, HSOA, HYTM, ISON, JMAR, LANW, LIV, LNXGF, OXIS, PCLI, POIG, SCLL, USAT, VOII
Despite conflicting economic news, stocks ended higher for the week driven by positive corporate development and the expectation that first quarter earnings results would be solid. All of the major indices rose, with the Dow managing to close up 51 points for the week increasing its year-to-date gains to 1.2%. The Nasdaq followed in similar fashion and closed the week up 20 points, increasing annual gains to 3.1%. The S&P rose 9 points, with its year-to-date gains totaling 2.4%. The Russell gained 6 points for the week, bolstering annual gains totaling 4%.
After weeks of economic worries and speculation driving the markets, investors turned to a different catalyst to drive overall sentiment. Positive earnings news from industry leading companies helped to offset what appeared to be disappointing news from the Fed after the release of the FOMC minutes. The Fed report voiced continued inflationary concerns, indicating a policy of further firming may be necessary to address certain strengths in the economy. Economic data was mixed, as an unexpected decline in the unemployment rate to 4.4% that helped drive consumer spending was offset by news of weaker April same-store sales for a number of retailers. As for earnings related news, Merck & Company (NYSE: MRK) reached a three year high after bullish earnings and positive future guidance, while shares of Cisco Systems (NASDAQ: CSCO) rose 2.7% Friday after issuing similar comments pertaining to sales reaching the high-end of forecasts. McDonald’s (NYSE: MCD) also rose on positive earnings news. With earnings expected to take the limelight away from the focus on the Fed over the next two weeks, stocks are likely to be most significantly impacted by company-specific results.
Roughly 19% of the S&P 500, or 95 companies, are due to report results this week, including 12 Dow components. While those individual companies may do just fine, the overall earnings reporting period is expected to be pretty bleak. S&P 500 growth in the first quarter is currently forecast at 3.3%, according to the latest Thomson Financial estimates. That’s the worst its been in 3.5 years and far below the historic average. Even when you factor in that reported earnings tend to beat estimates by around 3 percent, earnings are still on track to grow less than 10%, breaking a double-digit percentage streak that’s gone back for 14 quarters.
What should investors expect for this week? Earnings, starting with Citigroup (NYSE: C) and Eli Lilly (NYSE: LLY) on Monday before the opening. Tuesday morning, Coca-Cola (NYSE: KO), Johnson & Johnson (NYSE: JNJ) and State Street (NYSE: STT) release earnings reports. Later that day after the bell, technology bell-weathers Advanced Micro (NYSE: AMD), IBM (NYSE: IBM), Intel (NASDAQ: INTC) and Yahoo! (NASDAQ: YHOO) announce results. Before the opening on Wednesday, Abbott Labs (NYSE: ABT), Bank of New York (NYSE: BK), JP Morgan Chase (NYSE: JPM), McDonald’s (NYSE: MCD) and Motorola (NYSE: MOT) report numbers. That evening, eBay (NASDAQ: EBAY) issues earnings. Thursday morning, General Motors (NYSE: GM), Merck (NYSE: MRK) and Merrill Lynch (NYSE: MER) release financials with Google (NASDAQ: GOOG) announcing numbers after the bell. Caterpillar (NYSE: CAT) and Pfizer (NYSE: PFE) report figures Friday morning. The conference schedule is light with A.G. Edwards hosting its three-day Media & Entertainment Conference beginning Monday in Las Vegas and CIBC World Markets holding its two-day 2007 Energy Conference starting Wednesday in Toronto. Options expire Friday adding further to volatility.
