10/28/2007
VOLUME 323
Companies featured in this edition of the newsletter: ACCP, ACTC, AVGO, CGXP, CHIP, CLXS, CYTR, DOC, GSHF, HJHO, HSOA, HYTM, ILNS, IWEB, MSHI, NTRN, PLKH, RVEP, SCLL, USAT, XCPL
Volatility seemed to increase last week, as wild intra-day swings made for a bumpy ride for investors. When the dust had settled, the Dow rose 284 points for the week, upping its year-to-date return to 10.1%. The Nasdaq gained 79 points, equating to an annual gain of 16.1%. The S&P rose 34 points, pushing its yearly gain to 8.2%. The Russell 2000 gained 22 points for the week, giving it an annual return of 4.2%.
Despite crude oil prices spiking to over $92 a barrel, Merrill Lynch writing down $7.9 billion in fixed-income losses, and housing weakness weighing on economic growth, investors drove stocks higher for the week. With OPEC production increases remaining somewhat limited, the environment for energy prices appears shaky as tensions in the Middle East are on the rise. The economy continues to be impacted by the weakened state of the housing market as September durable goods orders unexpectedly fell 1.7% versus expectations of a 1.5% rebound. Existing home sales in September fell 8% compared to estimates of a 4.5% decline with such weakness in sales pressuring the median price of homes as well. Disappointing existing home sales were somewhat offset by an increase in September new home sales that rose 4.8% versus consensus estimates of a 2.5% decline. It is important to note that revisions were made to the August new home sales numbers changing the sales rate to only 735,000 versus the original 795,000 reported. Earnings continue to be mixed as some financial stocks have been negatively affected by recent credit market problems as indicated by Merrill Lynch’s write-down that was 60% higher that its early October preannouncement. But strong earnings from Microsoft, Apple, American Express, and DuPont combined with upbeat comments from Countrywide Financial helped fuel optimism for the market. The Federal Reserve is expected to announce its decision on interest rates this week, and the market seems to have already priced in a 25 basis point cut.
What should investors look for this week? Expect earnings announcements from Ashland Inc. (NYSE: ASH), Humana Inc. (NYSE: HUM), and Verizon (NYSE: VZ) before the opening bell on Monday, with Pitney Bowes (NYSE: PBI) reporting after the close. On Tuesday morning, look for numbers from Alcan Inc. (NYSE: AL), Goodyear Tire (NYSE: GT), Proctor & Gamble (NYSE: PG), and Sysco (NYSE: SYY), followed by McKesson Corp. (NYSE: MCK) after the market close. On Wednesday morning, Alcatel-Lucent (NYSE: ALU), Hess Corp. (NYSE: HES), Kraft Foods (NYSE: KFT) will report, with earnings from MetLife (NYSE: MET), Prudential (NYSE: PRU), and Sunoco (NYSE: SUN) coming after the bell. CVS Caremark (NYSE: CVS), Marathon Oil (NYSE: MRO), Exxon Mobil (NYSE: XOM), and Sprint Nextel (NYSE: S) will report on Thursday, followed by Chevron Corp. (NYSE: CVX), International Paper (NYSE: IP), and Cigna Corp. (NYSE: CI) on Friday.
The economic calendar begins with Consumer Confidence for October being released Tuesday morning at 10:00 a.m. Wednesday’s schedule starts with Q3 GDP & Chain Deflator at 8:30 a.m., along with Q3 Employment Cost Index. The Chicago PMI for October follows at 9:45 a.m., with Construction Spending for September reported at 10:00 a.m., and Weekly Crude Inventories being released at 10:30 a.m. The week’s focus, however, will undoubtedly be on the Fed’s Policy Statement being released at 2:15 p.m. September’s Personal Income, Personal Spending, Core PCE Inflation, along with Initial Jobless Claims for the week will be announced at 8:30 a.m. on Thursday, with October’s ISM Index, and Pending Home Sales for September being released at 10:00 a.m., and Auto/Truck Sales for October will be reported at 5:00 p.m. On Friday morning at 8:30 a.m., October’s Nonfarm Payrolls, Unemployment Rate, Hourly Earnings, and Average Workweek will be announced, followed by September’s Factory Orders at 10:00 a.m.
