02/25/2007
VOLUME 288
Companies featured in the current edition of the newsletter: ACCP, ADSX, ARGA, CVM, CYTR, EMIS, GNBT, IMMG, ISOND, LNXGF, MBND, OXIS, PTCH, SCLL, SWTS
After a strong start to 2007, the markets consolidated recent gains in the holiday-shortened week, as technology and small-cap stocks rallied, while Blue Chips took a breather. The Dow fell 120 points, or 0.9%, paring its yearly gain to 1.5%. The S&P 500 dipped 4 points, or 0.3%, but is still up 2.3%. The Nasdaq bucked this trend, rising 18 points, good for an 0.8% gain for the week and 4.1% rise for the year. The Russell 2000 continues to confound the pundits who have predicted that small-cap stocks will underperform, rising 8 points last week to add to yearly gains which are now 4.9%.
One of the areas that has underpinned the rally from mid-year lows has been the positive view on inflation. With investors growing increasingly confident that the Federal Reserve has halted its series of interest rate hikes, and with energy prices declining sharply, many of the indexes have surged to new highs. Events last week, however, may cause investors to rethink their positions in these two areas. The January core CPI was reported last week to have risen 0.3%, the highest gain since June. The increase pushed the year-over-year increase in the core rate to 2.7%, well above the Fed’s inflation forecast for 2007 of 2% to 2.25%. Energy prices, which have played an important role in moderating inflation fears, also jumped last week, closing at $61.10, up $1.71 per barrel on the week. Investors are likely to continue to scrutinize these areas, especially since minutes from the January 31 Fed policy committee meeting, announced last week, showed that the Fed was taking a somewhat tougher stance on inflation than Chairman Bernanke’s speech had suggested last week.
While few have gotten rich fighting the tape, it is worth noting that certain cautionary signals have begun to appear regarding the rally, now in its ninth month since the June/July lows. While many publications have highlighted the fact that this is the longest period in history without some sort of meaningful correction, another indicator depicts the extended position of stocks. As of last Monday, 86% of NYSE-listed stocks were above their respective 200-day simple moving averages. Historically, readings in the 70-90% range have suggested that a correction is near. For S&P companies, 88% were above their 200-day moving average, also a significantly higher level than the norm.
What should investors look for this week? With most of the S&P 500 already having reported results, the earnings calendar is light. Monday, after the close, Brocade Corporation (NASDAQ: BRCD), Marvel (NASDAQ: MRVL) and Nordstrom (NYSE: JWN) report results. Tuesday morning, Federated (NYSE: FD) and HJ Heinz (NYSE: HZN) grab the spotlight. Wednesday morning, Magellan Health (NASDAQ: MGLN) and Sprint Nextel (NYSE: S) post results. Bank of America (NYSE: BAC) holds an investor day. Wednesday, Home Depot (NYSE: HD) and United Technologies (NYSE: UTX) meet with analysts.
While the earnings calendar is light, the conference schedule is full, with numerous influential companies presenting at high-profile events. With nearly two-thirds of the quarter completed, stocks may react to comments made by executives at these conferences regarding their first quarter results. Monday, JPMorgan hosts a Philadelphia technology Day, while the investment bank also holds a Small-Mid Cap Conference in New York. SRA Associates holds its 3rd Annual Winter Technology Conference in San Francisco. Tuesday, Bear Stearns holds its two-day 13th Annual Retail, Restaurant & Consumer Conference in New York, while the investment bank hosts its 9th Annual Healthcare Conference in London. Wednesday, Goldman Sachs hosts a three-day Technology Symposium in Las Vegas featuring many influential technology companies. RBC Dain holds its 2007 Northwest Investor Conference in Seattle. On Wednesday, Jeffries & Co. hosts its 3rd Annual Internet Conference in New York. Simmons hosts its 7th Annual International Energy Conference in New York on Wednesday as well. Thursday, C.E. Unterberg Tobin holds a two-day Healthcare & Technology One-on-One Day.
