07/15/2007
VOLUME 308
Companies featured in the current edition of the newsletter: ARGA, AVGO, BSGC, CHIP, CVM, CYTR, GNBT, HSOA, HYTM, ILNS, IWEB, JMAR, PBIO, PLKH, RVEP, VOII, VQPH
It was another impressive week for the market as stocks surged to new all-time highs, with three of the four major indices ending at record levels on Friday. The Dow had its largest one-day percentage gain in almost four years on Thursday after climbing 283 points. For the week, the Dow gained 295 points, extending annual gains to 11.5%. The Nasdaq was the only index not to achieve a record close on Friday, but experienced a nice move for the week by rising 40 points, with yearly returns increasing to 12%. The S&P moved higher by 22 points, equating year-to-date profits to 9.4%. The Russell rose 3 points and increased its annual gains to 8.6%.
Despite the kick-off of earnings season that should have been the catalyst for any significant market move, positive spending trends from consumers took the forefront. Concerns over the fallout of hedge fund investments in the housing sector set a negative tone early in the week with disappointing profit guidance from Home Depot reinforcing such worries. But a notable monthly sales report from Wal-Mart showing a better-than-anticipated 2.4% increase in sales at stores open at least a year pushed aside any worries investors may have had over the economy. Buyers were not concerned by a report released on Friday showing retail sales in June falling by 0.9%, much larger than the flat reading that was expected. Consumer confidence also came in weak at 76.1 in July, significantly less than the 81.4 reading just a month earlier. But with investors expecting companies to report 8% EPS growth this quarter and overall economic growth for the quarter predicted to come in at 3% or better, bulls appear to be driving the market higher.
What should investors look for this week? Earnings Season begins in earnest this week, with Coca-Cola (NYSE: KO) releasing numbers on Tuesday morning before the opening, along with Johnson & Johnson (NYSE: JNJ), Merrill Lynch (NYSE: MER), State Street (NYSE: STT) and US Bancorp (NYSE: USB). After the close on Tuesday, technology giants Intel (NASDAQ: INTC) and Yahoo! (NASDAQ: YHOO) report results. Wednesday morning, Abbott Labs (NYSE: ABT), JP Morgan Chase (NYSE: JPM), Pfizer (NYSE: PFE) and Southwest Air (NYSE: LUV) announce earnings, with eBAY (NASDAQ: EBAY) reporting numbers later that day. Prior to the opening on Thursday, Bank of New York (NYSE: BK), Ford Motor (NYSE: F) and Motorola (NYSE: MOT) release results, with Google (NASDAQ: GOOG), IBM (NYSE: IBM) and Microsoft (NASDAQ: MSFT) reporting earnings after the closing bell. The week ends with Boston Scientific (NYSE: BSX) and Caterpillar (NYSE: CAT) releasing numbers before the opening bell. Additionally, Applied Materials (NASDAQ: AMAT) will meet with analysts on Tuesday and LAM Research (NASDAQ: LRCX) will host analysts on Wednesday.
The conference schedule is light with the two-day Capstone Investments 2007 Small-Cap Investor Conference being held in Milwaukee starting Monday. The week-long SEMICON West 2007 conference in San Francisco also begins on Monday. A.G. Edwards hosts its two-day E&P Conference starting Tuesday in New York.
On the economic front, July NY Empire State Index will be reported on Monday at 8:30 a.m. Before the opening on Tuesday, June PPI will be released along with May Net Foreign Purchases and June Industrial Production and Capacity Utilization. Wednesday morning June CPI, June Housing Starts and June Building Permits will be reported at 8:30 a.m. followed by Weekly Crude Inventories at 10:30 a.m. Thursday before the opening, Weekly Jobless Claims will be announced with June Leading Indicators being reported at 10:00 a.m., July Philadelphia Fed being released at 12 noon, with all eyes focusing on the release of the FOMC Minutes in the afternoon from the Fed’s June 28th meeting. Additionally, Kansas City Fed President Hoenig speaks on the economy on Tuesday, Chicago Fed President Moskow speaks on Thursday and St. Louis Fed President Poole speaks on Friday.
Healthcare services company Hythiam, Inc. (NASDAQ: HYTM), announced last week the appointment of the Honorable Karen Freeman-Wilson (ret.) to the company’s board of directors. Judge Freeman-Wilson has previously served as Chief Executive Officer of the National Association of Drug Court Professionals and Executive Director of the National Drug Court Institute, as well as the Attorney General for the State of Indiana. Ms. Freeman-Wilson could play an important role in helping the company expand adoption of PROMETA, its protocols for the treatment of alcohol, cocaine and methamphetamine, to the minority community. Shares ended the week at $8.71, up 29 cents.