Just one week ago, shares of healthcare services provider Hythiam, Inc. (NASDAQ: HYTM) reached their highest level since mid-July, as investors drove the stock up in anticipation of the first placebo-controlled study on PROMETA, the company’s protocols for treating drug and alcohol addiction, scheduled to be released this week. The results are expected to represent a defining event for the company, as data that demonstrates statistical significance in reducing or eliminating cravings in methamphetamine addicts could help drive adoption that would make PROMETA an industry standard in the multi-billion addiction treatment industry. However, last week news from Pierce County, Washington raised questions about PROMETA’s effectiveness just days before results are expected, as Pierce County Council’s abruptly voted to suspend funding. In a controversial decision, as reflected by the split vote, the Council cited a report claiming that PROMETA did not result in superior outcomes to other forms of treatment. We believe the report was politically biased (see editorial coverage in The News Tribune, the Tacoma, Washington newspaper) and that part of the report contained incorrect assumptions and information. Notably, the Council suspended funding just one day before there was supposed to be a hearing discussing the report. The Pierce County Alliance, a non-profit organization administering PROMETA, was not even shown the report in advance. Many of the analysts covering the stock came out in defense of the company last week. UBS noted that, “we expect the results of the double-blinded study imminently, and we expect the data to be positive based upon our channel checks.” RBC noted that “We would use recent weakness as a buying opportunity. Furthermore, at a meeting held last night (Wednesday night), a council member stated that if the double-blind results are positive, funding could be reinstated.” With results expected this week, the options market is pricing in a significant amount of volatility, more typical of a biotechnology company announcing key data. The November $10 calls have the largest amount of open interest of any November contract (at $0.25), with the Nov $7.5 calls trading at $0.95, suggesting a 20% move in the stock. The $5 puts are trading at $0.40 suggesting investor cynicism, also reflected by short interest of approximately 19%. We believe the data will represent a binary outcome, and share the views of the analyst community that the recent weakness represents a significant buying opportunity in the stock as there has been a strong body of data indicating that PROMETA works. Shares ended the week at $6.95, down $1.16.
Volume Alert: Shares of CytRx Corporation (NASDAQ: CYTR), a biopharmaceutical research and development company, surged 12% Friday on 4 times average, helped by favorable analyst coverage and possibly fueled by speculation that the company is close to filing its long awaited S1 registration statement, which would be the next step in taking its RXi subsidiary public. With RNAi one of the hottest areas in biotechnology today, some believe that spinning RXi off as a separately traded public company and providing a dividend to shareholders will unlock value in CytRx. Apparently, the analyst at Broadpoint Capital, Inc. (formerly First Albany Capital) agreed. He initiated coverage of the company last week with a “Buy” rating, and a target price of $8. The analyst noted in the report titled “A Two-for-One deal: Buy it for ALS and Stroke and Get RNAi for Free” that current price levels do not reflect the potential of the company’s lead molecular chaperone drug candidate Arimooclomol, and the value of its 86%-owned RXi Pharmaceuticals entity. CytRx plans to enter a Phase IIb trial for Arimoclomol for the treatment of ALS by the end of 2007, and plans a Phase II trial for stroke recovery in the first half of 2008. Shares ended the week at $4.65, up $1.03, closing at their highest level since mid-April.
Earnings Preview: VeriChip Corporation (NASDAQ: CHIP), a provider of RFID systems for healthcare and patient-related needs, is scheduled to report third quarter results for the period ended September 30, 2007 on Tuesday after the market closes. Since the company reported Q2 results, shares have lost more than half of their value, likely from a dubious report questioning the safety of the VeriChip. This report will provide the first insight into whether the publicity from that report has impacted the company’s sales of RFID systems or its progress in expanding adoption of the VeriChip. Recently, the company said that more than 200 new healthcare facilities registered to adopt the VeriMed Patient Identification System at an industry conference. This brings the total number of hospitals that are registered in the VeriMed system to over 900. Additionally, the Company now has more than 200 protocol-adopted hospitals in its network, thereby surpassing its full-year stated goal of 800 hospital registrations and 200 protocol adoptions. Investors should focus on the company’s cash position, guidance for the balance of 2007 and commentary on whether concerns about safety are impacting its business. Safety concerns appear to be overblown as there are no credible reports suggesting that the VeriMed System causes cancer. Shares ended the week at $4.00,down 2 cents.