Volume Alert: Shares of biotechnology company CytRx Corporation (NASDAQ: CYTR) remain red-hot, as the stock surged another 14.9% last week on more than six times average volume, as the company continues to get recognized for its RNAi platform, and the role that Dr. Craig Mello, the recent Nobel Prize Winner and co-discoverer of RNAi is likely to play in RXi, the majority-owned subsidiary CYTR created to focus on developing its RNAi platform. In a particularly bullish technical move, the stock “filled the gap” created earlier in the week when the stock surged on Tuesday (opened at $4.19) and then rallied strongly Friday to close near its high for the day, ending the week at $4.71, up 61 cents. Despite recent gains, the stock still trades at a significant discount to other RNAi companies, such as Alnylum, which sports a market capitalization of approximately twice CytRx’s.
Isonics Corporation (NASDAQ: ISOND), a provider of innovative solutions for the homeland security and semiconductor markets, said last week that it expects to report unaudited revenue for its semiconductor products and services segment of approximately $2.9 for the quarter ended January 31, 2007, a 61% increase as compared to $1.8 million for the same quarter in the year-earlier period. The improved top-line result also helped the company report its third consecutive quarter of positive unaudited EBITDA for its semiconductor segment. ISOND expects to report EBITDA of approximately $525,000 for the quarter ended January 31, 2007 compared to a loss of $544,000 for the quarter ended January 31, 2006. The company also made several significant management changes, appointing Christopher Toffales, an experienced and accomplished executive in the homeland security and defense industry, as Chairman and John Sakys, the company’s Chief Financial Officer, to the position of President and interim CEO. The moves are expected to help the company bolster its security business, which has struggled while the semiconductor business has grown impressively. Shares ended the week at $2.00, up 24 cents.
VeriChip Corporation a provider of RFID systems for people in the healthcare industry and a majority-owned subsidiary of Applied Digital (NADSAQ: ADSX), said last week that it had completed the installation of its first three Hugs infant protection systems in Portugal. These installations also represent the company’s first sales in continental Europe for the Hugs system. Overall, VeriChip has now sold 15 Hugs infant protection systems in international markets. The company also said that Alzheimer’s Community Care, Inc., will conduct a study of the effectiveness of the VeriMed Patient Identification System in managing the records of Alzheimer’s patients and their caregivers. In the two-year, 200 patient study, participating individuals suffering from Alzheimer’s disease and other forms of dementia, as well as their caregivers, would receive the VeriMed implantable microchip to provide emergency department staff easy access to those patients’ identification and medical information. Shares of ADSX rose 3 cents last week, closing at $1.79.
Earnings Preview: Drug delivery company Emisphere Technologies (NASDAQ: EMIS) is scheduled to report fourth quarter and year-end results on Tuesday before the market opens. While earnings announcements from biotechnology companies are not normally significant, investors are likely to focus on what the company says about the status of its partnered programs with Novartis, which are scheduled to begin two Phase III clinical trials as well as plans for its heparin program. Note that it will be the first conference call conducted by the company’s recently appointed CEO Lew Bender. Shares ended the week at $5.26, down 3 cents.
Multiband Corporation, (NASDAQ: MBND), a leading provider of video, data, and voice systems and services to multiple dwelling units, said last week it had entered into a distribution agreement with Hoteleguide to provide channel guide services through its national system operator program. This agreement will allow Multiband’s operators to offer a channel lineup solution for the SMATV services they currently provide. In addition to enhancing existing services. Multiband and Hoteleguide will generate recurring revenue from the creation of the channel guide, and will provide operators with the necessary equipment and technical support. The service will be deployed within the multiple markets Multiband operators currently support. MBND also received notification from the Nasdaq that it would have 180 days to meet the $1 minimum bid requirement. Shares ended the week at $0.58, down 1 cent.
Volume Alert: Shares of drug delivery company Generex Biotechnology (NASDAQ: GNBT) rallied sharply after brokerage firm Jesup & Lamont initiated coverage of the company with a “Buy” rating and $3.25 price target. In its report, the firm said that, Generex has a deep pipeline, an active industry education program (particularly in the worldwide diabetes market), growing product sales, and plenty of financial resources to provide investors with value-producing progress in the near future.” Note that the stock closed above its 50-day moving average for the first time since November. Shares rose 19 cents last week on more than twice average volume to close at $1.92.