After nine consecutive days of decline in the price of shares of Home Solutions of America, Inc. (NASDAQ: HSOA), a provider of restoration, construction and interior services to commercial and residential customers, the company’s silence appears deafening. Is the sell-off overdone? Shares were weak on Wednesday, amid speculation that a particular property in Gibsonton, Florida, which has yet to be permitted and could be owned by certain officers of the company’s Fireline Restoration subsidiary, was the venue of a 600,000 plus square foot retail center and corporate office site located in Hillsborough County, Florida for which HSOA was awarded a contract valued at approximately $100 million. The company has not identified the site yet, but it seems unlikely that this property is the venue, as parties we have spoken with tell us that it could be difficult to build a project as large as this one on a property with those characteristics. Previously, this same group incorrectly speculated that the contract was with developer Burton Katzman, which the company denied. More significantly, however, is that the weakness in the stock, likely due to the company declining to comment on either the New York or Florida projects, has caused shares to retreat to levels prior to the company’s solid first quarter results, where it beat the lone analyst’s estimate by 2 cents. The decline is even more puzzling in a week where shares of larger competitors Shaw Group (NYSE: SGR) and Perini Corp. (NYSE: PCR) established multi-year highs. Recently, The American Institute of Architects forecast a 7.2% growth in nonresidential construction spending throughout all of this year, driven by hotel and office building business. That’s on top of 6% growth last year. The institute’s closely watched Architecture Billings Index, a leading economic indicator of construction activity, revealed a spike in design activity in May. That follows three months of moderate growth. The company’s transition to become more of a construction services company should allow it to benefit from these trends. With HSOA’s stock trading at a P/E multiple that is less than 1/3 the level of its larger peers, and acquisition activity heating up in the area (URS announced plans to buy Washington Group International for $2.6 billion in May, Jacobs inked a deal to buy Edwards and Kelcey, a privately held engineering, design, planning, and construction management firm in March and Perini bought Rudolph and Sletten, an established building contractor and construction management company last October), the company could become an acquisition candidate at its current valuation. HSOA’s stock currently trades at less than 9 times ’07 P/E estimates, at the bottom of historical levels. Shares ended the week at $5.31, down 52 cents.
Earnings Preview: VeriChip Corporation (NASDAQ: CHIP), a leading provider of identification and security technology, and a majority-owned subsidiary of Applied Digital, reached a new 52-week high of $10.62 before succumbing to profit-taking last week. The company will report its second quarter 2007 financial results for the period ended June 30, 2007, on Tuesday after the market closes. Investors should look for ongoing strength in revenue growth as the number of infant systems sold to new customers is expected to rise. Updates on the number of total hospitals using the VeriMed Patient Identification System should be provided by the company as VeriChip moves closer to its stated goal of having 800 hospitals by year-end. Commentary pertaining to the company’s partnership with Alzheimer Community Care and the status of its participation in the two-year, 200 patient study for Alzheimer’s patients study using the VeriMed system should also be monitored, as this growing market represents a lucrative opportunity for VeriChip. Additionally, VeriChip’s wholly owned subsidiary, Xmark Corporation, has installed its Hugs infant protection system at Baylor Medical Center at Frisco, in Frisco, Texas. This is the sixth sale to the Baylor Health Care System, one of the largest providers of healthcare services in the Dallas-Fort Worth region. Nationwide, one out of every three birthing hospitals in the U.S. has an Xmark infant protection system installed, highlighting VeriChip’s dominance in the RFID marketplace, and cementing the Hugs system as an industry benchmark. Shares ended the week at $8.60, down $1.05.
Volume Alert: Shares of Rio Vista Energy Partners LP (NASDAQ: RVEP), a master limited partnership focusing on the acquisition of oil and gas exploration and production assets, surged 18.9% on more than seven times average volume, and in the process reached a new all-time high of $22.40 after the master limited partnership announced last week letters of intent to acquire assets and/or stock including certain leasehold interests of oil and gas producing properties and associated pipeline gathering systems from four privately held companies based in East Central Oklahoma. The leases comprise approximately 22,000 gross HBP acres (Held By Production), a 25-mile pipeline that gathers gas from multiple properties located in Haskell and Pittsburg Counties and a 40-mile pipeline that receives gas from leases in the Texanna area and delivers to the ONG-R-900 intrastate pipeline in McIntosh County. The companies currently have a majority interest in a total of 93 operated wells and 16 non-operated wells, and there are an additional 114 identified drilling locations in the upper formations with upside potential. Rio Vista will pay a total of $9.4 million in cash, assume debt of approximately $16.5 million, and issue $1.5 million of Rio Vista common units. The transactions are subject to the approval by the board of managers of Rio Vista and other closing conditions. RVEP also announced that it had scheduled a cash distribution of $0.25 per common unit, scheduled to be paid on July 31, 2007 to unit holders of record as of the close of business on July 24, 2007. This distribution covers the second quarter ended June 30, 2007. Based on the master limited partnership issuing a similar dividend on a quarterly basis, investors would receive a return from dividends of 5.8%. Shares ended the week at $17.21, up $2.74.