Could Digital Angel Corporation (AMEX: DOC), a technology company engaged in the development, manufacture, and marketing of visual and electronic identification tags and implantable RFID microchips, benefit from The U.S. Department of Agriculture’s (USDA) recently announced contracts with three manufacturers to produce 1.5 million radio frequency identification ear tags that are compliant with National Animal Identification System standards? The ear tags will be used specifically for USDA state-federal cooperative disease control and eradication efforts, such as bovine tuberculosis and brucellosis and will be distributed in geographic areas which are determined to be of increased risk for disease outbreak or spread. According to a senior official at the USDA, the long-term goal of the program is to trace an animals within 48 hours during a disease outbreak, such as mad cow, positioning DOC’s chips as an ideal solution. Also, DOC announced that the products of its UK-based DAC McMurdo subsidiary will be featured at this weekend’s 48th Annual Fort Lauderdale International Boat Show. McMurdo operates under Digital Angel’s Signature Industries subsidiary, and is known around the world as one of the leading manufacturers of distress beacons and marine communications equipment. The Fort Lauderdale International Boat Show is the largest in the world, featuring more than $2 billion worth of boats, yachts, superyachts, electronics, engines and thousands of accessories from every major marine manufacturer and builder worldwide. The products will beCould Digital Angel Corporation (featured by Revere Supply Co., McMurdo’s U.S. marketer and distributor, in an expansion of its marketing efforts in the U.S. Shares of Digital Angel ended the week at $1.33, down 7 cents.
USA Technologies, Inc. (NASDAQ: USAT), a developer of cashless vending and energy management products, last week reported that nine more major American utility companies have joined its EnergyMiser Rebate Program this year. The total number of utilities now offering rebates ranging from $15 to $180 per unit for USA Technologies’ EnergyMiser products is now twenty-nine. USA Tech. also announced that one more utility has signed on to participate in the EnergyMiser Turnkey Program, in which utilities provide their customers with EnergyMisers at no cost, including installation. With oil prices nearing $100 per barrel, the momentum toward cost-saving, as well as environmentally-friendly products is certain to increase. The company estimates that equipping every refrigerated vending machine and cooler in the U.S. would save the country $1.3 billion annually, reduce CO2 emissions by 22 billion pounds, reduce coal consumption by 7 million tons, and reduce overall energy use by over 15 billion kilowatt hours. Shares ended the week at $7.40, down 8 cents.
Home Solutions of America, Inc. (Nasdaq: HSOA), a provider of restoration, construction and interior services to commercial and residential customers, reported last week that it acquired certain assets of RG America Inc.’s Restoration Business. HSOA’s Fireline subsidiary purchased approximately $800,000 worth of equipment and vehicles for use in the restoration and construction business from RG America including RG America’s PropertySMART risk management program, an insurance product focused on wood structure buildings aimed at providing restoration services in the event of an insured’s catastrophic loss. It appears that the primary motivation for the transaction, however, was settlement of litigation between the company and the Laurus Master Fund, surrounding a previously consulting agreement. In connection with the acquisition, Laurus agreed to release certain other liens and claims against RG America, Home Solutions, and an officer of HSOA, enhancing Home Solutions’ ability to collect certain receivables. While the transaction appears to make little economic sense and is dilutive for shareholders, it does not meaningfully impact the areas that likely will determine the company’s success or failure: collection of receivables from FIGA and other parties and entering into a new bank facility. Shares ended the week at $3.06, down 29 cents.
Rio Vista Energy Partners LP (NASDAQ: RVEP), a master limited partnership focusing on the acquisition of oil and gas exploration and production assets, last week announced a cash distribution of $0.25 per common unit, payable November 14, 2007 to holders of record as of October 29, 2007. At current per share prices, this represents an annual yield of approximately 7.3%. Shares ended the week at $13.69, up $2.19.
It is unusual to see Insiders purchase significant positions in small companies, but last week a board member of Xcorporeal, Inc. (OTCBB: XCPL), a medical device company, purchased nearly $1 million worth of stock in the open market. Xcorporeal’s innovative technology platform targets a lucrative market with the launch of its first product addressing Acute Renal failure expected to hit the market during the first half of 2009. The company’s stock recently began trading publicly. Shares ended the week at $8.51, up 51 cents.
Access Pharmaceuticals, Inc. (OTCBB: ACCP), an emerging biopharmaceutical company that develops and commercializes propriety products for the treatment and supportive care of cancer patients, last week released initial data from an ongoing Phase II ovarian cancer study utilizing ProLindac, the company’s lead platinum-based drug. The data notes a reduction in five of six patients of the biomarker Ca125, which is known to be a reliable indicator of the clinical progression of the disease. With relatively little side effects being shown so far, dose escalation is continuing and Access Pharmaceuticals believes this data will allow the company to expand the study into a ProLindac combination drug trial in the future. ProLindac appears to be safer and more effective than Sanofi-Aventis’ Elotaxin, a current platinum drug that produces revenues in excess of $2 billion and is close to patent expiration in the U.S. Access anticipates the initiation of additional Phase II trials in other indications during the first quarter of 2008. Shares ended the week at $3.80, down 10 cents.