Shares of oncology company Access Pharmaceuticals, Inc. (OTCBB: ACCP), which cooled off last week after tripling in less than two weeks, could receive a boost after the company said that it had entered into a letter of intent to acquire Somanta Pharmacueticals, Inc. Somanta, which is currently in Phase 2 clinical trials with its lead clinical product Sodium Phenylbutyrate (PB), represents an inexpensive way for ACCP to build its cancer platform. In National Institute of Health sponsored trials, PB has demonstrated the greatest activity in CNS cancers, several of which are “orphan” indications such as Glioblastoma Multiforme. Promising data has also emerged which suggests PB may be an effective therapy for certain blood cancers and other solid tumors. In addition, the company has three promising pre-clinical candidates which are based upon pan-target inhibitors that have been shown to be effective in tumor cells resistant to conventional chemotherapy by targeting and irreversibly binding to DNA. If the deal closes as scheduled in the second quarter, it is expected to dramatically expand ACCP’s platform and should enhance the company’s news flow and development activities. Shares ended the week at $7.15, down 85 cents.
Volume Alert: Shares of specialty pharmaceutical company Auriga Laboratories (OTCBB: ARGA) surged 41.6% last week on more than three times average volume after the company said that its total dispensed prescriptions reached a record 26,004 in January 2007, an increase of 324% from 6,141 in January 2006. The increase reflects the progress ARGA has made in building its sales force, which is unique in the industry based upon its commission-only structure, and has now grown to more than 100 associates from nine in less than eight months. The company expects to increase this number to 175 sales associates by the end of the first quarter 2007. The compensation structure represents one of the most cost-effective in the pharmaceutical industry. During the first quarter of this year, Auriga plans to launch Aquoral a prescription-only product designed to treat the widespread condition of Xerostomia (dry mouth) and its Zinx family of respiratory prescription and over-the-counter products in a move that should further boost sales. Shares ended the week at $1.60, up 47 cents.
Sweet Success Enterprises (OTCBB: SWTS), the maker of a line of innovative and delicious healthy-lifestyle beverages, said last week that it had completed the successful mass-production of more than 3,500 cases of the ChocKoala Immunity Junior at the Kerry Sainte Claire facility in Quebec, Canada. Developed in 2006 as part of the company’s Fuel for Health product line, the non-dairy, non-soy, milk-chocolate flavored drink was designed as a great-tasting, healthy beverage for parents to give their children. Two weeks ago the company completed the first commercial production of over 3,500 cases of the newly branded Chocolate and Vanilla VitaTein Supershakes at the Universal Food and Beverage plant in Savannah, Georgia. All three products will be available for sale through established distributors, as well as on the Sweet Success website and through e-commerce giant Amazon.com in the ensuing weeks. Growing sales of the product could serve as a catalyst for the stock. Shares ended the week at $0.55, down 3 cents.
OXIS International (OTCBB: OXIS), a biopharmaceutical company focused on commercializing predictive biomarkers, clinical assays and nutraceutical and therapeutic products, said last week that it was preparing to submit for evaluation Palosein and Orgotein, two anti-oxidant/anti-inflammatory compounds that have potential clinical use in the treatment of polonium exposure and as a defense against radiation, to the Biomedical Advanced Research and Development Agency (BARDA) within the U.S. Department of Health and Human Services and to Project BioShield for funding. OXIS is also in discussions with pharmaceutical companies regarding licensing of its technology. BARDA is a newly created agency that would oversee the development of products to fight bioterrorism and infectious diseases. Project BioShield offers funding for research into promising radiation-injury treatments. President Bush last month signed legislation which authorized $1 billion in spending on biodefense over the next three years. Palosein (superoxide dismutase) is the Company’s proprietary free radical scavenger, which has demonstrated clinical efficacy as a potent anti-inflammatory drug for tendon and ligament injuries, arthritis and disc disease in dogs and horses. The product had been marketed under the brand name Palosein for veterinarian use in the United States. The Company is currently preparing a new formulation for submission to the FDA. Orgotein (superoxide dismutase) has been marketed in Europe to protect patients undergoing cobalt therapy from radiation toxicity/side effects. In Europe, there have been more than twelve million doses administered to date. Shares ended the week at $0.26, down 3 cents.
Junior mining company Linux Gold Corp. (OTCBB: LNXGF) provided details last week on its promising exploration program. The exploration program on the Dime Creek & Quartz Creek (near Granite Mountain, Alaska) will consist of mapping historical placer workings, collecting pan samples from the placer workings and in un-mined ground, and to analyze the concentrates for gold, platinum and uranium. The goal of this program is to identify placer and lode drill targets, and determine the source of the high grade pan concentrates for potential lode deposits. Two years ago, the company staked 148 State of Alaska 160-acre MTRSC mining claims at several locations near Granite Mountain on the eastern Seward Peninsula of Alaska and has increased the claim position to 284 claims or 68 square miles. A drilling program on the Granite Mountain Property was completed last September, when the company tested four separate mineralized zones. Shares ended the week at $0.28, unchanged.