CytRx Corporation (NASDAQ: CYTR), a biopharmaceutical research and development company, stands to benefit significantly from its position of being one of the few stand-alone companies remaining in the RNAi therapeutics field that has yet to become affiliated with a big pharmaceutical partner. RNAi therapeutics has attracted significant attention from major healthcare players as this field is becoming recognized as a powerful enabler of drug discovery in cells that shows great promise in cancer research. Over the past two weeks there has been a great deal of activity surrounding this space. Drug giant Roche signed a licensing deal with Alnylam Pharmaceuticals Inc., an RNAi therapeutics company, in a deal whose worth could be valued up to $1 billion. AstraZeneca PLC also became the latest big drug maker to bet on the new science of RNA interference by signing a deal with U.K.-based Silence Therapeutics PLC valued at as much as 200 million pounds ($402.2 million). Prior to these deals, Merck ignited interest in RNAi by purchasing Sirna Therapeutics in a deal with a cash value of approximately $1.1 billion in the fourth quarter of last year. The RNAi field continues to become more widely recognized as a method that could significantly change the way in which drugs are discovered and developed, as it focuses on pinpointing a gene at the root of a disease. RNAi was the basis for last year’s Nobel Prize in medicine and is seen as having the potential to produce promising treatments for diseases including cancer, blindness and AIDS. As a result of this trend, CytRx Corporation could be the next RNAi company to sign a lucrative deal with an industry conglomerate who is interested in entering this growing industry. Shares ended the week at $3.86, up 61 cents.
Drug delivery company Generex Biotechnology Corporation (NASDAQ: GNBT), reported last week that it had signed a Product Licensing & Distribution Agreement with the Armenian Development Agency, and Canada Armenia Trading House Ltd., for the commercialization of Generex Oral-lyn, the company’s proprietary oral insulin spray product, in the Republic of Armenia, Georgia, and the Republic of Kazakhstan. The ADA and CATH have agreed to bear any and all costs, including any clinical and regulatory costs. It is estimated that up to 9% of the population of these countries, or more than 1 million people, suffer from diabetes and its complications. The analyst at Rodman & Renshaw who covers the company believes that the deal could result in more than $10 million in peak revenues to GNBT in these markets alone. Oral-lyn, which is currently for sale in Equador for the treatment of Type-1, and Type-2 diabetes, is expected to begin Phase III clinical trials in the U.S. later this year. Shares ended the week at $1.76, down 1 penny.
ProLink Holdings Corp. (OTCBB: PLKH), the world’s leading provider of GPS golf-course management systems and on-course advertising, said its exclusive distributor in South Africa, Elumina South Africa, will install the ProLink system at Leopard Creek Country Club, the No. 1 ranked golf course in South Africa. Leopard Creek joins many of South Africa’s top courses and resorts in featuring ProLink, including 2003 Presidents Cup host Fancourt Hotel and Country Club Estate, Arabella, Lost City and Zimbali Country Club. The company believes this is the first step in having ProLink’s system adopted countrywide, joining the approximately 500 courses worldwide already using it for its player enhancements, management capabilities, reliability and to deliver advertising to a traditionally upscale audience. Shares ended the week at $1.28, up 2 cents.
Auriga Laboratories, Inc. (OTCBB: ARGA), a specialty pharmaceutical company with products for the treatment of acute respiratory diseases and dermatological conditions, reported last week that its ATS Pharmaceuticals (Advanced Topical Solutions) division launched its Xyralid RC rectal cream kit for the treatment of mild hemorrhoidal symptoms. Each kit contains a seven-day supply of Xyralid Rectal Cream and a seven-day supply of Konsyl Natural Bulk-Forming Laxative with a convenient shaker cup. Close to $90 million is spent annually on hemorrhoid prescriptions in the U.S. Xyralid RC is the second product being marketed and sold to dermatologists, gastroenterologists and colon-rectal specialists by ATS Pharma’s 46 person strong sales force. This launch represents another milestone as the company continues to implement its stated goals of expanding its product portfolio while diversifying offerings to include non-seasonal cold and flu products. Shares ended the week at $0.97, down 20 cents.
