07/22/2007
VOLUME 309
Companies featured in the current edition of the newsletter: ARGA, AVGO, BSGC, CHIP, CYTR, GNBT, HSOA, ILNS, IWEB, MBND, PLKH, PLRS, RVEP, USAT, VQPH
After closing above the 14,000 level on the Dow for the first time Thursday, stocks gave back their gains for the week in a sharp selloff on Friday, fueled by sub-prime fears and lackluster earnings results from bellweather companies Google and Caterpillar. The Dow ended the week down 56 points, reducing annual gains to 11.1%. The Nasdaq fell 19 points last week, lowering year-to-date gains to 11.2%. The S&P declined 18 points for the week with yearly gains totaling 8.1%. The Russell was down 19 points for the week resulting in annual gains of 6.1%.
There was a great deal of news to digest on multiple fronts last week , as the market was pulled in different directions. Unconfirmed news reports pertaining to a potential $160 billion bid for Verizon by Vodaphone grabbed headlines early in the week. Economic reports supported views that inflation remains subdued with the producer price index slipping 0.2% in June, industrial production rising by 0.5% in June and the consumer price index rising by 0.2% in June. Further, home construction rose 2.3% in June and the number of laid off workers filing applications for unemployment benefits dropped last week to the lowest level in two months with unemployment holding steady at 4.5%. This news helped the markets establish new highs for the year. Although investors were rattled by news that two Bear Stearns Cos. hedge funds were left essentially worthless after making bad subprime investments, mixed earnings results grabbed significant attention with IBM releasing strong results only to be offset by disappointing numbers from Intel, Google and Caterpillar. In addition, high energy prices helped to temper investors’ appetite for stocks.
What should investors look for this week? More earnings. Before the opening on Monday, Merck (NYSE: MRK) releases numbers, with American Express (NYSE: AXP), and Texas Instruments reporting earnings later that day. Prior to the opening on Tuesday, AT&T (NYSE: T), Eli Lilly (NYSE: LLY), McDonald’s (NYSE: MCD), PepsiCo (NYSE: PEP) and U.S. Steel (NYSE: X) announce results, with Amazon.com (NASDAQ: AMZN) reporting earnings after the close. Wednesday morning, Boeing (NYSE: BA), ConocoPhillips (NYSE: COP), General Dynamics (NYSE: GD) and Genzyme (NASDAQ: GENZ) announce figures, with technology giants Apple (NASDAQ: AAPL) and QLogic (NASDAQ: QLGC) releasing earnings after the closing bell. Before the opening on Thursday, 3M (NYSE: MMM), Bristol-Myers (NYSE: BMY), Coca-Cola Enterprises (NYSE: CCE) and Lockheed Martin (NYSE: LMT) report numbers, followed by KLA-Tencor (NASDAQ: KLAC) later that day. Prior to the opening on Friday, Chevron (NYSE: CVX) and Exxon Mobil (NYSE: XOM) report numbers. Additionally, General Electric (NYSE: GE) meets with analysts on Monday and Microsoft (NASDAQ: MSFT) hosts analysts on Thursday.
On the economic front, June Existing Home Sales will be announced on Wednesday at 10:00 a.m. with Weekly Crude Inventories following shortly afterwards. The Fed’s Beige Book will be released later Wednesday afternoon. Prior to the opening on Thursday, June Durable Orders and Weekly Jobless Claims will be released, followed by June Help-Wanted Index and June New Home Sales being announced at 10:00 a.m. Friday morning before the bell, Q2 GDP will be announced along with the widely-watched Q2 Chain Deflator, which measures inflation. After the opening bell, the Revised July Michigan Sentiment Index will be reported at 10:00 a.m. Additional noteworthy items include Fed Governor Mishkin speaking on globalization on Tuesday. St. Louis Fed President will be speaking on Tuesday and gets honored on Wednesday. The conference schedule is very light with Morgan Keegan kicking off its three-day Insurance Conference on Wednesday in Asheville, North Carolina.