Economic reports for the week start off with the release of March Retail Sales, the April New York Empire State Index and February Net Foreign Purchases before the opening on Monday. Shortly after the bell, February Business Inventories are reported. Tuesday morning the March CPI figures are released, along with March Housing Starts, March Building Permits and March Industrial Production and Capacity Utilization data. Weekly Crude Inventories are released on Wednesday at 10:30 A.M. Thursday before the bell, Weekly Jobless claims are announced with March Leading Indicators being reported at 10:00A.M. The April Philadelphia Fed Index is released at 12 noon on Thursday. Investors will pay close attention to what St. Louis Fed President Poole says about talks on demographics and trade on Monday, as well as commentary from Philadelphia Fed President Plosser on Monday regarding EU expansion and on Tuesday pertaining to the economy. New York Fed President Geithner will speak on Tuesday as well.
Although the company did not make any announcements, there were significant developments last week surrounding Hythiam’s (NASDAQ: HYTM) PROMETA protocols. The Pierce County Council approved a $400,000 of funding to treat meth-addicted drug court patients with PROMETA. While the amount is relatively insignificant, it represents the first time that a pilot study of the company’s protocols was converted to third-party reimbursement. Pierce County is expected to pursue additional funding from the state-level which should be determined when the legislature approves the state budget. Pierce County completed a successful pilot of the PORMETA protocols in June, 2006 where 92.5% of the drug court participants remained drug-free during the trial period. Also, last week, a peer-reviewed study published by scientists from the University of Cagliari in Italy in the Journal of Neurochemistry demonstrated, in vitro, flumazenil’s ability to prevent an ethanol induced up-regulation of alpha-4 subunits on GABA-A. Flumazenil is a key component in PROMETA’s protocols. The study reflects a growing body of evidence that PROMETA resets the neurotransmitters in the brain, helping to explain its profound impact on the treatment of substance abuse. It also sets the stage for clinical results later this year from double-blind placebo controlled studies which could serve as a significant catalyst for the stock. Shares ended the week at $6.96, down 7 cents.
Home Solutions of America, Inc. (NASDAQ: HSOA), a provider of recovery, restoration and rebuilding/remodeling services to commercial and residential areas, is beginning to benefit from increased rebuilding efforts in Louisiana and the Gulf Coast, and announced last week that its subsidiary, Home Solutions Restoration of LA, Inc. was selected for approximately $13.7 million in new infrastructure projects in New Orleans and surrounding areas. Such work is expected to be completed prior to the end of the year and was not previously included in the company’s announced backlog. Over the weekend, lines of strong thunderstorms rolled across Louisiana and Mississippi into northern Alabama, and the National Weather Service posted tornado warnings for wide areas of Mississippi and some parts of Alabama and Texas, highlighting the opportunities that an active storm season could create for the company. At just 11 times trailing 12-month earnings, the potential for upside appears significant. Note that although the stock has performed poorly this year (down 21%), early regulatory filings for Q1 by institutional investors show increases in holdings. Shares fell 1 cent last week to close at $4.62.
Volume Alert:Shares of Emisphere Technologies, Inc. (NASDAQ: EMIS), a biopharmaceutical company pioneering the oral delivery of otherwise injectable drugs, traded over 5.5 times average volume last week, after announcing the appointment of Michael Novinski to the position of President and Chief Executive Officer, effective immediately. Novinski was President of Organon USA Inc., a business unit of Organon BioSciences Inc, for the last four years. Organon BioSciences Inc. recently announced it will be sold to Schering-Plough for $14.4 billion. Mr. Novinski brings 28 years of industry experience to Emisphere, and has led efforts leading to FDA approvals for a number of ethical pharmaceutical products during his tenure at Organon. The appointment removes a great deal of the uncertainty surrounding the company as EMIS said more than one year ago that it was conducting a search for a permanent CEO. The stock rose 74 cents last week to close at $3.93.
New 52-week High: Shares of Enzo Biochem, Inc. (NYSE:ENZ), a company engaged in the research, development and manufacture of innovative health care products, broke out to a new 52-week high of $16.86 on more than three times average volume. Recently the company began treating the first patient in a Phase I/II clinical trial of the company’s gene therapy for HIV-1 (Human Immunodeficiency Virus-Type 1) infection. Improved performance at the Enzo Clinical Labs division as a result of relationships with Aetna and United Healthcare/Oxford, along with positive developments surrounding its intellectual property and litigation activities have also helped to drive positive sentiment. Shares rose over 7% for the week to close at $16.86, up $1.11.
