10/14/2007
VOLUME 321
Companies featured in this edition of the newsletter: ACTC, AVGO, CHIP, DOC, ENZ, GNBT, HSOA, HYTM, MSHI, NTRN, PLKH, PLRS, TKO, USAT, VQPH, XCPL
Except for the tech-heavy Nasdaq, the markets ended a tumultuous week virtually unchanged. The Dow gained 27 points for the week, upping its annual return to 13.0%. The Nasdaq gained 25 points for the week, or 0.9%, to push its year-to-date gains to 16.1%. The S&P rose 4 points, equating to annual gains to 10.1%, and the Russell 2000 lost 3 points for the week, trimming its yearly performance to 6.7%.
After investors learned that all members of the Federal Reserve acted in unison when deciding to lower rates on September 18th, stocks rallied on the notion that future rate cuts were in the works. Economic data reported last week was slightly mixed with September retail sales growing a stronger than expected 0.6% versus consensus estimates of 0.2%. Producer prices for September also came in slightly lower than forecasts at 0.1% versus the projected 0.2%. Furthermore, the trade deficit for August decreased by 1.2%. Countering such positive data was the Preliminary University of Michigan Sentiment data that came in at 82.0 compared to 84.0 that was anticipated. As the onslaught of third quarter earnings begins next week, the market will also be looking toward the important economic data being released mid-week. The release of the Consumer Price Index and Housing starts for September may provide further insight as to what move the Fed will make at the next FOMC meeting.
On Monday, an amendment the SEC passed related to Regulation SHO goes into effect. Regulation SHO sets out rules governing short sales, including the mandatory close-out requirement that applies to securities in which a substantial amount of fails to deliver have occurred. The amendment eliminates one of the exceptions to the Close-out Requirement for fails to deliver established prior to a security becoming a Threshold Security (“grandfather provision”). The amendment requires market makers and brokerage firms to close out any previously-grandfathered fails to deliver in a security that is on the Threshold Security List (TSL) on October 15th. The close-out must occur within 35 consecutive settlement days of October 15th. If a security becomes a Threshold Security after October 15th, all fails to deliver must be closed out within 13 consecutive settlement days. As of Friday, there were 89 Nasdaq companies on the TSL, including Home Solutions of America, Inc. (NASDAQ: HSOA-40% of float short) and Hythiam, Inc. (NASDAQ: HYTM-18% of float short). Traders may want to focus on the TSL stocks for potential price appreciation due to implementation of the rule, which could create short-covering or increase the cost of borrowing these securities.
What should investors look for this week? Earnings season is in full swing, beginning with Eaton Corp. (NYSE: ETN) announcing results before the opening bell on Monday, followed by Genentech Inc. (NYSE: DNA) after the close. Tuesday morning before the opening, Johnson & Johnson (NYSE: JNJ) and Wells Fargo (NYSE: WFC) are due to report, with Delta Air Lines (NYSE: DAL) expected to report during the day, and Intel (NASDAQ: INTC) and Yahoo! (NASDAQ: YHOO) releasing earnings after the bell. On Wednesday morning, look for Abbott Labs (NYSE: ABT), Altria Group (NYSE: MO), Coca-Cola (NYSE: KO), JP Morgan (NYSE: JPM), and United Technologies (NYSE: UTX) to make announcements, with AMR Corp. (NYSE: AMR) and Allstate Corp. (NYSE: ALL) coming later that day. Thursday morning before the opening, Bank of America (NYSE: BAC), Bank of New York (NYSE: BK), Eli Lilly Corp. (NYSE: LLY), McDonald’s Corp. (NYSE: MCD), Motorola Inc. (NYSE: MOT), Nokia Corp. (NYSE: NOK), Pfizer Inc. (NYSE: PFE), and UnitedHealth Group (NYSE: UNH) will report earnings, followed by IBM (NYSE: IBM) and Google (NASDAQ: GOOG) after the closing bell. Before the opening of business on Friday, expect announcements from 3M Co. (NYSE: MMM), Boston Scientific (NYSE: BSX), Caterpillar (NYSE: CAT), Honeywell (NYSE: HON), Schlumberger (NYSE: SLB), Wachovia Corp. (NYSE: WB), and Xerox Corp. (NYSE: XRX).