Avicena Group, Inc. (OTCBB: AVGO), a biotechnology company focused on diseases of the central nervous system, announced last week that it has retained Rothschild Inc., a leading global investment bank, to analyze opportunities for partnering and licensing as well as other business transactions for its late stage central nervous system drug development programs, in collaboration with Bionest Partners, a global life sciences strategy consulting firm. Avicena’s IP portfolio includes approximately 50 patents, either issued or pending, and the company is currently conducting Phase III trials for Parkinson’s disease and ALS (Lou Gehrig’s disease), and plans to initiate a Phase III trial for Huntington’s disease in early 2008. The company also plans to begin pre-clinical studies for Alzheimer’s disease and Multiple Sclerosis in the near future. The agreement with Rothschild and Bionest should give Avicena Group the support needed to maximize shareholder value with the continued development of its late-stage products. Shares ended the week at $3.90, down 52 cents.
BigString Corporation (OTCBB: BSGC), a provider of user-controllable email services, said last week that it has teamed up with Ticketmaster’s LiveDaily music news site, the Documentary Channel, and the Virgin Festival By Virgin Mobile in search of the next Great Rock Journalist. All entrants of the contest will receive a free BigString e-mail account, which enables users to remotely erase or modify emails sent to any recipient, designate emails to self-destruct, be non-forwardable, and a host of other features, and must use this e-mail account to submit their 500 word music-related article. The grand prize winner will be sent on an all-expenses-paid two-day journalist assignment to cover the 2007 Virgin Festival By Virgin Mobile in Baltimore featuring The Police, The Smashing Pumpkins, Beastie Boys and other headline acts, and will receive press credentials and a photo pass to attend the festival and conduct interviews with select performers. This collaboration should provide BigString with plenty of exposure in the multi-billion dollar media & entertainment industry. Shares remained unchanged for the week to close at $0.26.
IceWEB Inc. (OTCBB: IWEB), a software services provider, announced last week a free, 30-day trial of IceMAIL, the company’s Hosted Microsoft Exchange subscription service, for users of Apple’s iPhone. This service allows users to receive their Hosted Microsoft Exchange email regardless of which smart device they may choose, avoiding the conflicts of possible brand incompatibility. IceMAIL provides wireless email connectivity along with desktop synchronization of calendars and contacts from Microsoft Outlook and Apple Macintosh OS X’s Address, iCal, and Microsoft Entourage programs, allowing small businesses to incorporate the iPhone’s many capabilities into its infrastructure without worry. Additionally, IceWEB Inc. launched a joint marketing initiative with F5 Networks, which is designed to increase market awareness and sales of F5’s Message Security Module for F5’s popular BIG-IP platform. Shares ended the week at $0.73, down 2 cents.
JMAR Technologies, Inc. (OTCBB: JMAR), a leading developer of advanced laser, high resolution imaging and photonics technologies, last week announced the second sale of its proprietary BriteLight laser heads to the Lawrence Livermore National Laboratory for use in the National Ignition Facility program, the world’s largest laser system consisting of 192 laser beams delivering 1.8 megajoules of ultraviolet light. This pact highlights the growing awareness of JMAR’s patented, high brightness, high power advanced photonics, and should be indicative of the company’s future prospects. Shares ended the week at $0.12, down 2 cents.
Merck’s deal last week, in which it entered into a global collaboration to jointly develop and commercialize AP23573, ARIAD Pharmaceutical’s s novel mTOR inhibitor, for use in cancer, could have important implications for other companies, such as Vioquest Pharmaceuticals (OTCBB: VQPH). Ariad’s lead experimental medication, known in its pre-marketing stage as “AP23573”, is a new class of potential cancer treatments designed to block a protein called mTOR and interfere with growth of cancer cells by starving them. The deal could be worth as much as $1 billion to Ariad. Vioquest recently announced that it would proceed with Phase II trials later this year with its direct Akt inhibitor VQD-002. Trials in patients with refractory leukemia and solid tumors recently completed phase I enrollment. VQD-002 is a novel direct inhibitor of activation of Akt, a serine-threonine kinase that is over expressed and or hyperactivated in resistant and refractory tumors as well as in aggressive hematologic malignancies. It is believed that Akt could be a key cancer control pathway. Akt is a serine-threonine kinase that is overexpressed and or hyperactivated in resistant and refractory tumors as well as in aggressive hematologic malignancies. In a previous phase II study of VQD-002 by the National Cancer Institute in patients with metastatic or recurrent squamous cell carcinoma of the cervix, patients were screened and were treated regardless of their Akt expression levels. In this small, refractory phase II cohort, 1 patient had complete regression for 19+ months, another had partial response for 5+ months, and 8 had stable disease. Shares of Vioquest ended the week at $0.31, down 7 cents.