Volume Alert: Shares of USA Technologies, Inc. (NASDAQ: USAT), a developer of cashless vending and energy management products, traded over 28 times average volume, after announcing that Coca-Cola Bottling Company United Inc. will be outfitting its vending machines with USA Technologies’ e-Port G6 to accept MasterCard PayPass payments. The cashless vending machines will be deployed by Coca-Cola United in multiple markets, reaching consumers from Georgia to Louisiana. USAT continues to create significant brand awareness as its proven e-Port technology garners the trust of global leaders such as MasterCard and Coca-Cola. With more consumers demanding to use payment cards for small purchases, USAT’s non-cash systems enable such vendors to offer credit card payment options, providing them with more opportunities to generate sales growth and new revenue streams. George Jensen, the company’s Chief Executive Officer, will ring the closing bell at the NASDAQ stock market on Monday April 16, 2007. Shares soared 38.6% to close at $11.55, up $3.22.
Volume Alert: Shares of Isonics Corporation (NASDAQ: ISON), a provider of innovative solutions for the homeland security and semiconductor markets, traded over 30 times average volume last week, after the company reported that Cornell Capital Partners invested an additional $2 million into the company to support future growth and modified its lending agreement with Isonics, foregoing the right to convert its 6% debentures with a principal amount of $16 million into common stock until after February 28, 2008. The move will eliminate what could have been a significant amount of dilution that investors faced as a result of anti-dilution protections that holders of the company;s warrants had. The move appears to reflect the confidence this lender has in the company’s recent efforts of reducing expenses and streamlining operations. By modifying its loan agreement, certain debt is expected to be reclassified as equity, which should enable the company to regain compliance with Nasdaq Listing Requirements when it files its 10K for the year ended April 30, 2007. The stock soared 61% for the week to close at $1.69, up 64 cents.
Earnings Preview: Specialty pharmaceutical company Auriga Laboratories, Inc. (OTCBB: ARGA) is scheduled to report first quarter results for the period ended March 31, 2007 on Monday before the market opens. Shares have been red-hot this year, rising 155% helped by bullish comments the company has made about its business. Earlier this month, the company pre-announced Q1 results when it said that it expected that gross revenue will exceed a record $8 million for the three months ended March 31, 2007, as compared to $6.2 million in gross revenue it had previously anticipated. The company also expects to report positive cash flow. The company also recently reported its commission-only sales force now exceeds 200 associates nationwide, doubling from the number reported in mid-January. Two new product lines launched in the first quarter: Aquoral, for the treatment of Xerostomia or “dry mouth,” and the Zinx line of cold remedy products are expected to contribute to growth over the coming quarter. Shares rose 2 cents last week to close at $2.30.
JMAR Technologies, Inc. (OTCBB: JMAR), a leading developer of advanced laser, high resolution imaging and photonics technologies, and FemtoTrace, Inc. achieved a significant milestone last week after announcing the delivery and successful field testing of READ, a major new environmental and security technology that can detect underground oil leaks in sealed high voltage feeder cables. JMAR is FemtoTrace’s exclusive engineering and manufacturing arm for this technology that is licensed from NASA and Caltech’s Jet Propulsion Laboratory. READ targets a number of large markets as it is used to detect pollution problems in electric, gas, and water utilities. Such instruments can also be used to detect other environmental and systems performance problems with heat exchangers, transformers, compressor systems, providing a necessary service as utility performance, environmental compliance, safety, and customer service is improved. The benefits of READ have attracted the interest of well-known industry behemoths including EDF Energy, one of the U.K.’s largest energy companies, and Con Edison of New York, the largest utility in the Northeastern U.S., where both corporations are sponsors in funding the early development and commercialization of this real-time technology. Investors have much to look forward to as JMAR continues to work closely with FemtoTrace to commercialize READ as a major new tool for the electrical utility industry. Shares rose 1 cent to close the week at $0.22.