Advanced Cell Technology, Inc. (OTCBB: ACTC), a company applying stem cell technology in the emerging field of regenerative medicine, last week reported interim, 6 month safety and dosage data for the company’ Myoblast Phase I(b) program. The data showed myoblast safety, with no evidence for increased risk of arrhythmia, in contrast with other clinical programs requiring the use anti-arrhythmia medications and/or an implanted defibrillator device. Furthermore, lab analysis for effects of the myoblasts on ventricular remodeling provide support for the hypothesis that myoblasts can help repair scarred heart tissue. Continued safety results should help provide for the most effective development of the myoblast technology through upcoming larger efficacy studies. The data was presented at the Transcatheter Cardiovascular Therapeutic Conference and Exposition in Washington D.C., one of the leading conferences for the field of interventional cardiology. Shares ended the week at $0.30, unchanged.
Avicena Group, Inc. (OTCBB: AVGO), a biotechnology company focused on diseases of the central nervous system as well as dermaceutical products, last week announced the launch of its Nurigene skin care line, a scientifically based line of skin care products formulated to achieve significant anti-aging benefits by improving skin cell turnover, skin firmness, skin elasticity and the skin’s ability to retain moisture. With a regimen shown to increase cell turnover up to 43%, Avicena believes it can tap into the $9 billion U.S. skin care market by demonstrating outstanding anti-aging benefits that truly meets women’s skin health needs. Shares ended the week at $1.28, down 32 cents.
Ceragenix Pharmaceuticals, Inc. (OTCBB: CGXP), a biopharmaceutical company focused on infectious disease and dermatology, last week reported that researchers at the Johns Hopkins Burn Center presented data showing that CSA-13 (one of the company’ lead compounds in the class of Ceragenin compounds) suppressed endotoxin shock in neonatal rats. Sepsisor endotoxin shock is a leading cause of death among patients admitted to the hospital, with over 750,000 cases of sepsis, and over 200,000 deaths recorded annually in the U.S., with burn patients having a significantly higher risk. CSA-13 works by binding with lipopolysaccharides (LPS) on the cell wall of gram-negative bacteria (e.g. E. Coli) or lipotechoic acid (LTA) on the cell wall of gram-positive bacteria (e.g. MRSA), thus preventing the release of this toxin by the bacteria. In the study, control group mortality was 100% at 24 hours compared with the treatment group, in which 80% of the rats were still alive at 72 hours. The company believes this data, along with previous data detailing the preclinical efficacy of CSA-13 against MRSA, VRSA and other resistant strains, shows that CSA-13 is a novel drug candidate in prevention and treatment of septic shock. Ceragenix recently reported that CSA-13 was effective against a large collection of bacterial strains in cystic fibrosis patients, including a highly transmissible virulent clone, and may lend itself to delivering anti-bacterial compounds directly into the lungs, as an aerosol-administered drug. Shares ended the week at $1.50, up eight cents.
Collexis Holdings, Inc. (OTCBB: CLXS), a global knowledge discovery company, last week announced it has acquired SyynX Solutions, a privately-held software company based in Cologne, Germany. A long-time development partner of Collexis, SyynX Solutions’software applications, which are based on Collexis’ proprietary “fingerprint” technology, are already being utilized at such leading life sciences organizations as Johns Hopkins, the Mayo Clinic, Harvard University’s Dana Farber Cancer Institute and The National Institutes of Health. Recently, the two companies agreed to co-develop an online networking platform for the life sciences community. Due to be launched in early 2008, the companies believe this innovative platform will revolutionize the way research is done, by allowing scientists and researchers to share data and collaborate in ways never before considered. Shares ended the week at $1.50, down 5 cents.
GreenShift Corporation (OTCBB: GSHF), a company devoted to facilitating the efficient use of natural resources, devoted to facilitating the efficient use of natural resources, last week reported that its majority-owned holding GS CleanTech Corporation has executed an agreement with Northeast Biofuels, LP (NEB) to extract about 10 million gallons per year of crude corn oil from the distillers grain co-product from NEB’s new 114 million gallon per year dry mill ethanol plant. Scheduled to begin operations later this year, the plant will be the first large scale operating ethanol plant in New York State and the Northeast. GS CleanTech will provide turn-key extraction systems at no cost to the ethanol producers in return for the long-term right to purchase the extracted corn oil. GS CleanTech’s affiliated fuel production company, GS AgriFuels Corporation, previously announced its intention to finance, build and operate a 10 million gallon per year biodiesel facility adjacent to the NEB facility, designed to convert corn oil into biodiesel, which GS AgriFuels intends to sell locally in New York. GS CleanTech has commenced work on the NEB extraction systems and is targeting an early 2008 commissioning. Shares of GreenShift Corp. ended the week at $0.03, unchanged.