With shares of Home Solutions of America, Inc. (NASDAQ: HSOA) continuing to drift lower in the absence of news from the company, we thought it might be constructive to take a longer term perspective ahead of the company’s earnings release scheduled for the week of August 6th. Investors have seemingly sold off the company’s shares as a result of the company providing few details on the progress of the two $100 million contracts it announced in May. Ironically, shares are now below the level they were before the company announced either of its two contracts or its Q1 results, which were better than anticipated. The decline in the price of the stock has left the company’s trailing and forward P/E multiples at the lowest levels we can remember, at a time when other construction services companies such as Shaw Group and Perini are experiencing multiple expansion. The revenue from the large contracts was expected to come in the second half of the year, so even if it does not materialize (we believe it will), it should not impact Q2 results, which is what investors are likely to most focus on in the report. The company did not say anything for one month ahead of its first quarter release, and shares rallied 8% the day after earnings were reported (on top of 10% in the days leading up to the report) as the results were better than feared. With the stock far more oversold today than heading into Q1 (down 12 out of last 13 trading days), the company’s P/E multiple further compressed and short interest up more than 2 million shares since Q1, any kind of positive news could set the stock up for a significant rally. Shares ended the week at $4.93, down 38 cents.
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, rose more than 22.9% on more than 5.3 times average volume, as investors digested the company’s latest acquisitions and declaration of a $0.25 cash distribution to record holders as of July 24, 2007. The acquisitions give Rio Vista interest in over 350 operating wells nationwide, as well as over 65 miles of gas delivery pipelines in Oklahoma, combining for nearly $10.4 million in unaudited revenues for 2006. The cash dividend, if paid quarterly as is usually the case with MLP’s, would yield shareholders approximately 4.7% annually. Shares ended the week at $21.15, up $3.94
USA Technologies, Inc. (NASDAQ: USAT), a developer of cashless vending and energy management products, announced last week that Blackboard Inc. has begun offering its cashless payment technology to customers of the Blackboard Commerce Suite, allowing students to make cashless payments at campus vending machines. Blackboard’s new FlexVend reader, with USA Tech’s embedded technology, supports a suite of both wired and wireless applications that enable one-card transactions on-campus, off-campus and online, using their Blackboard campus card, as well as contactless ‘touch and go’ payment systems, such as MasterCard’s PayPass. Blackboard already offers USA Tech’s e-Suds laundry service where students go online to check the availability of college laundry washers and dryers, swipe their Blackboard transaction card to activate and pay for the service, and are notified electronically when the laundry is done. Millions of people use Blackboard everyday at colleges, universities, K-12 schools and other education providers around the globe. Founded in 1997, Blackboard is headquartered in Washington, D.C., with offices in North America, Europe, Australia and Asia. Shares ended the week at $9.48, down 22 cents.
VeriChip Corporation (NASDAQ: CHIP), a leading provider of identification and security technology, and a majority-owned subsidiary of Applied Digital, reported last week its second quarter 2007 financial results for the period ended June 30, 2007. Second quarter revenue increased 17.4% to $8.2 million due to strong sales of the company’s infant protection products. Net loss for the quarter totaled $(2.6 million) compared to $(1.2 million) for the same period last year, primarily due to increased spending on the build out of the VeriMed business and increased costs related to VeriChip recently becoming a public entity. For the six-month period, sales grew by 15.1% to $15.6 million, with net loss totaling $(5.9) million. As expected, the company continues to move closer to its goal of having 800 hospitals signed on to its VeriMed Patient Identification System network after adding 125 registered hospitals and 49 protocol-adopted hospitals to its network during the quarter, for a total of 640 registered hospitals. In June, 25 Alzheimer’s patients and caregivers received the VeriMed RFID implantable microchip at the Alzheimer’s Educational Conference. Such activity represents a lucrative opportunity for the company going forward as it continues to further expand its presence in this targeted market as this debilitating disease afflicts over 28 million people worldwide and 4.5 million in the U.S. alone. Management updated its guidance for 2007 where it now expects VeriChip to be at the high end of its previous guidance for revenue of $30-32 million. Separately, the company appointed John D. Halamka, MD, MS, to its Medical Advisory Board as well as the joint committee formed by VeriChip and Digital Angel Corporation to design and develop a working, implantable glucose microchip to determine glucose levels in the bodies of animals and humans. Dr. Halamka currently serves as the Chief Information Officer of Harvard Medical School, Chief Information Officer of Beth Israel Deaconess Medical Center, Chief Information Officer of the Harvard Clinical Research Institute, and an Associate Professor of Emergency Medicine at Harvard Medical School. Dr. Halamka also serves on other nationally recognized boards including Google’s Health Advisory Council. Shares ended the week at $7.01, down $1.59.