Language Access Network (OTC: LANW), a leader in video interpretation services, last week announced a new, two-year agreement to provide interpretation services with Dublin Methodist Hospital, the newest hospital in the OhioHealth organization. The contract becomes effective Jan. 8, 2008, the projected official opening date for the hospital. Dublin Methodist will be charged a per-minute fee based upon the interpretation time they use, and will be offered to its patients for free. As federal regulations require all institutions receiving federal money to provide free interpretation services, Language Access Network’s Martti system will help Dublin Methodist Hospital comply with ADA, JCAHO, and HIPAA regulations. The stock fell 16 cents to close at $0.85.
Volume Alert: Junior mining company Linux Gold Corp. (OTCBB: LNXGF) traded over 3.5 times average volume last week, as the recent strength in precious metals caused investors to bolster holdings in mining and exploration stocks. With an exploration program already in place at the company’s100% owned platinum/gold/uranium Dime Creek & Quartz Creek claims (near Granite Mountain, Alaska), and the stock currently trading near historic lows, any positive feedback from the program could net shareholders substantial percentage gains from current prices. Recently, Joe Granville, a noted mining newsletter publisher, recommended Linux as a top stock, and said that he thought the stock could easily reach a $1 or more. Shares rose 2 cents to end the week at $0.26.
OXIS International (OTCBB: OXIS), a biopharmaceutical company focused on commercializing predictive biomarkers, clinical assays and nutraceutical and therapeutic products, announced last week a worldwide exclusive licensing agreement with Alteon, Inc., granting Alteon exclusive rights to develop, manufacture and market ALT-2074 and related organoselenium compounds in the OXIS library. ALT-2074 is currently in a Phase 2 clinical study for cardiovascular indications and is believed to be useful in patients with diabetes, whose cardiovascular disease may be caused by high levels of circulating oxidized lipids and associated inflammation. Alteon will be responsible for the worldwide product development programs and will pay OXIS an up-front license fee of $500,000, as well as milestone fees, and royalties on product sales, as well as make an equity investment of another $500,000. This agreement gives OXIS the opportunity to benefit from the development of its technology by Alteon’s world-class scientific team, while sharing in product sales that could generate millions of dollars in licensing income, as diabetes affects as many as 250 million people worldwide. The stock ended the week at $0.25, up 2 cents.
GreenShift Corporation (OTCBB: GSHF), a company devoted to facilitating the efficient use of natural resources, reiterated details relating to the merger with its subsidiary GS CleanTech Corporation. The merger terms call for holders of GS CleanTech to receive 1 share of Greenshift common stock for each 3 shares owned in GS CleanTech. It is anticipated that the filings for the merger will be made during this quarter, with the completion date happening later this year. Management is very upbeat about this combination, believing the addition of GS CleanTech’s business will be accretive to the intrinsic value of both companies. Furthermore, such consolidation enables management to implement cost-efficiencies that will enable the company to refinance current debt while leveraging the broader GreenShift asset base to bring in cheaper capital. The stock ended the week at $0.08, down 1 penny.
Cell biology company Stem Cell Innovations, Inc., (OTCBB: SCLL), last week provided more details regarding the recent ruling by the U.S. Patent Board rejecting core ES cell patents issued to the Wisconsin Alumni Research Association (WARF). The human embryonic stem cells of Stem Cell’s exclusively licensed U.S. Patent Nos. 5,453,357 and 5,690,926 were ruled to be “True ES Cells.” Combined with the company’s pending patent applications covering additional inventions in the cited patents, and recently filed patent applications specifically covering its PluriCells, Stem Cell’s IP portfolio continues to strengthen. The company’s goal of making its PluriCell technology available for industrial, as well as academic use, could provide a substantial revenue base for future research and product development. On a separate note, President Bush said last week he will again veto a bill to federally subsidize stem cell research using human embryos, but would sign an alternative bill that permits public funding for studies on embryos incapable of developing into fetuses. Both bills were expected to be voted on in the Senate last week. Shares were unchanged for the week to close at $0.05.