Stem Cell Innovations, Inc. (OTCBB: SCLL) said last week that it had acquired certain marketing rights for Pluristem’s PLXI product in Asia, excluding Japan and 3-D stem cell expansion capability. PLXI, Pluristem’s first adult stem cell product, is intended to target a critical global shortfall of matched tissue for bone marrow transplantation since bone marrow transplantation is often the only cure for patients suffering from leukemia, lymphoma, myeloma and many other hematological diseases. Shares of SCLL ended the week at $0.052, unchanged.
Volume Alert: Shares of junior energy company Patch International (OTCBB: PTCH) surged 19% Friday or more than 8 times average volume, after the company provide a favorable update on its projects. At the Dover Oil Sands Project, Patch finished 11 of the 16 coreholes and approximately 80% of the 2D seismic program has concluded. At the Firebag Oil Sands Project access roads and leases have been constructed, and drilling and seismic operations are expected to commence this weekend. Patch and its JV partner are currently ramping up operations to utilize as many as 6 rigs to conclude the winter access operation of Dover’s 16 corehole program and Firebag’s 12 corehole program. Patch must complete a work program consisting of spudding 16 evaluation wells on the properties and the completion of a 2D seismic program on the properties on or before March 31, 2007 to earn up to an 80% working interest in the Dover Oil Sands Project. As part of the Firebag farm in agreement, Patch must complete a work program consisting of spudding 12 evaluation wells on the properties and the completion of a 2D seismic program on the properties and the completion of a 2D seismic program to earn a collective 75% working interest in the Firebag Oil Sands Project. Shares ended the week at $2.40, up 65 cents.
Impart Media Group, Inc. (OTCBB: IMMG), a provider of end-to-end networked digital media solutions for the enhanced delivery of information, brand marketing, merchandising, and advertising, and Design Forum, one of the nation’s top retail consultancies, inked a deal to provide turnkey placement of custom advanced, multi-thematic digital signage systems for AT&T. The collaborative effort encompasses the optimization of retailing space with multi-theme product end cap and fixture displays, enhanced with topical content supported with complete equipment integration, installation, content management, network monitoring, and onsite service. Shares ended the week at $0.90, up 5 cents.
SPECIAL SITUATIONS:
CEL-SCI Corporation (AMEX: CVM) $0.70
With small biotechnology stocks back in vogue, and recent Special Situation stocks such as CytRx and Access Pharmaceuticals surging, we thought we would look for other promising biotechnology stocks which are undiscovered gems. A suitable candidate would be in a late-stage clinical trial in a large market indication, have a solid balance sheet and a valuation below $100 million. One such company is CEL-SCI Corporation, a company based in Virginia that is preparing to commence a multi-country, multi-center 800 patient phase III trial in head and neck cancer featuring its lead compound Multikine, which represents a promising adjunctive, first-line therapy for squamous cell carcinoma of the head and neck.
5% to 6% of all cancer malignancies world-wide, about 500,000 new cases annually, involve squamous cell carcinoma. Approximately half of the nearly 500,000 annual cases result in death within three years. The standard treatment for this disease is surgery followed by radiation, or surgery followed by the combination of radiation and chemotherapy.
So why could Multikine represent a potential treatment for the disease? Multine is a biological product that contains a defined mixture of naturally occurring cytokines. Cytokines have demonstrated the ability to destroy tumor cells through a coordinated immune response. Several earlier Phase I and Phase II studies have shown the compound to be safe and well tolerated, but more importantly, effective. In fact, the drug, which is given by injection, was shown in a Phase II study to increase the overall survival rate of patients with head and neck cancer by a increase 33% 42 months after surgery. In January, the company received the go-ahead from the FDA to commence a Phase III clinical trial.