Griffin Securities, a New York-based brokerage firm, last week reiterated its “Buy” recommendation on CytRx Corporation (NASDAQ: CYTR), a biopharmaceutical research and development company, and raised its 12-month price target to $10.50. The research report highlighted the significant opportunity for CytRx as a pure play company in the RNAi space where recent major transactions by large pharmaceutical companies including Merck and Novartis have validated the market potential of RNAi technology. The analyst at Griffin noted that arimoclomol is currently CytRx’s foremost pipeline candidate that holds promise for the development of wide-ranging treatments for amyotrophic lateral sclerosis (ALS) and a broad set of central nervous system disorders including Alzheimer’s, Huntington’s and Parkinson’s. CytRx plans to enter a Phase IIb clinical trial with arimoclomol in ALS in the second half of 2007 and the FDA has granted Fast Track designation and Orphan Drug status to arimoclomol for the treatment of ALS. It was also noted that the company has a strong patent portfolio in the field of RNAi technology and extensive know-how in pharmaceutical development where its RXi Pharmaceuticals subsidiary is expected to be fully spun out in the second half of 2007 by issuing a dividend in the form of RXi shares to CYTR shareholders. Shares ended the week at $3.77, down 9 cents.
Multiband Corporation (NASDAQ: MBND), a leading provider of video, data, and voice systems and services to multiple dwelling units, last week reported the execution of a non-binding letter of intent, under which Multiband and DirecTECH Holding Company, Inc., one of the nation’s largest DirecTV Home Satellite providers, will merge into a combined entity (New Multiband). DirecTECH, based in Maysville, Kentucky, provisions home satellite television for DIRECTV for approximately 1.5 million customers in 32 cities covering nearly 20% of the country. This merger will provide Multiband with the opportunity to cross-sell additional telephone and Internet services to the combined customer base of the two companies, and allows DirecTECH to further solidify its relationships with existing customers. The two companies combined generated nearly $200 million in unaudited pro forma revenue in 2006. The company also announced its Board of Directors has authorized a 1-for-5 reverse split, allowing Multiband to regain compliance with the continued listing requirements of the Nasdaq Stock Market, which should facilitate the merger. Existing Multiband shareholders are expected to retain a significant minority interest in New Multiband, and the merger is subject to customary closing conditions, including approval by each of the company’s respective Boards of Directors, approval by Multiband’s shareholders, approval of the NASDAQ, and approval by the ESOP’s independent fiduciary. Shares ended the week at $0.74, down 6 cents.
Auriga Laboratories, Inc. (OTCBB: ARGA), a specialty pharmaceutical company with products for the treatment of acute respiratory diseases and dermatological conditions, announced it has terminated its distribution agreement with River’s Edge Pharmaceuticals LLC, and its Co-Promotion agreement with Pharmelle LLC, for failure to perform obligations. Auriga also announced the appointment of Lisa Tripodi to the position of Vice President of Trade Relations, bringing with her over twenty years of comprehensive experience in the healthcare industry. The company plans to release second quarter results, for the period ended June 30, 2007 on Tuesday, August 7th after the market closes, followed later in the day by a conference call discussion. The stock ended the week at $0.95, down 2 cents.
Avicena Group, Inc. (OTCBB: AVGO), a biotechnology company focused on diseases of the central nervous system, announced last week that patient enrollment for its Phase III efficacy trial of PD-02, the company’s lead Parkinson’s disease drug candidate, is on track for meeting its target of 1,720 patients. 288 patients have been enrolled in the first three months, a rapid pace for what is expected to be the largest Parkinson’s disease trials ever. Avicena will supply the drug PD-02 and placebo for use in the trial. In return, Avicena will have access to the study’s data to file a New Drug Application with the FDA for the approval of PD-02 as a treatment for Parkinson’s disease. Avicena also holds intellectual property rights for the use of PD-02 in Parkinson’s disease. Approximately 1.5 million Americans are affected by Parkinson’s disease, and roughly 60,000 new cases are diagnosed each year. There presently is no known cure. The company also announced that it met with the FDA and will proceed with a confirmatory Phase III trial of AL-02, its lead drug candidate for the treatment of amyotrophic lateral sclerosis (ALS, or Lou Gehrig’s disease). Two recently completed Phase III trials showed a positive trend for increased survival after 9 months, with the results being used to support a new Phase III study, which will be designed to evaluate AL-02’s potential to increase survival over a longer term. The trial is expected to begin in the first quarter of 2008. The stock ended the week at $4.05, up 15 cents.