Halcyon Jets Holdings, Inc. (OTCBB: HJHO), a luxury charter aircraft broker, last week reported a three-year marketing services agreement with National Football League superstar Reggie Bush. Mr. Bush, the second pick in the 2006 NFL draft and a former Heisman Trophy winner, is credited by many with leading the turnaround of the New Orleans Saints and for actively supporting the recovery and rebuilding activities in the aftermath of Hurricane Katrina. As with a recently announced agreement with NBA star Shaquille O’Neal, the company believes Mr. Bush will help accelerate its penetration into the sports and entertainment sectors, similar to the contacts made by company director Spike Lee in the entertainment industry. Mr. Bush will appear on the Halcyon’s behalf to exclusively promote its on-demand aircraft travel. Shares ended the week at $1.22, down 8 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 over 9.0 times average daily volume as investors continue to take an interest in the company’s Phase IIa trial for its lead compound Oxigon in mid-2008. Oxigon focuses on stopping the progression of Alzheimer’s disease that afflicts over 12 million people in the major markets worldwide. Currently there are no drugs on the market today that slow or arrest the progression of the disease. Shares ended the week at $0.56, up 26 cents.
IceWEB Inc. (OTCBB: IWEB), a software services provider, last week reported it has partnered with Midlands, UK-based ISV OfficeTalk Ltd. to launch a new business service to UK and EU based companies under the name of OfficeTalk Relay. The new service is intended to provide smaller businesses with a complete Intranet portal, similar to those of major corporations, yet at a fraction of the cost. OfficeTalk will be IceWEB’s exclusive UK partner for delivering hosted Microsoft Sharepoint Portals, which have been tremendously beneficial to IceWEB’s U.S. customers. This agreement marks the beginning of the company’s recently stated initiative to expand into the European, South American, and Chinese markets. Shares ended the week at $0.60, unchanged.
MSTI Holdings, Inc. (OTCBB: MSHI), a carrier class communications technology company, last week announced that its wholly-owned subsidiary, MST (NuVisions), been selected by Amalgamated Warbasse House, Inc., to provide residents and building management at 2800 West Fifth Street, in Brooklyn, NY with its Quad-Play services. The agreement with Warbasse Houses, owner of over 2500 co-op apartments in Brooklyn, signals MST’s return to an area that is currently experiencing a “rebirth”, the conversion of a mostly business-oriented neighborhood into one that is mostly residential. As the local population increases, MSTI Holdings’ position as the only true quad-play provider in the area should create opportunities for an expanded customer base as well. Shares ended the week at $1.01, down 4 cents.
Neutron Enterprises, Inc. (OTCBB: NTRN), a developer of digital media solutions, last week announced that ScotiaMcLeod Direct Investing (SMDI) has helped kick off Stock-Trak’s Global College and University Portfolio Simulation by offering Canadian college students a chance to win a 4-year lease on a 2008 Mazda3, and $1000 in a SMDI account. The stock market simulation program is open to all college and university students across Canada. Neutron also announced that a Hong Kong subsidiary of a leading online brokerage firm has selected Stock-Trak to develop a stock simulation platform for its Joint University U.S. Investment Competition in which nine leading Hong Kong-based universities will be competing against each other to demonstrate their prowess in selecting U.S. equities and exchange traded funds. Prizes include free airfare from Hong Kong to New York and $1,000 in a brokerage account. Stock-Trak is a wholly owned subsidiary of Neutron Enterprises. Shares ended the week at $0.42, down 17 cents.
ProLink Holdings Corp., (OTCBB: PLKH), the world’s largest provider of Global Positioning System golf course management systems and on-course advertising, last week added the Metropolitan Golf Links in Oakland, CA, the Willow Creek Championship Golf Course in Pahrump, NV, and the San Pedro Golf Course in Benson, AZ to the list of the ever-increasing number of high-end courses worldwide utilizing the ProLink Solutions GPS system. ProLink’s recent pact with ABC National Television Sales appears to be attracting clients at a remarkable pace, and should be anticipated in the company’s numbers going forward. Shares ended the week at $0.85, up two cents.
Cell biology company Stem Cell Innovations, Inc., (OTCBB: SCLL) last week reported that two government panels, one in the US and one in the UK, advocate the use of cell-based assays for toxicity testing. The company’s human liver-based ACTIVTox and stem cell-based PluriCell systems are specifically designed for this purpose. Both studies specifically encouraged the establishment of human stem cell-based assays, rather than animal models, to assess toxicity in new drugs and chemicals to speed and standardize toxicity testing. Shares ended the week at $0.01, unchanged.