The economic calendar kicks off with the NY Empire State Index for October being released at 8:30 a.m. on Monday morning. Net Foreign Purchases for August will be announced Tuesday at 9:00 a.m., with Industrial Production and Capacity Utilization coming at 9:15 a.m. On Wednesday morning at 8:30 a.m., expect CPI, Core CPI, Housing Starts, and Building Permits, all for the month of September. Weekly Crude Inventories will be reported at 10:30 a.m., followed by the Fed’s Beige Book at 2:00 p.m. Weekly Jobless Claims will be announced at 8:30 a.m. on Friday, along with Leading Indicators for September at 10:00 a.m., and the Philadelphia Fed report for October at noon. Fed Chief Bernanke is scheduled to speak at the Economic Club Dinner on Monday night, KC Fed Pres. Hoenig will make comments on Wednesday, followed by more commentary from Bernanke and Fed Chief Poole on Friday.
The only conference of note this week is the two-day Wachovia Consumer Growth Conference beginning Wednesday in New York.
Last week the analyst at Brean Murray (Buy, $15 target) issued a research note on healthcare services company Hythiam, Inc. (NASDAQ: HYTM) which we believe captured well the reasons to be optimistic about the outcome of the first double-blind study of the company’s PROMETA protocols, which are scheduled to be reported by the clinical investigator prior to the end of October (6 analysts with Buy or equivalent ratings on the stock). He noted that the recently peer-reviewed May Clinic Proceedings Journal publication showed that there was a 66% reduction in cravings and that it is “highly unlikely that the placebo arm, despite the negative limitations of a 30-day study, can achieve a similar result.” He also noted that, “we have come to understand that all of the longer-term studies in progress have retention rates and negative urine test rates that are higher than the investigators in these placebo-controlled studies typically see with other anti-addiction approaches.” The analyst believes that a “reduction in cravings (one of the primary endpoints of the study) will translate into a reduction in actual use, and that future trials with reduction-in-use endpoints will demonstrate this within 3-6 months.” He noted that “with positive data, we believe that the market will be receptive enough to PROMETA to allow for a revenue ramp that justifies a biotech multiple, despite HYTM’a healthcare services categorization.” Shares ended the week at $7.29, down 33 cents.
Earnings Preview: Enzo Biochem, Inc. (NYSE: ENZ), a company engaged in the research, development and manufacture of innovative health care products, will hold a conference call to discuss its fiscal 2007 fourth quarter and year-end results for the period ended July 30, 2007 on Tuesday, October 16, 2007, at 8:30 a.m. Look for a continuation of top-line growth in the company’s Clinical Lab’ss division, which posted $11.5 million in sales for the third quarter 2007, the company’s best sales quarter in 18 months. Revenue growth from the company’s Life Sciences division should also be closely monitored, particularly for contributions coming from the recent acquisition of Axxora Life Sciences. Commentary regarding legal costs and R&D developments in its Therapeutics Division, will also be of interest. Note that the analyst who covers the stock at Lazard Capital Markets (Buy, $19 price target), estimates that the company will generate Q4 revenue of $16.3 million, with a loss of $0.12 per share and full-year revenue of $51.3 million and a loss of $0.41 per share for fiscal 2007. Shares ended the week at $12.45, up 57 cents.
Telkonet, Inc. (AMEX: TKO), the leader in providing in-building broadband access over existing electrical wiring and innovative energy management systems, last week announced that Vantage Hospitality Group, Inc. has given Telkonet’ss SmartEnergy system “Preferred Provider Status.” Vantage Hospitality Group is the 12th largest hotel company worldwide, and the parent company of Americas Best Value Inn and The Lexington Collection. Americas Best Value Inn has been recognized by the lodging industry as one of the fastest growing chains five years in a row, and this relationship should provide Telkonet with a strong growth opportunity. Shares ended the week at $1.46, down 14 cents.
USA Technologies, Inc. (NASDAQ: USAT), a developer of cashless vending and energy management products, last week announced the launch of its new Quick Start purchasing program, a limited time offer giving vending machine operators and bottlers a “no money down” program to bring their customers the convenience of using their credit and debit cards. A vendor or bottler would pay only $24.95 per month for the e-Port device and full e-Port Connect services for a pre-determined time period, allowing them to compete and benefit immediately in the cashless marketplace, without incurring substantial start-up costs. The program was launched at the National Automatic Merchandising Association National Expo in Chicago, the world’s largest vending exposition, with more than 800 vending operating companies represented by 2,200 buyers, and 290 exhibiting companies. The company also demonstrated its full e-Port online and wireless cashless transaction product line, its Near Field Communications technology that accepts payment using cellular telephones and other wireless payment systems, and its e-Port Connect, a complete portfolio of high-speed turnkey services for the multi-billion dollar unattended point-of-sale markets. Shares ended the week at $7.74, down 54 cents.