VoIP, Inc. (OTCBB: VOII), a leading provider of Voice over Internet Protocol (VoIP) communications solutions for service providers, resellers and consumers, continues to receive positive press surrounding the battle between Vonage Holdings and Verizon Communications, pertaining to a breach of Internet calling patents by Vonage. With speculation of a hearing to be held next month to further determine the outcome, some industry watchers are predicting that when the dust settles, a viable solution for Vonage would be an acquisition of a company like VoIP, Inc., who has a very strong patent portfolio and operates its own network. Neither VoIP nor Vonage would comment on the buyout speculation. Separately, the company raised $300,000 in a private placement to two institutional investors earlier this month. Shares ended the week at $0.22, down 1 cent.
On the Wires: CytRx Corporation (NASDAQ: CYTR), a biopharmaceutical research and development company, last week announced that Dr. Nassim Usman, currently CEO and a director of Catalyst Biosciences Inc., was added to its scientific advisory board. Dr. Usman brings tremendous experience to the company as the inventor of core RNA chemistry that is still used throughout the world to make therapeutic RNAi and other RNA-based therapeutics. He has completed more than 10 licensing agreements with pharmaceutical and biotechnology companies and participated in private and public financings that have raised more than $250 million. Drug delivery company Generex Biotechnology Corporation (NASDAQ: GNBT) continues to strengthen its brand-awareness campaign it made poster presentations last week at the American Association of Clinical Endocrinologists in Seattle. The company highlighted the benefits of its lead product Generex Oral-lyn as a replacement to regular insulin for Type-1 diabetics at lunchtime. Generex Oral-lyn is already for sale in Ecuador, and is in various stages of clinical trials around the globe. VeriChip Corporation, a majority-owned subsidiary of Applied Digital (NASDAQ: ADSX), a leading provider of identification and security technology, announced the appointment of Jonathan Musher, MD, CMD as Chief Medical Officer and Vice President, Medical Affairs. Dr. Musher has over 20 years of clinical hands-on medical experience and is Chair of the American Medical Directors Association (AMDA) Foundation, a member of the AMDA Public Policy Committee, and was a recent delegate to the White House Conference on Aging. Independent energy exploration and development company Petrol Oil and Gas, Inc. (OTCBB: POIG), reported that the company’s CEO Paul Branagan will not run for re-election at the next shareholder meeting. Protocall Technologies Incorporated (OTCBB: PCLI), a leading provider of DVD on-demand systems for retailers and etailers, reported that its subsidiary, TitleMatch Entertainment Group, will demonstrate its recently released TitleMatch DVD On-Demand system with Qflix at the National Association of Broadcasters trade show in Las Vegas on April 15 – 16 in Las Vegas. The new TitleMatch system lets movie studios and retailers burn video content directly in stores and at website distribution centers at the time orders are placed and should gain a wide audience. This event is widely regarded as the world’s largest electronic media show covering the development, delivery and management of professional video and audio content across all mediums with over $50 billion in deals attributed to it.
SPECIAL SITUATIONS:
Samaritan Pharmaceuticals Inc. (AMEX: LIV) $0.24
How many biotechnology companies with market capitalizations of $40 million or less have compounds that they recently received a $10 million up-front licensing payment for? Not many, but Samaritan Pharmaceuticals is one. In addition, its sale of nine branded products in Eastern Europe provides a path to generating positive operating cash flow, unique for a small biopharmaceutical company.