Volume Alert: Shares of Intellect Neurosciences, Inc. (OTCBB: ILNS), a biopharmaceutical company focused on development of disease-modifying therapeutic agents for the treatment and prevention of Alzheimer’s disease and related disorders, traded approximately 3.4 times average volume last week, as investors began to recognize the potential of this newly public company’s lead product OXIGON, that focuses on stopping the progression of Alzheimer’s disease. With Phase I clinical trials being completed, updates pertaining to initiation of further phase trials should continue to grab the attention of Wall Street going forward. Shares ended the week at $2.29, up 35 cents.
IceWEB Inc. (OTCBB: IWEB), a software services provider, last week announced it has been awarded contracts valued at $545,000 from US Government agencies to provide network firewall hardware and support services. The company also announced a $240,000 US Government agency contract to provide “two-factor authentication” for the agency’s internal networks. Two-factor authentication technology increases security by combining something the user knows (their username and PIN) with something they have (a token or a smart card). By requiring users to provide both the PIN and passcode, this authentication system helps to ensure data are only available to authorized users, keeping in compliance with Homeland Security Directives. IceWEB continues to build upon its goal of pursuing large, long-term Federal contracts, having recently announced it has received an Indefinite Delivery/Indefinite Quantity (ID/IQ) type contract with a ceiling of $10 million from the U.S. Patent and Trademark Office, as well as recently announced contracts with various Federal agencies totaling another $974,000. IceWEB appears well on its way to meet its 2007 revenue forecasts of $17 million. Shares ended the week at $0.69, down 4 cents.
Volume Alert: ProLink Holdings Corp. (OTCBB: PLKH), the world’s leading provider of GPS golf-course management systems and on-course advertising, traded over 3.0 times average volume last week as the company announced the installation of its ProLink Solutions GPS system at the Championship Course at the University of New Mexico in Albuquerque, N.M., at the Hualalai Golf Course at the Four Seasons Resort Hualalai in Kailua-Kona, Hawaii, and at the Poplar Creek Country Club in suburban northwest Chicago. The Championship Course at UNM ranks among America’s finest collegiate layouts, having hosted the NCAA Division I Men’s Golf Championships four times, and is consistently ranked among the country’s top public-access courses. Hualala’s Jack Nicklaus-designed course is home to the Champions Tour’s MasterCard Championship, and is open to play for guests of the Four Seasons Resort Hualalai. Poplar Creek, built in 1972 by designers Ken Killian and Dick Nugent, becomes the latest Illinois course featuring the system, joining the Glen Club (Glenview), RedTail Golf Club (Village of Lakewood) and The Rail Golf Course (Springfield). The ProLink Solutions GPS system’s benefits include weather warnings, easy-to-read graphics including distances to the pin and hazards, pro tips, pace-of-play timer, as well as the ability to order food and beverage items with a touch of a button on the ProLink screen, while revenue generated by advertising streams significantly offsets the system costs. The company also announced the addition of real-time scores from around the sports world, scrolling across the bottom of the 10.4-inch, high-resolution color monitors that are affixed to golf carts. As ProLink’s system becomes accepted as the industry standard, shareholders should not have to wait long for the company’s growth to be reflected in its share price. Shares ended the week at $1.35, up 7 cents.
Media coverage continues to grow around BigString Corporation (OTCBB: BSGC)’s email service, that allows senders to recall, destroy or change emails, as last week the company’s technology was featured on ABC News. With unique Internet properties attracting considerable takeover interest, with a valuation of less than $20 million, the company could generate interest from a larger company seeking to differentiate its services. Shares ended the week at $0.25, unchanged.
VioQuest Pharmaceuticals Inc. (OTCBB: VQPH), a biopharmaceutical company focused on acquiring, developing and commercializing targeted cancer compounds, last week reported that it has completed the sale of its subsidiary, Chiral Quest, Inc., for $1.7 million in cash, plus approximately $1 million of liabilities. The company also announced the private placement of convertible notes and warrants, raising gross proceeds of approximately $3.7 million. VioQuest intends to use these proceeds to fund five upcoming Phase II trials, including three for VQD-002, a novel inhibitor of activated Akt, which is found disproportionately in resistant and aggressive solid and hematologic tumors. The company also plans to initiate trials for Lenocta, an inhibitor of specific protein tyrosine phosphatases (PTPases) SHP1 and SHP2, and Xyfid, a topical therapy for the treatment and prevention of chemo-induced hand-foot syndrome. All five trials are expected to begin later this year, giving investors much to look for in the coming months. Shares ended the week at $0.34, up 3 cents.