Multikine fights cancer, according to an article in the highly respected “Journal of Clinical Oncology”, by empowering a patient’s own immune system to mount a comprehensive and effective anti-tumor response. Based upon the success of its Phase II study, CEL-SCI is preparing for a pivotal trial as adjuvantive (additional) therapy in patients with advanced primary (not yet treated) head and neck cancer. The primary endpoints will be overall survival. The company expects to accrue patients over an 18 month period with a median three-year follow-up period. With over 200 patients treated in previous trials, an attractive safety profile and data which showed that antitumor activity was consistently demonstrated at the same dose to be used in the Phase III study, the stage appears to be set for the Phase III trial to be successful. In addition, the Company has added even more safeguards to further increase the chance of success. For example, CVM is overenrolling the study such that by showing a 7.2% increase in overall survival it will be able to prove the required 10% overall survival for success without a statistical penalty. Given the high increase in overall survival seen in the company’s Phase II study, it seems likely that the company will achieve this much lower level required for success in Phase III. Success in the Phase III study could establish Multikine as a part of a new standard of care for recently diagnosed and not treated head and neck cancer patients. Even a 10% market penetration would result in roughly $1.25 billion in sales, based upon a price of $25,000 for the Multikine treatment.
Apparently, the company’s CEO believes strongly that the study will be successful. He has been a consistent buyer of the stock, purchasing nearly 150,000 shares in the open market over the last year at prices comparable to, or higher than, today’s price. He must believe that the stock is undervalued, and an analysis of cancer companies at a comparable stage would suggest he is right. Cell Therapeutics, also entering Phase III, has a market capitalization of approximately $225 million, while Synta, which recently went public, has a market capitalization of about $310 million. CEL-SCI, however, has a market capitalization of just $65 million and addresses a much bigger market opportunity than the other companies do. The company raised $8.3 million with institutional investors in August through the issuance of convertible notes, at a price that is more than 20% above where the stock is today.
The stock has been volatile, trading as high as $30 in the early 1990’s. Last April, the stock traded as high as $1.78. Shares are up 25% this year, rallying sharply after the company said the FDA would permit it to begin a Phase III trial. Still, the stock remains close to its 52-week low. With shares of small biotechnology companies suddenly hot again, investors looking for a late-stage company focused on a large-market opportunity in cancer might consider doing what the CEO has done over the last year, buying the stock.
A profile, description, or other mention of a company in the newsletter is neither an offer nor solicitation to buy or sell any securities mentioned. While we believe all sources of information to be factual and reliable, in no way do we represent or guarantee the accuracy thereof, nor the statements made herein. THE READER SHOULD VERIFY ALL CLAIMS AND DO ITS OWN DUE DILIGENCE BEFORE INVESTING IN ANY SECURITIES MENTIONED. This publication accepts compensation from companies that it features. This newsletter should not be regarded as an independent publication. Our editors may, from time to time, acquire positions in the companies that they cover. This could represent a conflict of interest. The CEOcast newsletter shall be under no obligation to inform readers about its trading activities. CEOcast’s editors reserve the right to buy or sell shares in these companies at any time. The following companies, featured in this newsletter, have compensated CEOcast: Applied Digital, twelve thousand five hundred dollars per month, Auriga Laboratories, seven thousand five hundred dollars per month and ninety thousand shares of stock for a one-year program, CytRx, fifteen thousand dollars per month for a six-month program, Generex Biotechnology, five thousand dollars per month and two hundred twenty five thousand shares of stock for a one-year program; CEOcast received five hundred twenty thousand shares from previous agreements, IMPART Media, seven thousand five hundred dollars per month and one hundred fifty thousand shares of stock for a one-year program, Isonics Corporation, seventeen thousand five hundred dollars per month, Sweet Success, five thousand dollars per month and three hundred thousand shares of stock, Emisphere Technologies, seventeen thousand five hundred dollars per month,Stem Cell Innovations, one hundred thirty-five thousand dollars for a six-month agreement, Linux Gold, seven thousand five hundred dollars per month and three hundred fifty thousand shares for a six-month program, Access Pharmaceuticals, seven thousand five hundred dollars per month and eight thousand seven hundred twenty shares of stock for a six-month program, OXIS International, seven thousand five hundred dollars per month and two hundred forty thousand shares of stock for a six-month program, Patch International, seventy five hundred dollars per month and sixty thousand shares of stock, Multiband Corporation, then thousand dollars per month and eighty thousand shares of stock for a six month program, Multiband Corporation, then thousand dollars per month and eighty thousand shares of stock for a six month program, CEL SCI Corporation, five thousand dollars and two hundred thousand shares of stock for a one-year program