Digital Angel Corporation (AMEX: DOC), a technology company engaged in the development, manufacture, and marketing of visual and electronic identification tags and implantable radio frequency identification (RFID) microchips, last week reported that its animal applications unit, Destron Fearing, has been selected by Superior Livestock Auction to manufacture an exclusive tag for its new PVP (Process Verified Program) program. Superior is the leader in marketing load-lots of cattle via satellite and the Internet, and its new program is designed to help producers differentiate their cattle to buyers by providing documentation and data from feed-lot to processing stage. Superior cited the fact that Destron Fearing manufactures its tags in number-sequential order, as opposed to the random-number order used by other companies, making it easier to keep up with cattle and their information. Digital Angel also reported that its pet microchips and readers, which are sold in the U.S. by Schering-Plough under the HomeAgain brand, were featured on The Ellen DeGeneres Show last week. In the last 12 years, over 400,000 pets have been reunited with their owners as a result of the implantation of a microchip the size of a grain of rice between the animal’s shoulder blades. It is estimated that one in three pets in the U.S. will be lost without identification, and that 90% of those will never return. Shares ended the week at $1.43, down one penny.
VeriChip Corporation (NASDAQ: CHIP), a leading provider of identification and security technology, last week reported that more than 200 new healthcare facilities registered in the VeriMed Patient Identification System at the four-day American College of Emergency Physicians 38th Annual Scientific Assembly held in Seattle, WA. The total number of hospitals now registered is now over 900, easily surpassing the company’s stated goal of 800 hospitals by the end of 2007. According to data we could find, that represents a penetration of 10-12% of the hospitals in the U.S., a significant level for the company to attain in the relatively short period of time it has been marketing the VeriMed System. The company also reported more than 200 protocol-adopted hospitals in its system, again exceeding year-end goals. Such strong enrollment shows strong support by the medical community in the company’s technology, safety, and reliability. VeriChip plans to continue the build-out of its network, including converting registered hospitals to protocol-adopted hospitals, and will continue to focus on patient enrollment in areas where there are a concentrated presence of protocol-adopted facilities, which should even further help the adoption of the VeriMed system nationwide. Shares ended the week at $4.34, up 13 cents.
Generex Biotechnology (NASDAQ: GNBT) said last week that its Antigen Express subsidiary presented “Inhibition of MHC class II-associated Invariant Chain Generates Potent Tumor Cell Vaccine” at the 12th World Congress on Advances in Oncology held in Greece. The presentation focused on pre-clinical studies that Antigen Express has performed in preparation for clinical trials in China. Robust anti-tumor immunity has been demonstrated in a variety of mouse tumor models as well as safety using the RNAi approached developed at Antigen Express. Antigen Express seeks to force tumor cells to express tumor associated antigens in a way that that makes them more visible to the immune system. This is done by suppressing expression of the MHC class II-associated invariant chain in tumor cells using RNAi. Of course, investors are likely much more focused on what GNBT might say about its upcoming pivotal Phase III trial for Generex Oral-Lyn, its flagship product to deliver insulin via the oral cavity. Shares ended the week at $1.57, up 8 cents.
Collexis Holdings, Inc. (OTCBB: CLXS), a global knowledge discovery company, last week reported that the Delft University of Technology Library, The Netherlands, selected Collexis Basic Search software to empower its TUlib Instruction program. The TUlib Instruction program is structured to provide users with the knowledge and tools to best mine pertinent information from the TU Delft library, and has selected the Collexis system due to its ease of use and efficiency. The company recently announced that Wageningen Universiteit Library, also in the Netherlands, has upgraded its Collexis Search software to Collexis High Definition Search 6.0, citing extended features and usability. Additionally, the company previewed a new life sciences social networking site last week at the Frankfurt Book Fair in Frankfurt, Germany. The site is designed to promote collaborative research and development in advancing medical science, and will incorporate pre-generated expert profiles of over 1.4 million biomedical experts from more than 150 countries. It currently houses approximately 12 million pre-established network connections, automatically generated from over six million scientific publications from 6,500 journals. The company expects to launch the site publicly in January. Shares ended the week at $1.45, down 25 cents.