VoIP, Inc. (OTCBB: VOII), a provider of turnkey Voice over Internet Protocol communications solutions for service providers, resellers and consumers worldwide, last week launched a beta version of Click4Me, a free web-click calling service. Click4Me allows users to connect to others through free calls without using the PC for actual voice communications, so that both can be at home phones, cell phones, etc. Click4Me also offers email, instant messaging and other popular calling features. This service should provide VoIP, Inc. with increased advertising revenues as a result of increased exposure. The company also confirmed the sale of certain assets owned by its Dallas division, reaffirming management’s recent restructuring initiatives. The sale excludes the intellectual property owned by the company, and should improve the company’s overall operating margins. Shares ended the week at $0.06, up 1 cent.
On the Wires: CEL-SCI Corporation (AMEX: CVM), developer of new immune system based treatments for cancer and infectious diseases, last week filed a shelf registration with U.S. regulators to periodically sell up to $30 million in common stock and warrants, in one or more separate offerings with the size, price and terms to be determined at the time of sale.
SPECIAL SITUATIONS:
Intellect Neurosciences, Inc. (OTCBB: ILNS) $1.94
Treatments for Alzheimer’s disease consist mainly of medications that stabilize symptoms for a short period of time before the condition worsens. As this debilitating disease afflicts over 28 million people worldwide and 4.5 million in the U.S. alone, products that focus on preventing Alzheimer’s and slowing its progression will likely emerge. Furthermore, such numbers are expected to increase substantially as the population ages. One biotechnology company centering its core focus on blocking the progression of Alzheimer’s is Intellect Neurosciences, Inc., whose lead product OXIGON, which has potential as a disease-modifying agent for Alzheimer’s disease and other therapeutic indications, has completed Phase I clinical trials and was well tolerated at the highest doses tested without adverse effects.
Although there’s no cure for Alzheimer’s, much progress has been made to help improve the quality of life for some with this disease. As more drugs are being studied, researchers have discovered several possible causes for this condition. There is substantial evidence that supports the “beta amyloid hypothesis,” which is the theory that tiny fragments of beta amyloid cleaved from the larger amyloid precursor protein combine with other elements to create damaging amyloid plaque. In normal brains, these tiny fragments of beta amyloid would be cleared before they accumulate into plaques, but as we age, that clearing ability is weakened. The accumulation of beta amyloid initiates a toxic cascade leading to oxidative stress, inflammation, neuronal damage and death of nerve cells resulting in the loss of learning and memory functions.
Intellect Neurosciences has three broad proprietary programs all targeting the prevention of beta amyloid accumulation in the brain. OXIGON, a potent anti-oxidant 10,000 times stronger as an anti-oxidant than Vitamin E, targets oxidative stress and beta amyloid accumulation. ANTISENILIN® is the Company’s monoclonal antibody platform with patented drug candidates for targeting and clearing beta amyloid from the brain. RECALL-VAXTM is the company’s active immunization platform with patents covering preventative vaccines for Alzheimer’s disease, which can be used to inoculate a broad population that includes AD patients and healthy individuals susceptible to developing AD. Intellect’s patent estate contains issued and pending claims in Europe, Japan, the U.S. and other major territories. As the company’s lead product OXIGON moves forward in the clinical process, Intellect Neurosciences will continue to expand its product pipeline to include small molecules, monoclonal antibodies and vaccines that address unmet needs in multiple indications including ataxia, Parkinson’s disease, Huntington’s disease, diabetes, stroke, myelodysplastic syndromes (MDS), motor neuron disease (ALS, Lou Gehrig’s disease) and radiation injury.
This well articulated business strategy allows the Company to avoid becoming reliant on one product for success. As a result, multiple product and partnering opportunities exist for Intellect Neurosciences both within and outside the Alzheimer’s disease field. The company recently became a publicly traded company after merging with GlobePan Resources, Inc. in January of this year. All the assets and liabilities of GlobePan were divested prior to the merger. With a strong management team at the helm, investors have much to look forward to as this promising young company targets large and growing markets, where healthcare costs for Alzheimer’s patients alone represent roughly $159 billion per year worldwide.