On the Wires: Drug delivery company Generex Biotechnology Corporation (NASDAQ: GNBT), reported last week that it participated in the Diet, Nutrition & Vitamin Efficient Program Planning Session, held July 16 – 19, 2007 at the Hyatt Regency Jacksonville Riverfront in Jacksonville, FL. The company’s Consumer Healthcare Product Marketing and Distribution Division presented Glucose RapidSpray, GlucoBreak, and BaBoom! Energy Spray to buyers at this unique forum, which gives one-on-one planning sessions averaging about 20 minutes, replacing the need for a sales presentation in the buyer’s office, saving both suppliers and buyers time and money.
SPECIAL SITUATIONS:
Pluristem Life Systems, Inc. (OTCBB: PLRS), $0.09
Every year, thousands of people with life-threatening diseases such as leukemia, lymphoma, myeloma, and other immune system disorders, are in need of a bone marrow transplant (BMT). Without healthy bone marrow (or stem cells), patients are no longer able to make the blood cells needed to carry oxygen, fight infection, and prevent bleeding. For many of these people, such a transplant could be a person’s only chance at survival. Roughly two-thirds of patients in need of obtaining BMT procedures do not receive them due to a lack of suitable donors. Furthermore, many recipients experience difficulties as a result of complications from donor cells attacking the recipient’s tissues. Recognizing the need for solutions that can resolve such issues, Pluristem Life Systems, Inc. is a biotechnology therapeutics company focused on developing products that can combat current stem cell shortages and improve access to transplants.
Despite the increasing number of BMTs performed annually, the lack of suitable bone marrow donors remains a significant issue. The difficulty in finding a suitable donor lies in the fact that the tissue types between a donor and patient must closely match in order for a successful transplant to happen. As a potential remedy to this problem, research is being done to figure out an alternative method of finding an attainable source of transplantable stem cells that can match donors to recipients at a much higher rate. A potential remedy to this problem lies in the use of umbilical cord blood. Beginning in the early 1980s it was shown that umbilical cord blood contained a high number of granulocyte (cells that reconstitute marrow). Such observations paved the way for the use of umbilical cord blood as an acceptable source of stem cells for transplant in patients when a suitable bone marrow donor is unavailable.
Pluristem Life Systems will enable the use of umbilical cord blood from the placenta after birth as a source of stem cells. The company’s technology is being developed to improve the process of infusing Cord Blood into a patient and enhance the growth of blood forming stem cells (known as Hematopoietic stem cells). Pluristem’s leading product PLX-I is based on expanding mesenchymal stem cells from the placenta and cultivating these cells with its proprietary PluriX Bioreactor System. This system mimics the natural environment of human bone marrow and permits stem cells to expand outside the body without differentiation. Pluristem’s technology has shown impressive results to date by showing its ability to expand stem cells exponentially, creating the ability to treat roughly 1,000 patients from a single placenta as opposed to alternative methods that only allow for one person to be treated from a single placenta.
Pluristem expects to file an Investigational New Drug application during the second half of 2007 for its initial product PLX-I, with clinical trials expected to start in late 2007 or early 2008. Recently this year the company acquired the patents and technology for its PluriX technology enabling it to have exclusive rights without the obligations of paying royalty fees to third parties. Pluristem continues to attract the interest of players in the scientific community for its technology as it received in May an $830,000 grant from Israel’s prestigious Chief Scientist Office. The company also has entered into a collaborative research agreement with the Berlin-Brandenburg Center for Regenerative Therapy at Charite-University Medicine Berlin for its PluriX technology where the initial focus of this work will be on neurological indications such as Multiple Sclerosis and Parkinson’s disease.
Pluristem has a market capitalization of approximately $120 million, or approximately one-third the value of Osiris, a publicly-traded stem cell therapeutic company focused on developing and marketing products to treat medical conditions in the inflammatory, orthopedic and cardiovascular areas. While Osiris is more advanced clinically, Pluristem’s products target much larger markets. A listing on a national exchange could help to narrow that gap. Pluristem appears to meet all of the listing criteria with the exception of share price.
With the company’s first planned product PLX-I targeting a $2 billion market and future products participating in the $30 billion therapeutic and regenerative cellular market, this exciting story should be met with enthusiasm by investors, as the company’s keen management team continues to execute its business plan and stated goals.