Volume Alert: Shares of MSTI Holdings, Inc. (OTCBB: MSHI), a carrier class communications technology company, traded over 4.5 times average volume last week after the company reported that its wholly-owned subsidiary, MST (NuVisions), has entered into an agreement with a leading New York City real estate conglomerate to provide quadruple play services to 396 residential units. Quad-play service refers to digital satellite TV programming, Voice over Internet Protocol telephone (VoIP), high-speed Internet access, and Wi-Fi services. MST will also provide its new IPTV service to customers at this location, a new luxury rental building in New York’s downtown financial district. The company also announced it has agreed to deliver triple play services (ex-Wi-Fi) to the ultra-luxury, residential condominium Fifteen Central Park West. A new 202 unit condominium, with units priced as high as $40 million, Fifteen CPW is widely acknowledged as one of the most successful residential condominium projects in U.S. history. The company believes that these agreements with some of the largest real estate management companies and developers in New York City highlights the company’s ability to provide the most cost-effective suite of communications services available, and will serve as a template for further expansion into the Tri-state area. Shares ended the week at $1.31, up 22 cents.
Neutron Enterprises, Inc. (OTCBB: NTRN), a developer of digital media solutions, reported last week that eFinancialCareers.com, a leading provider of financial career opportunities, job market news and analysis, has renewed its contract with its Stock-Trak Inc. subsidiary to host various financial trading games with European university students. eFinancialCareers.com has engaged Stock-Trak to produce up to twelve one-month simulations for university business students, primarily focused on the European stock and futures markets. Stock-Trak currently provides educational stock market simulation services to over 800 college professors and over 50,000 students worldwide. Shares ended the week at $0.50, up three cents.
ProLink Holdings Corp., (OTCBB: PLKH), the world’s largest provider of Global Positioning System golf course management systems and on-course advertising, announced last week that Redhawk Golf Course in Temecula, CA now features the ProLink Solutions GPS system and plans to participate in ProLink’s exclusive national advertising program. Redhawk is routinely ranked among California’s finest public courses, and has hosted the California State Open each of the past three years. The recent signing of an exclusive advertising agreement with ABC National Television Sales should help ProLink’s sales team accelerate growth of an already impressive resume. Advertising on the ProLink Network, ProLink’s proprietary GPS-based system, currently reaches more than 12 million golfers at 400 golf courses across the U.S. Shares ended the week at $0.85, down two cents.
Pluristem Life Systems, Inc. (OTCBB: PLRS), a bio-therapeutics company dedicated to the commercialization of products for a variety of malignant, degenerative and auto-immune indications, reported that the company will present favorable results of pre-clinical studies of its proprietary PLacental eXpanded (PLX) cells for additional clinical indications next week at the 3rd World Congress on Regenerative Medicine in Leipzig, Germany. Recently, the company announced favorable results in pre-clinical testing of PLX cells to treat limb ischemia, and also showed in vitro to have properties that might give these cells the potential to treat Parkinson’s Disease. Pluristem believes PLX cells can be used to treat other diseases, such as central nervous system and cardiovascular disorders as well, and is planning to submit the IND for its first product, PLX-I, for the treatment of blood cancers, to begin clinical trials early next year. Shares ended the week at $0.03, down one penny.
VioQuest Pharmaceuticals Inc. (OTCBB: VQPH), a biopharmaceutical company focused on acquiring, developing and commercializing targeted cancer compounds, last week announced it has completed enrollment in its Phase I open-label dose escalation trial of its investigational drug Lenocta, (sodium stibogluconate), for the treatment of solid tumors. Lenocta is an inhibitor of specific protein tyrosine phosphatases (SHP-1 and SHP-2) that are overexpressed in certain cancers. A total of 17 patients were enrolled in the Phase I study, which showed an increase in pharmacodynamic activities as demonstrated by increase in the activities of natural killer, CD8 and type II dendritic cells, at a dose that was well tolerated. VioQuest intends to begin enrolling patients in a follow-on Phase IIa trial in the near future. Shares ended the week at $0.26, down 4 cents.
On the Wires: Advanced Cell Technology, Inc. (OTCBB: ACTC), a company applying stem cell technology in the emerging field of regenerative medicine, reported that Dr. Robert Lanza, M.D., has been promoted to the position of Chief Scientific Officer. Dr. Lanza will replace Michael D. West, Ph.D., who is voluntarily stepping down as the company’s President and Chief Scientific Officer to pursue new opportunities primarily relating to continued research on the ACTcellerate technology platform, which was exclusively developed by Dr. West. Dr. Lanza has over 25 years of research and industrial experience in stem cell research and regenerative medicine. Avicena Group, Inc. (OTCBB: AVGO) reported that CEO Belinda Tsao-Nivaggioli, Ph.D., has been appointed to the additional role of Chairman of the company’s Board of the Directors, succeeding Nasser Menhall, who resigned from the board to focus his time on other business ventures.