The company is focused on commercializing innovative therapeutic products to relieve the suffering of patients with Alzheimer’s disease, cancer, cardiovascular disease, HIV, and Hepatitis C as well as, commercializing its acquired marketing and sales rights, to sell nine marketed revenue-generating products, in Greece and various Eastern European countries. Recently, Samaritan partnered its oral entry inhibitor HIV drug SP-01A, a drug that has demonstrated safety and efficacy, in Phase II clinical trials, with Pharmaplaz, based in Ireland, to advance to Phase III clinical trials. In addition, Samaritan aims to commercialize three blockbuster market drug candidates with late-stage preclinical development programs.
Unlike most nominally valued companies, Samaritan has a strong portfolio of in-licensed revenue producing products that will be sold in Greece and Eastern Europe to generate revenue to support its drug discovery in collaboration with Georgetown University and its in-house drug development. Currently, with a relatively small burn rate, Samaritan aims to develop its programs through early stage human clinical trials, including late-stage preclinical studies, an FDA IND filing and Phase I/II clinical trials.
Samaritan’s partnered lead product, SP-01A, is an anti-HIV drug that blocks the virus before it enters into a healthy cell and stops HIV replication. Samaritan has already received $1.4 million in March of this year from Pharmaplaz, with the remaining $8.6 million to be paid on September 16, 2007. Pharmaplaz will be responsible for clinical development, manufacturing and trial costs. Upon successful commercialization, Samaritan and Pharmaplaz will co-market SP-01A, with each sharing equally in the revenue royalty stream. It is anticipated that this product will enter Phase III in late 2007.
Further promise for investors stems from Samaritan’s efforts of commercializing three blockbuster market drugs candidates with late-stage preclinical development programs. The company’s Alzheimerâ’s Treatment drug, Caprospinol (SP-233) targets a $4 billion market and has shown impressive preclinical results of stopping amyloid plaque formation, resulting in the complete elimination of these plaques on rats that were tested. Even more impressive was the fact that memory was restored in the animals studied. The next milestones for this product include additional preclinical studies to make the drug an attractive partnering candidate and file supporting studies with the FDA with the aim of initiating Phase I/II human clinical trials.
The company’s Cholesterol drug, SP-1000, also shows great promise and is fast-acting that completely removes deadly plaque from clogged arteries. This drug targets a very lucrative $26 Billion market where the company plans to perform late-stage preclinical studies as it prepares for licensing to major pharmaceutical companies for further advancement. Additionally, Samaritan’s Oral Hepatitis C drug, SP-10-T1, offers a huge advantage in the $4 Billion Hepatitis C market as it is being developed as a novel “oral” antiviral therapeutic in the treatment of infected individuals. The company is focusing on moving forward to the next phase with the National Institute of Health to further build upon the oral attributes of this drug.
While many small biotechnology companies continually have to access the capital markets to support research and development activities, Samaritan expects to generate revenue from its nine in-licensed branded specialty care prescription drugs that will be sold in Greece and other Eastern Europe countries to produce enough revenue to satisfy its ongoing burn rate. The company expects to begin to market AMPHOCIL in Greece this month for use in treating life-threatening opportunistic infections, that often afflict Immuno-compromised patients, such as people with AIDS, transplant patients receiving immunosuppressant therapy, and cancer patients receiving chemotherapy or radiation treatment. Recently, it sought and received approval to significantly increase the price of the drug from the Greek government.
The stock, which traded as high as $5 in 2000, currently trades for a fraction of that value, and actually for less than when the company announced that it would receive $10 million up-front in a licensing deal with Pharmaplaz last month. While shares are up 14% this year, we would be hard pressed to find many companies with a $40 million market capitalization, a Phase 3 in a large market indication fully-funded by a partner, and nine products that will be sold in Europe to generate revenue. It is for these and other reasons that speculative oriented investors should consider Samaritan Pharmaceuticals.