SPECIAL SITUATION:
Xcorporeal, Inc. (OTCBB: XCPL) $12.37
As health-care costs related to organ failures soar, and with millions of Americans suffering from the effects of related debilitating illnesses, the need for cost-effective solution has never been greater. That is why many are so excited about Xcorporeal, which will commence trading publicly on Monday for the first time through a reverse merger. For many, Xcorporeal Inc.’s innovative technology platform has the potential to not only significantly reduce medical costs, but dramatically improve quality of life as well.
Located in Los Angeles, Xcorporeal Inc. is a medical device company focused on the development of extra-corporeal devices (outside of the body) designed to replace or perform the function of various failed or failing human organs. The company is currently focused on developing devices for home and hospital renal replacement therapy (RRT), a Wearable Artificial Kidney (WAK), and an application for ultrafiltration treatments of patients with congestive heart failure (CHF). The WAK is a unique device intended to enable patients with End-Stage Renal Disease (ESRD) to achieve a quality of life closer to that of healthy individuals. A prototype of the WAK and the ultrafiltration device have been successfully tested in human subjects. The RRT markets represent multibillion dollar opportunities for Xcorporeal.
One of the first products that Xcorporeal could commercialize is a portable renal replacement device that will offer cost effective therapy for those patients suffering from Acute Renal Failure, which causes a rapid decline in kidney function. In the U.S. alone, the disease affects more than 200,000 patients annually, with a mortality rate of 50%. The device is designed to provide cost-effective, continuous therapy without the need for expensive replacement fluids making it suitable for hospitals, which spend an estimated $1.4 billion annually in this area. The disposable devices typically need to be replaced every five years. The company intends to commercialize this device in the first half of 2009.
Xcorporeal also plans to commercialize a home Hemodialysis machine and the WAK for the ESRD market, which includes patients with severe kidney disease in which the kidneys cease to function. Xcorporeal’s devices will combine the best features of currently marketed home hemodialysis machines to create devices offering patients a convenient, durable and truly portable device for home use. The machines could provide a cost-effective alternative to current home treatment modalities, due to their ability to offer hemodialysis without the need for dialysate fluids, which increases treatment costs significantly.
There are approximately 350,000 patients receiving dialysis therapy in the United States. These patients often require either a kidney transplant or dialysis to avoid complications that are life threatening. Chronic kidney disease is the ninth leading cause of death in the United States with treatment costs exceeding $30 billion annually. Approximately 75 million Americans are at risk of developing chronic renal failure. Worldwide, there are approximately 1.2 million people suffering from chronic kidney failure at an annual cost of approximately $50 billion. There is currently no cure for chronic renal failure and therapy focuses on controlling the symptoms, minimizing complications and slowing disease progression.
The WAK will, in addition, allow patients to undergo dialysis 24 hours a day/7 days a week, thereby mimicking the function of a healthy kidney. The WAK will be fully automated, battery operated, light-weight and waterproof.
Xcorporeal is also developing a portable device that will provide hospitalized CHF patients suffering from fluid overload with a simple, efficient and cost effective ultrafiltration therapy. This device may decrease the costs for healthcare providers and hospitals since it may reduce the number and length of hospital stays. CHF is the primary cause of fluid overload a major cause of recurrent hospitalization, disability and death. CHF annually affects approximately 6 million people in the U.S. and costs the U.S. healthcare system approximately $33.2 billion. The Company plans to develop this product through the prototype phase and then intends to out-license or partner this product in 2008.
The future appears exciting for Xcorporeal. The company is being run by an extremely capable management team led by Chairman Terren Peizer, CEO and founder of Hythiam Inc. Early investors in Hythiam have done well, as the company’s market capitalization has soared by more than 500% since the company went public in 2003 in the same manner as XCorporeal is going public. XCPL raised approximately $29 million in December, 2006 via a private placement. The company completed a reverse merger with CT Holdings (OTCBB: CTHE) Friday, which subsequently completed a 1-for-8.25 reverse stock split, giving XCPL a valuation of approximately $175 million based on Friday’s closing price of CT Holdings. The most comparable publicly-traded company to XCorporeal is NxStage Medical (NASDAQ: NSTM), which sports a market capitalization of approximately $450 million, although it only has one product under development, a portable kidney dialysis machine that lacks many of the benefits of XCPL’s device.
For those investors seeking a company with significant upside potential, Xcorporeal Inc. appears to have the expertise, technology, and financial resources to make a significant impact on the quality of life for millions of sufferers of chronic renal failure and other serious organ failures to generate significant profits for early investors.